Sit-on-your-ass-investing.

Let’s add to our ETF Portfolio today.

Dead Investors

Investing is one of the few areas in life where trying hard often reduces your results.

The best investors often do… nothing.

Charlie Munger calls it sit-on-your-ass-investing.

The crazy thing? Numerous studies have proven this point.

1. The Fidelity Study

Fidelity once studied which investors performed the best on their platform.

Two kinds of investors stood out:

1. People who forgot they even had an account

2. Dead people

Seriously.

The secret of these investors? They didn’t panic. They didn’t trade. They didn’t try to time the market.

They just did nothing.

2. Return of the average investor

Every year, J.P. Morgan crunches the numbers on how investors perform.

And every year, the story is the same: investors underperform the market by a wide margin.

Over 20 years:

• The S&P 500 returned 9.5% per year

• The average investor achieved a return of 3.6% per year

That’s a 5.9% difference. Per year!

The average investor takes all the risks from the stock market but doesn’t get rewarded for it.

The reason?

People try to be smart. Buying high, selling low, chasing performance, and reacting emotionally.

The biggest threat to your investing results is yourself.

As Warren Buffett said:

3. Missing the best days

What if you missed the best 5, 10, 30, and 50 trading days between 1980 and 2020?

If you missed the 50 best trading days, almost all your profits would have been lost.

The key lesson? Time in the market beats timing the market.

4. The Biggest Mistake

The biggest mistake you can make as an investor? Selling their winners too soon.

It would’ve often been better for them to do nothing.

Just imagine you sold Apple or Amazon twenty years ago.

The best solution for lazy investors?

Investing in Exchange-Traded Funds (ETFs)

ETF Strategy

Using a disciplined ETF investing approach can protect you from yourself.

Why? Because it requires minimal management.

You just buy an ETF every single month and do nothing.

Warren Buffett even said the following in his shareholder letter in 2013:

"When I die, my wife should put 90% in a low-cost S&P 500 index fund. And 10% in short-term government bonds.”

Buffett recently changed plans and is donating almost all his money to charity. But his original point still stands.

Now let’s dive into our ETF Portfolio.

ETF Portfolio

Our ETF Portfolio is a great mix of ETFs that should be able to outperform in the long term.

We use multiple factors that tend to do well:

👑 Quality - Only invest in companies that have already won (GOAT)
📏 Size - The smaller the better (EWSP & IUSN)
🚀 Multifactor - Quality, size, value & momentum (IBCZ)
🌏 Emerging Markets - Small exposure to Emerging Markets via EMIM

Let’s now dive into the ETF Portfolio itself.

You have 24/7 access to the ETF Portfolio here:

Read more

With a single click, you own a piece of hundreds of companies through an ETF.

But here’s the dirty little secret: Most ETFs aren’t nearly as diversified as you think.

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The essence of an ETF

Imagine you walk into a grocery store. Instead of buying apples, bananas, and oranges separately, you grab a pre-packaged fruit basket. Convenient, right?

That’s how ETFs work. Instead of picking individual stocks, you buy a ready-made basket. It sounds great. And for years, ETFs have been sold as the best way to invest: low fees, broad exposure, easy diversification.

No wonder investors have poured trillions into them.

In fact, for the first time last year, there’s more money (Assets Under Management) in passive funds versus active funds:

If you want to learn more about the essence of ETFs, you can download this free course:

Free course: ETF Investing

More risk than you think

The stock market has done really well in the recent past.

The S&P 500 returned 14% per year over the past 13 years.

If you invested $10,000 in 2012, you’d have $50,000 today.

But you know what the problem is?

Most indices are way too concentrated.

Since 1996, it has never happened that the top 10 position had such a high weight.

Apple, Nvidia, Microsoft, Amazon, Meta Platforms, Alphabet, and Tesla account for 32.7% of the S&P 500.

36.3% is invested in the top 10 stocks:

Please note that Alphabet is shown twice. GOOG and GOOGL are both Alphabet stocks, but GOOGL has voting rights, while GOOG does not.

And if you think that’s bad, the situation is even worse for the Nasdaq.

The top 10 stocks make up a staggering 56.3% of the portfolio.

This isn’t diversification. It’s a concentrated bet on Big Tech.

