Stocks

Stocks

 

I invest 25% of my Growth Portfolio in stocks. I use ETF’s  (Electronically Traded Funds) that give exposure to the whole stock market. ETF’s with exposure to either the US stock market, UK stock or pretty much any other stock market are available in USD, GBP and many other currencies.

 

Overview

Investing in stocks has always been sold as “the way to wealth”. Just pick those few stocks that you can buy for a few pennies, which then go up 1000% in the next few days and you’ve made it! We have all heard the stories. Just google it and you’ll get thousands of hits on “how to get stinking rich with penny stocks”! The truth of the matter is, these rags to riches stories are plentiful, but in reality it’s a one in a million (or more) chance that it’s going to happen to us. And the only people getting rich from the “get rich quick gurus” are the gurus themselves.

Strategy

My strategy in stocks is very simple; I buy the whole stock market as part of my Growth Portfolio. Not individual stocks. I buy exposure to the whole stock market, using index tracking ETF’s. Why? One reason is because that way you’re not at risk of a single stock going bad. Also because historically there are only very few managed funds or “stock pickers” that have actually beat the overall stock market, and the funds that do beat it charge very large commissions and management fees. These fees typically take any profit they made out of beating it. Tracking ETF’s charge very, very low fees and just passively track the index or vehicle they are related to. You can buy these ETF’s just like trading a stock, with low (and sometime no) commissions from any broker. 

Did you every see the series Downton Abby where Robert (Lord Grantham) lost the family fortune by having all of their money invested in a single railroad company? Yeah, don’t do that! Buy the whole stock market with a fund as it’s very unlikely that all of the companies covered will go broke.

I personally choose to buy the U.S. stock market (UK folks can still buy the US market in GBP with UK based GBP index trackers if they choose, or buy the UK markets if they prefer). Why the U.S. Market? Because it’s the biggest economy in the world (on nominal GDP), and over the last 100 years or so, it’s always been in the top three on returns performance.

 

Backtesting

Plus, the other huge point is that there are many services based on U.S. market data that allow me to “backtest” my investment strategies, for many years in the past. This gives me an idea of how they “might” perform in the future. I say “might” because there is no guarantee that what investments have done in the past, they will continue to do in the future. However for me, it’s better than following some “guru” who has a knack for predicting market movements.I’m also not keen on listening to Stock Brokers either. I figure if they knew what were great stocks to buy, they wouldn’t need to be calling me trying to sell me various stocks. They would just be investing their own money and making millions! Just my opinion 😀

 

 

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