I just bought an ETF. When I began my journey back in the beginning of 2013, I considered if I should invest into ETF or individual stocks and I decided for investing in individual stocks. From my point of view it was the better option for me, because a. I don’t have to buy fees for something, I can do on my own (having stocks in my portfolio) b. I can choose or avoid the stocks, which I want to hold or which I don’t want to have in my portfolio (e.g. tobacco companies or armament manufacturers) c. I think I can learn more, when I have to look for individual stocks and observe the figures of companies. On the other hand, it’s almost impossible for a stock picker, to outperform an index. And even the great Warren Buffett recommends to invest cheap index funds.
So why did I invest into the Vanguard Total Stock Market ETF?
Couple of days ago, I received a bank’s statement, that they ‘unfortunately’ have to reduce my savings account’s interest rate by 0.2 %-points from 1.4 % to 1.2 %. That’s a ridiculous low interest rate! I decided to cash out a certain amount from my “emergency funds” and invest it into a secure alternative investment vehicle. And for me, this ETF is such a safe vehicle. Sure, this ETF also has its volatility, but I guess the money put in there is secured at a certain level. I’m in the lucky situation, that I have nothing expensive which could get broken and needs expensive repairs (like a car). If my fridge, washing machine and bathtub will be broken at the same day, I’m in the lucky situation to pay for it cash from my monthly salary. And I still have some money left on this emergency funds (something like 2.000 Euro) and I also want to increase it until the end of year to somewhere around 5.000 Euro again. But at the moment I think it makes more sense to invest this money in the sense of “I want that this money increase its worth”.
What is this Vanguard Total Stock ETF actually?
Vanguard is an investment management company, founded by John C. Bogle, who is the inventor of index funds actually, in 1975. Vanguard creates and manages a dozen of different funds and ETFs. The ETF I invested recently is called Total Stock Market ETF and this ETF invests in 3.798 individual American companies (so “Total Stock Market” perhaps is a little bit misleading, because one could assume it’s an ETF invested world-wide). I chose this option, as it is the ETF version of John Collins favourite investment tool, the VTSAX (Admiral Shares Vanguard Total Stock Market Index Funds) — it’s very well diversified and the absolutely cheapest product I could find.
How does my plan, shifting money from my emergency funds into stocks, look like?
I already have a plan because I want to stick to a certain routine and don’t want to be tempted, to try to time the market. That’s the reason why I set a fixed date (always the 8th of a month) and certain quantity of shares (25) I’ll buy each time. That’s because 25 shares equal to something around 2.500 Euro (I don’t expect that the price of the ETF skyrockets or tanks in the upcoming months) and within four months, I should have invested roughly 10.000 Euros in the ETF. It also helps me to avoid going crazy when the ETF price is cheaper (“I have to invest 6.000 Euros now”) or a little bit higher (“I just buy 15 shares and wait for a decline”). Simultaneously I transfer 200 Euros per month to my emergency account, which leads to approx. 2.000 Euro that are going to flow to the savings account, so the account balance will be 5.000 Euro at the end of the year. I also have some money left each month I could invest into individual stocks. The last weeks I was very busy and didn’t find so much time to look for stocks I want to invest in, so it might be possible that at least in April I won’t buy any individual stocks anymore. But maybe in May some opportunities occur (I’m curious if the markets decline a little bit in the “sell in May and go away”-month).
Bought 25 shares of Vanguard Total Stock Market ETF (VTI) @ 99,88 Euros.