There are two main reasons why I’m cautious about this:

1. Big Tech is valued at way more expensive valuation levels than the broad market

2. Over time, reversion to the mean takes place. Most companies can’t continue to outperform forever

As you can see in the chart below, it's rare for a company to maintain a market-leading position for 10 years or more:

The solution

The solution to this problem?

Make sure you diversify.

That’s why I’m a huge fan of an equal-weight ETF on the S&P 500, especially at this point in time.

You are way better diversified as each of the 500 companies gets an equal weight of 0,2% (1/500).

While that hasn’t been the case recently, equal-weighted indices tend to outperform in the long run because they are better diversified and include more exposure to smaller companies.

Since 2019, the market-cap weighted S&P 500 has outperformed the equal-weight variant:

But if we look at the long-term picture, the equal-weight variant outperforms:

ETF Portfolio

Our ETF Portfolio is a great mix of ETFs that should be able to outperform in the long term.

We use multiple factors that tend do well:

👑 Quality - Only invest in companies that have already won (GOAT)
📏 Size - The smaller the better (EWSP & IUSN)
🚀 Multifactor - Quality, size, value & momentum (IBCZ)
🌏 Emerging Markets - Small exposure to Emerging Markets via EMIM

According to RBC Global Asset Management, here are the chances you’ll outperform over a period of 5 years:

• Small cap stocks: 56%

• Value stocks: 73%

• Quality: 83%

• Momentum: 87%

• Low volatility: 92%

Let’s now dive in the ETF Portfolio itself.

You have 24/7 access to the ETF Portfolio here:

Read more

By investing in ‘Minimum Volatility’ stocks, you outperform the market over time.

This means you can do better than the market by buying boring and easy-to-understand companies.

General wisdom

As a rule of thumb, the more risk you take on the stock market, the higher your expected return.

In academic literature, investment risk is measured using a word called ‘Beta’.

Beta

Beta measures how much a stock moves compared to the overall market.

The theory says that a stock with a beta of 1.5 moves 50% more than the market.

If the S&P 500 goes up 10%, the stock should go up 15%. And if the S&P 500 drops 10%, the stock should fall 15%.

Companies with a high beta:

• Tesla Inc. (TSLA): 2.58x

• NVIDIA Corporation (NVDA): 1.96x

• Advanced Micro Devices (AMD): 1.88x

• Amazon.com Inc. (AMZN): 1.39x

• Apple Inc. (AAPL): 1.26x

Companies with a low beta:

• Walmart Inc. (WMT): 0.69x

• PepsiCo Inc. (PEP): 0.50x

• Johnson & Johnson (JNJ): 0.48x

• Coca-Cola Co. (KO): Beta of 0.45x

• Procter & Gamble Co. (PG): 0.42x

Is Beta a great metric?

But does a high beta equal high risk?

The answer is ‘no’.

But please don’t take my word for it:

"To invest successfully, you don't need to understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these." - Warren Buffett

"Risk is often about the possibility of permanent capital loss, which is more significant than short-term fluctuations (Beta)." - Howard Marks

Volatility isn’t risk. True risk is the chance of permanent capital loss.

The relationship between risk and return is usually shown like this in classic finance literature:

But based on the chart above, the more risk you take, the higher your return will be.

If risky investments always gave higher returns, they wouldn’t be risky.

Howard Marks said that we should look at risk like this instead:

"Investments that seem riskier have to appear likely to deliver higher returns, or else people won’t make them.”

Risky investments are not guaranteed to give high returns.

That’s why this graphic below shows the truth much better:

As risk increases:

• The expected return goes up

• The range of possible results gets wider

• The bad outcomes get even worse

This is what investment risk means.

Risky investments give less certainty about the result. You might do worse than someone who chooses safer options. You could even lose money.

The more risk you take, the higher your potential return.

This makes complete sense and it’s very logical if you ask me.

And yet…

Low volatility (slightly) outperforms

Here’s the performance of the MSCI World Minimum Volatility Index:

While it didn’t outperform recently (due to the outperformance of Big Tech), the Minimum Volatility Index has slightly outperformed since its inception in 1988.

