Summary of "NEW (better) 3 ETF Portfolio beats everything: “BEST Simple Investing Guide 2025”"
Summary of "NEW (better) 3 ETF portfolio beats everything: ‘BEST Simple Investing Guide 2025’"
This video by Nolan Goa (Professor G) presents an updated version of Jack Bogle’s classic three-fund portfolio strategy, optimized for 2025 market conditions. The main focus is on selecting the right ETFs and adjusting portfolio allocations based on age and life stage to maximize returns while managing risk.
Main Financial Strategies and Market Analyses
- Critique of the Old Three-Fund Portfolio:
- Originally composed of U.S. stocks, international stocks, and bonds.
- Bonds were traditionally considered the safe, stabilizing part of the portfolio.
- International stocks provided diversification and higher risk/reward potential.
- This approach worked well for decades but has become less effective recently.
- Example: In 2022, bonds (BND ETF) dropped significantly alongside stocks, failing as a safe haven.
- International ETFs (e.g., VXUS) have underperformed, averaging only about 5% annual returns over 10 years.
- Why the Old Model Needs Updating:
- Globalization means most U.S. companies already have significant international exposure.
- The internet and logistics have changed how companies operate globally, reducing the need for separate international stock ETFs.
- Bonds have become more volatile and less reliable as a safe asset.
- Market cycles typically have long bull markets with short downturns, so overprotecting against downturns can limit growth.
- The New Three-ETF portfolio for 2025:
- Foundational ETF: Broad U.S. stock market exposure (e.g., VTI&tag=dtdgstoreid-21">VTI, VOO, SPY) to capture steady market growth.
- Dividend ETF (Replacing Bonds): Schwab U.S. Dividend Equity ETF (SCHD&tag=dtdgstoreid-21">SCHD) recommended for safety, lower volatility (beta ~0.77), consistent dividends (~3.5%), and strong long-term growth (~40% gain over 5 years).
- Growth ETF: Focused on high-growth sectors, especially technology and AI, using broad growth ETFs like SCHG&tag=dtdgstoreid-21">SCHG, QQQM, or VUG for higher upside potential.
- Performance Comparison:
Step-by-Step Portfolio Allocation Guide by Age/Life Stage
- Retirement Age (living off investments):
- Priority: Safety and liquidity.
- Maintain 3 years’ worth of living expenses in a high-yield savings account or CDs.
- Portfolio allocation:
- Optionally, conservative investors may include 10-20% bonds.
- Withdraw living expenses from cash reserves during downturns; replenish cash during market recoveries.
- 5 Years from Retirement:
- Build up emergency cash reserve to 1 year of living expenses.
- Portfolio allocation:
- 40% Dividend ETF
- 40% Foundational ETF
- 20% Growth ETF
- 10 Years from Retirement (approx. age 50-60):
- Still growth-focused but starting to shift towards safety.
- Portfolio allocation:
- 40% Dividend ETF
- 30% Foundational ETF
- 30% Growth ETF
- Maintain 1 year of expenses in cash.
- 20 Years from Retirement (approx. age 40-45):
- Prime earning years, more aggressive growth.
- Minimize dividends in taxable accounts to reduce tax burden.
- Portfolio allocation:
- 30% Dividend ETF
- 35% Foundational ETF
- 35% Growth ETF
- Maintain 6 months of expenses in cash.
- Younger Investors (age 18-30+):
- Keep it simple with the three ETF portfolio.
- Suggested allocation: Equal thirds (33% each) in Dividend, Foundational, and Growth ETFs.
- Optionally, allocate up to 10-20% of the portfolio to higher-risk, higher-reward individual stocks or alternative investments (e.g., crypto), but keep this portion small.
Key Investment Principles
- Avoid over-allocating to bonds due to their recent poor performance and volatility.
- Replace bonds with a dividend-focused ETF for better cash flow, lower volatility, and growth.
- Use broad growth ETFs to capture emerging trends.
Category
Business and Finance
