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Meet Hannah, Ethan & Mikey
One of the reasons we love ETF investing is that the ecosystem is flexible enough to accommodate everyone. If you want to trade trends and explore the most exciting innovations in tech then you can. But equally, you can achieve excellent results, and possibly even larger profits, by setting up your strategy once, then leaving it to grow while you get on with your life.
Let's look at three different ETF investing approaches to see how they can work …
Hands off Hannah
Hannah is a successful marketing professional with over 10 years of experience in the industry. She is ambitious, driven, and constantly looking for opportunities to grow her wealth and secure her financial future. Hannah understands the importance of investing but doesn't want to spend her precious time researching options and following market trends. She is eager to find a reliable investment strategy that can simplify the process and is low maintenance.Motivations
Hannah's primary goal is to build a diversified investment portfolio that generates long-term wealth and financial security. She wants to make informed investment decisions but lacks the time and expertise to navigate the intricacies of the market. Hannah is also interested in socially responsible investing and wants her investment choices to align with her values.Solution
Hannah needs a simple strategy that works without constant care and attention. The answer is a buy and hold passive investing approach teamed with an asset allocation selection assisted by our ETF strategy builder. A single global ETF and a government bond market fund answers Hannah's need for diversification. What's more, she can find reassurance that passive investing works from regularly updated evidence that's backed up by the wisdom of one of the world's wealthiest billionaires – Warren Buffett. To satisfy her desire to invest ethically, Hannah can choose socially responsible (or ESG) versions of her ETFs. Best of all, Hannah can automate her investing using an ETF savings plan. This cost averages Hannah's money into her chosen investments, every month, without her having to lift a finger. If she chooses accumulation ETFs then her dividends will be automatically reinvested too.Portfolio maintenance
Because Hannah is choosing a simple, proven strategy she doesn't need to tinker with it, she just needs to give it time to grow. It's a good idea for Hannah to review her portfolio once a year and rebalance between her ETFs. Rebalancing helps Hannah manage her risk and keep her portfolio on track. This well-known technique is straightforward and will take less than an hour to apply to her streamlined portfolio. Hannah could also spend another half hour checking that she's using the cheapest ETFs in each of her chosen categories using our ETF Screener online or in our free ETF app. Finally, Hannah should increase her savings plan contributions by annual inflation every year – to ensure she's still saving enough over time.- Total time Hannah spends on her portfolio per year: 2 hours
justETF tip: Aside from annual maintenance, it's also worth reviewing your portfolio whenever you experience a major life change. Events such as marriage, children, career change, redundancy, or divorce can alter how much you can contribute now, or how much wealth you'll need in the future. Thus try to find the time, as your circumstances become clearer, to consider whether your current contributions are still appropriate for your new life situation.
Engaged Ethan
Ethan is a highly ambitious and driven individual who has been fascinated with investing since a young age. He has a strong analytical mindset and enjoys diving deep into financial data and market trends. Ethan is always seeking opportunities to gain an edge in the market and outperform traditional investment strategies. He constantly monitors financial news and actively participates in investment forums to stay ahead of the curve.Motivations
Ethan's primary goal is to achieve exceptional investment returns and beat the market consistently. He wants to actively manage his investments, leveraging his knowledge and skills to make informed decisions. Ethan is motivated by the thrill of outperforming benchmarks and seeing his portfolio grow rapidly. He also values continuous learning and seeks to deepen his understanding of investment strategies.Solution
The rich and diverse world of ETFs provides Nathan with ample opportunities to test his ideas against the market. Whether he thinks there are opportunities in the blockchain space, AI, robotics, eSports, or developing markets like India, there's an ETF to cover every investable sector, theme, and country. Ethan has a demanding career so it helps that ETFs are highly transparent investments that can be traded at low cost and at any time on the public stock exchanges. This means that ETFs do not suffer from the information asymmetries and hidden charges that make it harder to land long-term profits using more opaque financial instruments.Portfolio maintenance
Ethan actively wants to be hands on and in control. Time spent in pursuit of his investing passion is time well spent for Ethan. He simply needs access to real-time data and to be able to move fast when he spots an opportunity. ETFs provide all this because they trade on stock markets and are an incredibly popular vehicle with both retail investors and major financial institutions alike.Middle way Mikey
Mikey is a tech-savvy professional with a keen interest in investing. While he enjoys the excitement of active investing, he acknowledges that he may not have the expertise or time to consistently beat the market. Mikey believes in building a diversified portfolio and recognizes the value of including index-tracking ETFs as a core holding to achieve long-term results. He seeks a balance between active investing and a more passive, low-maintenance approach.Motivations
Mikey's primary goal is to grow his wealth over time while managing risk effectively. He wants to participate in active investing to explore potential opportunities, but he also values the simplicity and low-cost reliability of ETFs for the majority of his investments. Mikey wishes to build a solid foundation for his future and ultimately achieve financial independence.Solution
A Core Satellite ETF strategy is ideal for Mikey. This enables him to power the majority of his portfolio with a classic global equities ETF / government bond combo, but then to customize with the themes, countries, and other asset classes that he likes. The key here is that Mikey wants to limit his hands-on bets to a small proportion of his holdings. That's because he's unsure of his skill level as an investor and needs to avoid excessive risks while still benefiting from the potential rewards of active investing with ETFs.Portfolio maintenance
Mikey is time-constrained so wants to be able to dip in and out when opportunities present themselves but leave the core of the portfolio to take care of itself. Thus Mikey will benefit from the same annual maintenance regime as Hannah, although he could up his interventions to a quarterly frequency to help him keep an eye on his satellite holdings. Any other spare time Mikey has to devote to investing can be used to spot trends using justETF's Market Overview, and to building out his knowledge using the justETF Academy.Mind the gap
As you can see, the ETF investing space is diverse enough to accommodate many different approaches. But the important point is, no matter what your goal, there is no need to spend much time at all on managing your investments with ETFs. This essential truth is confirmed every year by financial data firm Morningstar, and their annual study of investor returns called Mind the Gap. Every year, Morningstar's data shows that hands-on investors tend to underperform the market return they could have achieved by simply leaving their investments alone like Hannah plans to. Here's the key conclusion from the report:- The endless drumbeat of market and economic news can make it tempting — even for professional investors and financial advisors — to feel like they should be doing something to respond to shifting market conditions. But for the most part, the time and energy that investors spend on trading decisions is wasted effort — and often counterproductive.
- Investors can improve their results by setting a rational asset allocation, buying low-cost funds, and just sticking with the plan.
- It also makes sense to set a strict schedule for rebalancing, such as rebalancing once per year or when your portfolio's allocations drift significantly away from target levels.