Something similar can be seen when we look at the S&P 500 Low Volatility Index:

It looks like you get rewarded for investing in very predictable, boring stocks.

The essence

If you use the Minimal Volatility strategy, you do the following:

• You invest in stable companies that have low volatility.

• These stocks are often active in sectors like consumer goods, healthcare, and utilities.

• You might not make big profits in a bull market, but you lose less when things go wrong.

The advantage of this investment strategy:

• Lower risk: Your portfolio doesn’t drop as much during market crashes.

• Smoother returns: You won’t make quick, big gains, but you also won’t suffer big losses.

• Good for long-term investing: Ideal for investors who want steady growth without too much stress.

Some companies that match these criteria? Berkshire Hathaway, Walmart, and Republic Services.

ETF Idea

And this brings us to a new ETF Idea.

Read more

A company’s competitive advantage.

Today we’re buying a new ETF that solely invests in companies with a moat.

A moat is what allows the business to maintain and increase its profits and market share.

Think about BNSF’s railroad tracks, the negotiating power that comes from Walmart’s size, or the patent laws protecting Novo Nordisk’s drugs.

One of the strongest moats is the ‘toll bridge’ moat.

Companies with this type of moat control something essential - something their customers can’t live without.

This is key to building lasting wealth.

And it’s why every serious investor should study the lessons of Cornelius Vanderbilt.

Cornelius Vanderbilt and the Bridge That Built an Empire

In the 19th century, business was cutthroat. And no one was better at it than Cornelius Vanderbilt.

His fortune began in steamboats, but by the 1860s, he had sold his steamboat businesses to invest in a bigger opportunity: railroads.

Vanderbilt didn’t try to lay more track than his rivals. He understood a simple truth:

It’s not about owning the most tracks. It’s about owning the right tracks.

At the time, New York City was the commercial heart of America. And Vanderbilt owned the only rail bridge into the city - the Hudson River Bridge. That meant he controlled access to the largest port in the country.

He used this advantage to cut off access to rival railroads. Trains that didn’t belong to Vanderbilt couldn’t cross his bridge.

The result?

Chaos.

Stocks in rival railroads collapsed. Then Vanderbilt stepped in and bought them for pennies on the dollar. Within days, he owned both the bridge and the rival New York Central railroad.

This wasn’t luck. It was strategy.

And it worked. By the time he was done, Vanderbilt controlled 40% of America’s rail lines and built Grand Central Depot (now Grand Central Station) to consolidate his three new lines, the Harlem, the Hudson and the NY Central.

The Investor’s Lesson: Own the Toll Bridge

Vanderbilt’s story teaches a timeless lesson: the best businesses don’t just compete. They control.

When a company owns a critical piece of infrastructure - whether it’s a rail bridge (BNSF), a payment network (Visa), or a digital security gatekeeper (Verisign) - it becomes the toll collector. Every customer pays. And as long as demand stays high, the profits keep flowing.

The best investments aren’t necessarily the fastest-growing companies. They’re the ones that make themselves indispensable. Just like Vanderbilt’s bridge, a true moat ensures that customers have no choice but to pay the toll.

Our Next ETF

Today we’re introducing a new ETF that is full of quality businesses with dominant and durable moats.

Read more

Anne was a normal woman who worked in IRS auditing with a modest salary.

She felt underappreciated at her job. She didn’t get promoted and retired with just a small pension when she was 50 years old.

For the next four decades, she lived frugally in a tiny New York City apartment. Her lifestyle was simple and she lived below her m…

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Welcome to this week’s 🔒 paid edition 🔒 of Compounding Quality. Each week we talk about the financial markets and give an update on our Portfolio.

In case you missed it:

1. 22 Stocks To Buy Right Now

2. Which Stock to Buy?

3. Best Buys October 2024

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I consider my family to be very traditional.

My mom is a nurse while my dad is a human resources manager for a construction company.

While they have always lived frugally, they were afraid of investing.

You know what’s funny?

You would have quadrupled your money if you had bought the S&P 500 just before the Financial Crisis.

And $10,000 would have turned into $200,000 when you invested just before the Black Monday crash.

Great things happen to those who invest with a long-term mindset.

The best time to buy stocks is when blood runs through the streets.

