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Basic Portfolio Building

We here at crazy finances are all about helping you manage your finances and save money. One of the questions that we get asked the most often is what should be in my portfolio such as a 401k. So, today we’re going to give you a rundown of some of the investments we recommend putting in your portfolio.

First diversify, diversify, diversify

We have all seen those videos of Youtubers claiming this stock is the next Apple and that they are putting all their money into it to get rich quick. While that could work, we recommend the building wealth slowly but steadily over time method with a health balance of different assets.

In fact, some research studies say that only 10% of people in the markets actually make money. Many people lose money because they try to time the market and keep buying at the worst time, gamble on a single stock or just generally don’t know what they are doing. We are going to try to make sure you are in the 10% that make money and built a portfolio to hold for the long term (key here is long term and don’t sell when stuff starts tanking)

So what do we recommend and why?

1.Large-cap stocks (30% of portfolio)

These are the heavy weight companies that are going to anchor your portfolio. Think of Apple, Microsoft, Disney; all large corporations that are well established in the economy and had demonstrated that they are strong businesses. These might not be huge growth stocks, but nonetheless they do continue to grow and move with the economy typically speaking. One of the best indices for tracking these large cap stocks is the S&P 500 which monitors the performance of the 500 largest US companies. While you can buy these large-cap stocks individually, the beauty in owning ETFs are the diversity in companies that it gives you.

Some of the ETFs we recommend for getting exposure to large cap stocks are:

S&P 500 ETFs

Vanguard (VOO)

State Street (SPDR)

iShares (IVV)

2.Mid-cap & small-cap stocks (30% of portfolio)

Mid and small cap stocks typically have higher growth rates but are riskier because they are not as established as larger players in large cap. Mid cap exposure is really beneficial because many of these companies are where many private equity companies look to buy them out for very high internal rate of returns. 

Mid-cap ETFs

Vanguard (VO)

Vanguard – value mid cap (VOE)

Small-cap ETFs

Vanguard (VB)

iShares (IJR)

Schwab (FNDA)

3. International & Emerging Markets (40% of portfolio)

The US has been the gold standard in investing for decades, but it is important to not overlook investments outside the US. Just because international equities outside of the US are currently lagging does not mean that they will forever underperform the US. On the contrary, there is much more growth opportunities in emerging markets such as Brazil and China among others. Just because past returns of US equities have been the best doesn’t mean future performance is guaranteed and we see international equities as being potentially undervalued in their current state.

iShares (EFG)

Schwab (SCHE)

State Street (QEMM)

That’s a Wrap

This is just a sample portfolio with some of the holdings that we recommend. Remember to do your own research and make sure you know what your risk tolerance level. The portfolio we have made is not for people who can’t handle large swings/ losses and hold for the long term. If your risk appetite is low, you may very well consider bonds and less riskier assets but do remember over the long run that they generate a much lower return.

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