Investment strategy for the smart and lazy millennial

The strategy that I have detailed below is for investors who do not have the time or patience to spend countless hours on research, do not want to subscribe to expensive publications and definitely do not want to be caught out on a rainy day without savings. My two-pronged investment strategy is for specific investors – let’s call them the Intelligent Investor – and the criteria that I use for inclusion within this subset is detailed below.

Time and again, data has shown that active investment has not provided returns that are much superior to passive investment. With active investment, you pay a lot to investment managers to bring returns which are higher than the market. Historical data has shown that in a developed market, the incremental returns, if any, don’t justify this higher cost. For this reason, the first and most significant slice of your monthly contribution should be towards passive investments in developed markets. Simply put, invest money in a market index such as the Nasdaq, S&P 500, or FTSE through exchange-traded funds.

Let’s assume we invested USD 500 per month for five years in an ETF ticker – VOO for this example. VOO is an ETF that replicates the return of the S&P 500. Using shüts wealth’s data analysis platform, the value of the investment today is $nan. You are looking at an expected return of NAN% over a five-year time horizon. During this time period, we could have invested our money in mutual funds and expected the fund manager to beat the market. However, it is essential to understand a hidden cost.

In 2003, I invested in a savings plan with a monthly contribution of USD 300 for five years. The mutual fund allocated 80% of the fund in the S&P 500. Little did I know about the hidden charge of 4%, which was deducted from my fund value every year! Compare this with the expense ratio of VOO – 0.020%, making it a far more superior investment.

And so, the first prong of my strategy is an investment in passive funds, and my typical portfolio has the following funds. I invest USD 500 in these funds each month, and they provide exposure to the US market, developed and emerging markets.

Our personal choices and values should determine the portfolio we maintain, and the second prong of my strategy links stock choice to spending behaviour. Any product or service which deserves more than 10% of your hard-earned monthly income is worth your investment consideration.

After a great deal of analysis, I invested in my first Macbook in 2005 because I believed the device to be far superior to the competition and that it would provide great value to the end-user. If I had invested in the company Apple’s stock in 2005, using shüts I see, I would have made NAN% return.

Another great example is Tesla; I made my first deposit, about USD272, on the car in 2018. I was ready to switch to a battery-operated vehicle, once again after extensive research. Had I purchased Tesla’s stock in 2018, today I would have a return of NAN%

Individuals make difficult choices on how to allocate their limited resources – how to spend their income through research and careful consideration. But they usually do not link these choices to their investment portfolio or stock picks and instead rely heavily on external research. I am confident that if you see high value in a product or service, its value will extend into and increase on the stock market.

This combination of passive ETF investment and stock pick based on spending behaviour is a strategy which is likely to work for any investor over the long term and bring capital appreciation.