As my parents don’t know anything about investing and didn’t want to spend too much time on it, they started buying IWDA every single month since September 2017.

IWDA?

IWDA is the ticker for the iShares MSCI World ETF that tracks the MSCI World Index.

By investing in IWDA, you buy the 1,500 largest companies across 23 developed countries (mainly the US and Europe).

Another positive? You only pay 0.2% in yearly fees.

The performance for every transaction executed in 2017, 2018, and 2019 of my parents looks like this:

As you can see, the first investment in IWDA in September 2017 returned 129%.

The key lesson? Everyone can invest.

It’s one of the best ways to become wealthy.

Monopolies and Oligopolies ETF (TOLL)

In the Community, some Partners talked about the TOLL ETF.

It’s an ETF focusing on quality companies with dominant and durable moats active in a monopoly or oligopoly.

Sounds interesting. Doesn’t it?

But let’s dig in a bit more.

Key information:

• ISIN: US87975E1073

• Ticker: TOLL

• AUM: $12 million

• TER: 0.55%

• # of holdings: 33

The objective of the ETF

TOLL wants to provide long-term growth by investing in quality companies with dominant and durable moats.

These companies are characterized by:

• A sustainable competitive advantage

• Tangible barriers to entry

• Defensive earnings streams

As a result, they tend to generate high returns on invested capital that compound over long periods.  

Positioning

The Portfolio Essentials for the ETF look like this:

The ETF invests in 33 positions and has a lot of exposure to financials like Visa, Fair Isaac, S&P Global, and Moody’s.

Here are the top 10 positions:

The companies mentioned above can be seen as quality if you ask me.

Performance

The ETF wants to perform better than the MSCI World Index in the long term.

As TOLL launched in October 2023, the track record is still too short to tell anything meaningful about the performance.

However, I would expect this strategy to do well in the long term.

All positions

Here’s an overview of all companies within the ETF:

Bringing it together

Let’s bring everything together for this ETF.

I think TOLL is an interesting ETF and I would expect them to do well in the long term.

The two negatives:

• The Total Expense Ratio (TER) is quite high (0.55%)

• The low size of the ETF (AUM: $12 million).

Please note that only US investors can buy TOLL. I would consider buying the ETF when I would live in the US (which I don’t).

ETF Portfolio

Now let’s give an update about our ETF Portfolio.

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Welcome to this week’s 📈 paid edition 📈 of Compounding Quality. Each week we talk about the financial markets and give an update on our Portfolio.

In case you missed it:

1. 10 Stocks to own forever

2. Best Buys July 2024

3. The Top Picks of Our Partners

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Great things happen to those who invest patiently.

But please don’t take my word for it.

In 1918, John William Sterling donated $15 million to the Yale Endowment Fund.

$15 million in 1918 is the equivalent of more than $300 million today.

John William was a Yale University alumnus and a successful lawyer.

As John was never married and didn’t have any children, he decided to give away most of his money to the university at his death.

But there was only one catch…

The university couldn’t use the money right away.

Instead, they should invest it for at least 40 years.

And guess what happened?

The endowment fund grew to one of the largest university endowments in the world!

When Yale University wouldn’t have touched the money until today, it would be worth approximately $168 billion.

That’s how the magic of compounding works.

To be honest, I have been thinking about doing something similar myself.

What if you invested $10,000 in the S&P 500 today for your descendants and the money couldn’t be touched for 200 years?

I know….

This money would probably be for my great-great-great-great-grandchildren.

At least if we make it that far.

They (probably) won’t even know who I am. And they probably won’t care.

However…. Maybe they would care if they received this investment in 200 years?

At a yearly return of 9% per year, this investment would be worth $513 million.

$513 million in 200 years from now is worth approximately $10 million in today’s dollars.

$10,000 turning into $10 million. That’s not bad at all.

ETF Portfolio

To achieve something like this, investing in an ETF would probably be the best way to go forward.

Even Warren Buffett said it:

Our ETF Portfolio consists of 5 ETFs.

It uses small tweaks that should perform slightly better than the market as a whole.

Over the past 20 years, our ETF Portfolio performed 2.2% per year better than the S&P 500.

