For Young Investors Sitting On The Sidelines

Includes: ACWI, ACWV
by: SA For FAs

Rob Marstrand writes an “If I had to pick one single investment” type of analysis, and arrives at a quite sensible idea.

Victor Haghani finds that paying taxes early and often could be a surprisingly efficient way to manage an investment portfolio.

Thought For The Day: A single ETF is a sensible holding place for young investors, still on the sidelines, who have yet to form (or need) a more complex strategy.

A Surprising Tax Strategy

“The accelerated realization approach…will be especially effective for those who regularly incur short-term capital gains and highly value short-term capital losses…So it looks like in certain situations, paying your taxes early and often might be a surprisingly tax-efficient way to go.” (Victor Haghani)

Portfolio Optimization

“Dr Frank Sortino is leaving the investment profession to enjoy a well-deserved retirement, and he has given us a departing gift. Now everyone can benefit from his years of research and software development by downloading his excellent software for free.” (Ronald Surz)

Selecting Cheap Stocks

“The key question is whether you really want an ETF that is loaded with over-valued big names, utilities, and ‘dividend’ stocks. Alternatively, you could avoid the over-priced stocks and shop for those with an earnings growth rate stronger than the PE ratio. The move in the cheap semiconductor sector last week illustrates how this works.” (Jeff Miller)

European Stocks And The Euro

“Near-term prospects for the EU look poor. It's true some countries, like Poland, Malta, and Hungary are doing well comparatively, but these are small components of the EU. It is Germany, France, and Italy that will truly make or break 2019 for the European economy…It’s probably safe to say that the odds of further accommodation outweigh the odds of hawkishness. This portends weakness in the Euro” (Roger Salus)

Just One Investment

“If someone told me I had to pick one single investment, and could not touch it for at least a decade…I'd probably choose to invest in the MSCI All-Countries World Index of stocks (ACWI). Over half of it's made up of US stocks, with the rest split between other countries, both developed and emerging markets.” (Rob Marstrand)

Thought For The Day

“If I had to pick one single investment”-type articles are actually pretty rare, probably because investment writers often want you coming back again and again for their latest read on the market’s twists and turns, which does not always accrue to the investor’s benefit.

But Rob Marstrand offers such an idea, and a good one at that (see quote immediately above), namely the ETF (ACWI).

While there are many reasons one might argue for a more complex approach – for example, high-net-worth investors could extract tax advantages from ownership of individual stocks, whose losses could offset the capital gains of others (see Victor Haghani’s article, linked above), the merit of an ACWI-type investment is that it could serve as a holding place for young investors who have not yet formed a more comprehensive portfolio strategy. It offers global equity exposure and a relatively low expense ratio (0.32).

For those interested in Marstrand’s capital idea, I would offer one similar alternative. They could buy its fraternal twin, MSCI All Country World Minimum Volatility ETF, (ACWV). You get the same global diversification, but a smoother ride, and a lower expense ratio to boot (0.20). ACWV has also outperformed ACWI over the past five years (57% vs. 42%), but of course past performance is no guarantee of future returns. Both are excellent choices according to investment theory and market history, and either would be a suitable choice for those with a long investing horizon (Marstrand proposes 10 years) who are waiting on the sidelines.


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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.