Financial Strategy: ETFs

Part of my financial strategy is to minimize loss risks by purchasing into ETFs (Exchange Traded Funds) to build a nest egg. Though because I am minimizing risk, I am also precluding myself from some aggressive gains Part of the issue with ETFs.

Currently, the brokerage firm that I hold most of my portfolios with is Fidelity. Choosing Fidelity was not the most obvious answer for me as it was more of a choice that was already made for me based on where my 401k is housed, along with an employer sponsored stock purchase program. Because, I already had this existing relationship with Fidelity I ended up choosing to open a joint brokerage account with my wife, and then joint portfolios for each of my children.

Previous to investing in ETFs I was a very conservative investor using CDs (Certificate Deposits) with my insurance company (StateFarm). After the financial collapse when interest rates fell, I chose to move away from CDs to ETFs.

ETFs in your portfolio feel almost exactly like holding stocks, but an ETF is structured behind the scenes like a mutual fund where when you buy 1 share of a ETF you are buying fractions of shares with multiple companies.

I found that Fidelity allows you to trade iShares branded ETFs without a commission fee and I found that they are similar enough to some of the most popular ETFs (like SPY).

Currently I am holding the following iShares ETFs:

• IVV – I see IVV as a fairly safe bet for a good portion of my money that is being invested in iShares ETFs because it tracks the S&P 500 and the Dow Jones Industrial Average (DJIA) fairly accurately. It pays moderate dividends, but these dividends seem to be in line to what you would expect from any other ETF that is tracking the S&P 500.
• IVW – I am using IVW to get exposure to large U.S. companies whose earnings are expected to grow at an above-average rate relative to the market. Because IVW tracks larger companies, the growth is tempered but it has performed exceptionally well in the past and is a relatively safe investment because it is investing in larger companies.
• IDV – iShares states that IDV will get me exposure to established, high-quality international companies. Personally, I am holding IDV as an experiment similar to holding PICK because it gets me exposure to international companies, and is relativity inexpensive and has an alright dividend yield.
• DGRO – Has yielded had a small dividend yield, but has yeilded them consistently, the value of the ETF fluctuates quite a bit from day to day, but this is to be expected if you want low cost exposure to U.S. stocks focused on dividend growth.
• HDV – Is similar to DGRO but, is moderately more expensive and has an okay dividend yield. iShares states that they have screened each of the companies that are part of this ETF for financial health.
• ITOT – I am using ITOT to gain exposure to the total U.S. stock market, ranging from some of the smallest to largest companies. ITOT jumps around more than IVV as ITOT is following 1500 companies which includes smaller companies to huge companies, where IVV is tracking the top 500 companies.
• PICK – I recently got into this ETF which is a mining & minerals ETF that is trading at $8.61 currently, down from $15 per share a year ago. Given PICK is trading so cheap, given it’s current dividend yield, and given I didn’t have much exposure to materials and precious metals in my overall portfolio I decided to reinvest some of my dividends from other ETFs into this ETF.

My current strategy is to preserve a core percentage of my wealth (20%) and be as aggressive as I can with the other (80%). These are not all the ETFs or stock I am holding but are current iShares ETFs that I am holding.

I am interested to hear your feedback on this topic, feel free to comment below with your ideas and strategies.

Links:

• If you like the idea of Location Independent Income and Early Retirement checkout Mike and Lauren.
• Mr Money Mustache: How to make Money in the Stock Market

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