This means an investment of $10,000 turned into:

• Our ETF Portfolio: $87,300

• S&P 500: $59,000

Tomorrow at the opening, we will add to our Portfolio.

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I’m Pieter and welcome to a 🔒 subscriber-only edition 🔒 of Compounding Quality.

In case you missed it:

1. Best Buys June 2024

2. Just Buy The Haystack!

3. Our Forever Portfolio

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The best investor is a dead investor.

Being lazy pays off tremendously on the stock market.

Let’s teach you why.

The big advantage of large asset managers?

They have a tremendous amount of data providing them with many insights.

A few years ago, the American asset manager Fidelity wanted to know which clients reported the best investment performance.

The conclusion?

The highest returns came from accounts in which the account holder was dead.

The second-best returns?

People who had forgotten they had investments.

Trading and costs harm your investment results.

Time in the market beats timing the market every single day.

In the very long term, 90% of all investors underperform the market.

That’s exactly why investing passively might be a good investment strategy for many people.

The essence is very simple:

1. Buy an index fund

2. Sit back

3. Relax

Factor investing

The good news?

You can consistently outperform the market in the long term by using small tweaks.

• Value investing:

  • The 20% cheapest stocks outperformed the S&P 500 by 3.2% per year over the past 70 years

• Small cap investing:

  • Size matters. Over the past 100 years, the 10% smallest stocks compounded at 14.0% per year compared to 10.3% for the S&P 500

• Quality investing:

  • Morningstar’s Wide Moat Index outperformed the S&P 500 by 4.2% per year since 2000

ETF Portfolio

Our ETF Portfolio consists of 5 ETFs.

It uses these small tweaks to perform slightly better than the market.

Over the past 20 years, our ETF Portfolio performed 2.2% per year better than the S&P 500.

This means an investment of $10,000 with monthly additions of $200 turned into:

• Our ETF Portfolio: $232,000

• S&P 500: $167,000

A difference of $65,000!

Today we are adding to our ETF Portfolio.

Read more

I’m Pieter and welcome to a 🔒subscriber-only edition 🔒 of Compounding Quality.

In case you missed it:

1. I made a huge mistake

2. Best Buys May 2024

3. 10 Stocks to own forever

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The Forgotten Fortune

Do you know Ronald Read?

Ronald was an ordinary man who worked as a janitor and gas station attendant, earning a below-average salary.

For most of his life, he lived in a very modest way. He drove a second-hand car and chopped his own firewood to save money.

But you know what’s remarkable about Ronald?

When he passed away at age 92, he was one of the richest men in Vermont.

And nobody knew it!

By investing periodically and living below his means, Ronald left behind $8 million (!).

The key lesson?

Everyone can become wealthy by investing in stocks.

It might be easier than you think.

Ronald Read used a ‘Set it and forget it’ approach.

He focused relentlessly on the long term and stayed invested in the market for decades.

The easiest way to do this is by investing in index funds:

1. Periodically buy an index fund

2. Sit back

3. Relax and let the magic of compounding do the work for you

Did you know that in 1792 the first company was listed on the New York Stock Exchange?

Since then, an investment of $1 turned into more than $20 million!

I will hand out a signed copy of my book The Art of Quality Investing to someone who answers this question correctly:

Source: Stocks for the Long Run - Jeremy Sigel

ETF Portfolio

Our ETF Portfolio consists of 5 ETFs.

It uses small tweaks that should perform slightly better than the market as a whole.

Over the past 20 years, our ETF Portfolio performed 2.2% per year better than the S&P 500.

This means an investment of $10,000 turned into:

• Our ETF Portfolio: $87,300

• S&P 500: $59,000

Today we are adding to our ETF Portfolio.

Read more

I’m Pieter and welcome to a 🔒subscriber-only edition 🔒 of Compounding Quality.

In case you missed it:

1. My Portfolio

2. 3 Favorite stocks

3. 100 Owner-Operator Stocks

If you haven’t yet, subscribe to get access to these posts, and every post.

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Everyone should invest in stocks.

It’s the best way to create wealth in the long term.

And the best part? Everyone can do it.

If you just buy an index fund every month, you don’t have to worry about market timing or which stocks to pick.

In other words, you don’t have to look for the needle in the haystack, you just buy the entire haystack.

The table below shows how much money you should invest to become a millionaire by age 65.

• If you start at age 20, you need to invest $2 per day

• If you start at age 40, you need to invest $11 per day

Another lesson you can draw from this? The sooner you start investing, the better.

The best time to plant a tree was 10 years ago.

The second best time is now.

Source: David Bach - Business Insider

Quality Investing

As you probably know by now, we love to invest in the best companies in the world.

But does it work?

The short answer is YES.

Morningstar Wide Moat Index

The Morningstar Wide Moat Index solely invests in companies with a wide moat or sustainable competitive advantage.

This index outperformed the S&P500 by 4.2% (!) per year since 2000.

MSCI World Quality

The MSCI World Quality Index picks the highest-quality stocks out of the regular MSCI World Index based on 3 fundamental variables:

• High Return On Equity (ROE)

• Stable year-over-year earnings growth

• Low financial leverage

The MSCI World Index outperformed the regular index by 3.5% per year since 1994.

Quality Outperforms

You now learned that quality outperforms in the long term.

That’s remarkable. Do you know why?

More than 90% of all (professional) investors underperform the market.

And with this simple investment strategy, you would have outperformed the market by an attractive margin!

When you would have just bought a quality ETF and kept it for 20 years, you would probably have outperformed 99% of investors.

And this while you just needed to do three things:

1. Buy the index fund

2. Sit back

3. Relax

Here’s what your performance would look like if you invested $10,000 in 2000:

• Morningstar Wide Moat Index: $130,000

• MSCI World Quality: $113,000

• S&P 500: $50,000

This means your total return would be twice as high with the Quality Investing strategy.

And the best part? There are good ETFs that copy these indexes.

Investing in ETFs is very easy.

It’s the easiest way to create wealth for you and your family.

You don’t need to spend much time on your investments and you aren’t charged the high fees banks charge you.

Here are the relevant ETFs you can look at…

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I’m Pieter and welcome to a 🔒 subscriber-only edition 🔒 of Compounding Quality.

In case you missed it:

1. 10 Stocks to own forever

2. Just buy the haystack

3. Favorite stocks 2024

If you haven’t yet, subscribe to get access to these posts, and every post.

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One of my best friends, let’s name him James, has been investing for two decades.

That’s beautiful. Investing is the best way to create wealth for you and your family.

But do you want to hear something funny?

Twenty years ago, my friend and his wife Jessica did a little experiment.

They both invested $100,000 and the person who achieved the lowest return after 20 years should pay for a luxury trip to the Dominican Republic for 10 days.

My friend James tried everything over this period. For a while he invested in deep value stocks, dividend stocks, growth stocks, different option strategies, … you name it.

His wife Jessica didn’t like to spend time on her investments and she decided to keep it simple. She just bought the S&P 500 and never made any changes.

The result of their little contest after 20 years?

• James: $403,000

• Jessica: $689,000

That’s a difference of $286,000. With that money, they could go to the Dominican Republic every year for the rest of their lives!

Jessica compounded at 9.7% per year, the average of the S&P 500 over the past 20 years, while James managed to compound at ‘only’ 7% per year because he made things too complex.

The key lesson here? Investing passively in ETFs can make a lot of sense.

Jessica still teases James with the fact that she made more money than him while she didn’t spend any time on her investments.

ETF Portfolio

Investing in ETFs is very easy.

It’s the easiest way to create wealth for you and your family.

You don’t need to spend a lot of time on your investments and you aren’t charged the high fees banks charge you.

Currently, our ETF Portfolio is invested in 5 high-quality ETFs we truly believe in.

The average ETF is up 11% since we first bought it.

Let’s give you an update and add to one of our positions.

Read more

Open the Google Spreadsheet here:

Read more

He is famous for his groundbreaking contributions to physics and mathematics.

His most groundbreaking contribution? The Laws of Motion. It describes the relationship between a body and the forces acting on it.

These laws are fundamental to classical mechanics and are still widely used today.

It is cle…

Read more

That’s the entire philosophy of passive investing.

Let’s dive in and announce the fourth ETF for the Portfolio.

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Everyone can invest

My parents are the most conservative people you can imagine.

When I stated that I wanted to start investing at age 13, they tried to change my mind in every possible way.

“Your grandfather lost a lot of money during the crash of 1987” and “I lost a lot of money from investing in technology stocks in the 2000s”.

That’s quite funny. You know why?

If you would have owned a passive index fund, you would have tripled your money since 2000 and you would have 15x’ed your money since 1987.

The key lesson here? Everyone can invest in stocks.

It’s very easy to invest in passive index funds that track indices like the S&P 500.

By doing this, I’m quite sure to state that you’ll perform better than almost all (professional) investors.

The return you’ll get? Around 7-8% on average in the very long term.

Investing can be very easy for those who think on the long term.

Dollar-cost averaging 🆚 lump-sum

Here is a common question many investors have:

You have two options:

• Lump-sum investing: invest everything at once

• Dollar-cost averaging: invest periodically

While academic research has proven that lump sum investing is better in most cases, I’d personally always use dollar-cost averaging.

How would you feel when you invest $100,000 today and the stock market would be down 30% in 6 months from now?

Because that’s what happens from time to time.

When you have a significant amount to invest, investing periodically ensures a good night's sleep.

I’d personally spread my investment over a period of 12 to 18 months.

Example: Invest $6,667 per month for 15 months ($6,667*15 = $100,000).

Here’s a visualization of Dollar-Cost Averaging versus Lump Sum Investing:

Now let’s dive into the ETF Portfolio.

Compounding Quality ETF Portfolio

As a reminder, here are the rules for the ETF Portfolio:

• Every month, Compounding Quality will buy an ETF or add to an existing ETF for $500

• There will be a maximum of 5 ETFs in the portfolio (Keep It Simple, Stupid!)

• The costs of each ETF may not exceed 0.5% per year (3x as cheap as a mutual fund)

We bought three ETFs so far and today it’s time to buy the fourth one.

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Now it’s time to buy our third ETF.

Today’s focus? Quality & Size.

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Jack Bogle

The man who created the most wealth in the world? It might be Jack Bogle.

What Benjamin Graham is to value investing, Jack Bogle is to passive investing.

Jack Bogle (1929-2019) was the founder of The Vanguard Group and played a crucial role in the development of index funds.

He popularized low-cost, passive investment strategies.

While Jack Bogle was a passionate investor himself, he recognized that it’s very difficult to pick winining stocks.

The core of his investment philosophy?

Always think on the long-term, be extremely patient and reduce broker fees and other costs as much as possible.

Did you know that only 4% of all listed stocks are responsible for all stock market gains that exceed the return of safe one-month Treasury bills?

This shows you that you don’t need to look for the needle (the winning stock), instead you just buy the haystack (all listed stocks).

Here are the 7 essential lessons on which Jack Bogle has built his success:

• Always stay invested: time in the market beats timing the market

• Time is your friend: let the power of compounding work for you for as long as possible

• Impulse is your enemy: eliminate emotions when making investment decisions

• Minimze costs: keep your investment expenses low

• Keep it simple: use common sense and stick to the basics

• Never forget reversion to the mean: investment strategies go in- and out-of-favor regularly

• Stay the course: don’t get discouraged by setbacks

Now you know this, let’s dive into Compounding Quality’s ETF Portfolio.

Compounding Quality ETF Portfolio

As a reminder, here are the rules for the ETF Portfolio:

• Every second Thursday of the month, Compounding Quality will buy an ETF or add to an existing ETF for $500

• There will be a maximum of 5 ETFs in the portfolio (Keep It Simple, Stupid!)

• The costs of each ETF may not exceed 0.5% per year (3x as cheap as a mutual fund)

We bought 2 ETFs so far and today it’s time to buy the third one.

You want to know which one? Let’s hop right in.

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As we add to our ETF Portfolio each month, it’s time to buy the second one.

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How to become wealthy

The key to become wealthy is very simple:

1. Spend less than you make

2. Invest at least 10% of your income in stocks every single month

When the average American household would invest 10% of its income in stocks every single month from the day they start working until the day they retire, almost all Americans would be millionaires. The power of compounding is truly magical.

This also means that the sooner you start, the better.

Another positive? Everyone can do it.

You don’t even need to be interested in investing or spend a lot of time researching stocks.

The essence of passive investing

The essence of passive investing is very simple: you buy an index fund periodically, for example every month.

You do this consistently for the same amount and on exactly the same date every single month of the year.

By doing this, you don’t need to worry about stock market fluctuations.

This method is called Dollar-Cost Averaging (DCA).

The beautiful thing about this? You buy more shares when stocks are priced cheaply and the other way around.

Let’s give an extreme example to make everything more clear.

You have decided to invest $500 per month in an index fund.

Today, the index fund trades for $100 meaning that you can buy Q 5 for $500.

Next month, the stock market crashes and the index fund now trades at a price of $50. As you invest the same amount every single month, you again buy the index fund for $500 but this time you can buy Q 10 for $500.

The month thereafter, the stock market recovers and the index fund trades at $100 again. In this month you buy the index fund again for $500, meaning that you can buy Q 5.

Here’s how your transactions looked like:

• Month 1: you buy Q 5 for $100 (value: $500)

• Month 2: you buy Q 10 for $50 (value: $500)

• Month 3: you buy Q 5 for $100 (value: $500)

So now you’ve invested $1,500 and own Q 20 of the index fund.

The stock price of the ETF now trades at exactly the same price as when you started investing ($100).

But how much money did you make?

Let’s do the math.

You bought Q 20 for $1,500 (you bought 3 times for $500). As a result, your average purchase price is equal to $75 ($1,500/20).

But how much are your stocks worth today? They are worth Q 20 * $100.

Your stocks are worth $2,000 meaning that you made a profit of $500 or 33.33%. And this while the stock price did nothing since you started!

It’s the beautiful thing about Dollar-Cost Averaging.

• When the stock market goes up, the value of your portfolio goes up

• When the stock market goes down, you can buy more shares at cheaper prices

This means you always win. Life belongs to the optimists!

Your investment strategy can be visualized as follows:

This also means that the best thing that can happen to you as someone who will be buying stocks over the next few years, is declining stock prices.

The cheaper you can buy stocks, the higher your return will be.

Here’s what Warren Buffett has to say about stock market fluctuations:

So if you remember one thing from today’s article, please let it be the following: lower stock prices are a GOOD thing for you as an investor.

Intuitively, you’ll feel better when the value of your portfolio goes up.

That’s why you should mentally wire yourself to become excited when stock prices decline.

Not convinced yet? You’ll change your mind when you know that stocks are like hamburgers.

Stocks are like hamburgers?! I let Warren Buffett do the talking once again:

Now let’s buy our Second ETF:

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More than 95% of investors underperform the market.

The main reasons?

• Trading too much (costs harm your return)

• Trying to time the market

• Making emotional investment decisions

• Lack of patience

• …

This study of JP Morgan shows that the average investor achieved an annual return of 3.6%, while the S&P 500 returned 9.5% over the past 20 years. A difference of 5.9%!

While Compounding Quality genuinely believes that investors can outperform the S&P 500 by buying Owner-Operator Quality Stocks, most investors would be better off investing passively.

Everyone should invest

The beautiful thing about investing passively? Everyone can do it.

And everyone should.

Investing in stocks is the best way to create wealth in the long term:

• If you invest $250 per month for 40 years at a return of 9% per year, you’ll be a millionaire ($1.18 million)

• If you invest $250 per month for your child from age 0 to age 18 and your son/daughter doesn’t touch this money until he/she turns 67, your child will have $11 million (!)

These numbers should be adjusted for inflation but you get the point.

For those who aren’t interesting in researching stocks, an ETF Portfolio is the way to go as it only takes you 10 minutes per month to manage.

Do you want to secure your financial future or do you have a colleague, friend, or family member who wants to do so?

This ETF Portfolio can be very helpful.

Compounding Quality ETF Portfolio

Here are the rules for the ETF Portfolio:

• Every month, Compounding Quality will buy an ETF or add to an existing ETF for $500

• There will be a maximum of 5 ETFs in the portfolio (Keep It Simple, Stupid!)

• The costs of each ETF may not exceed 0.5% per year (3x as cheap as a mutual fund)

Are you ready?

Let’s announce the first ETF we’ll buy within the ETF Portolio.

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