Is 100% VOO a safe ETF strategy?

Investing
#1

Hi PFC Community,

I’ve been following Jeremy on IG for a few months and just signed up to his forum, glad to be here!

My wife and I have been maxing out our 401ks for a few years now and I’m 36, we’ll increase the contributions to hit the new $20.5k next year. Those are in a good place for our age. We make the yearly $6k/yr deposits into our IRAs as well. The house is almost paid off and we’ll be debt-free soon. I want to start putting the remaining cash we save each month into a brokerage account, putting those funds into ETFs on a monthly basis and just do dollar-cost averaging.

Is putting 100% of my ETF strategy into VOO a bad move and what kinds of risks could that have? The expense ratio is so small at 0.03% and the yearly gains have been 16% since inception. The S&P obviously won’t go under and I know there will be some down years, but it seems like the safest bet and just letting it ride until retirement. Everyone says to diversify but the other ETFs cost more and include most of the same stocks, unless I went to Bond ETFs…

I see a post from Aug’ 2020 where Jeremy says he likes VTI better. It has the same expense ratio but only 9% gains since inception.

Please let me know your thoughts, appreciate it!

-Ian

#2

Hi Ian,

You shouldn’t be using “gain since inception” as a measure of the success of a fund. Especially an index fund. VTI and VOO track almost identically. The reason their “gain since inception” is so different has nothing to do with their performance and everything to do with when they happened to be created. i.e. if one was created right BEFORE the financial crisis and one right after, the one that got lucky and started at the bottom of the crash would have better “since inception” numbers. But that has zero to do with what it will do going forward.

That said, 100% VOO may be fine! Here are the risks:

  • It’s 100% stocks. Stocks are more volatile than other investments (like bonds) and can experience big crashes. This may not be a big deal when you’re young but old people generally don’t like it. So you may want a plan to reallocate towards less volatile investments as you age.
  • It’s all big US stocks. You’re missing out on small US stocks, international stocks and bonds.
  • It’s all US. If the next 100 years don’t look like the last 100 years it’s possible the US isn’t the economic superpower of the world going forward. I personally like to own stocks from other countries to hedge against this.

My favorite “one fund portfolio” is a target date index fund:

2 Likes
#3

Hey Jeremy,

Thanks for the response! Good point on the gains since inception, I didn’t put that together that VOO started right after that Great Recession so it’s been on like the best bull run ever! I should have realized that since I graduated from my undergrad in 2008 which was an awful year to enter the workforce.

Good risks you laid out as well. So the target date index fund is perfect for my 401k and IRA that both get maxed with contributions each year, however, how would I do that with ETFs in my investment brokerage account like TD? I’m 36 so I can do VOO, VOT, and VBK until maybe 45, then diversify more to reduce risk and start adding VCIT, BND or VO? I need to do more research on the good Bond ETFs and International Stock ETFs unless anyone has any suggestions. Or find me a Retire 2050 ETF haha!

Thanks,
Ian

#4

Also, I forgot to add that it would be hard to rebalance my ETFs say in another 5-10 years because then I’ll have to pay the taxes on all the gains at that point which is a downfall to the funds not being in an IRA.

#5

I wanted to add to this thread for whoever is reading this one. So I signed up for M1 Finance as the site automatically invests your money into a “pie” that you choose so there is no need to place orders as it’s very passive and it offers fractional shares. The site only does stocks and ETFs, no mutual/index funds, so this is what I’ll use with additional savings after I’ve maxed out my yearly 401k and IRA contributions. The site offers a lot of expert-created pies that you can copy and also a slew of retirement ones. The pie below is the “Retire 2050 Aggressive” pie as an example and the 85.15% is the 5yr return. So you can do similar target-date funds on here as Jeremy speaks about above and the site does all the work for you, no transaction fees either. Also shows you the total Expense Ratio of the pie and Dividend yield (second pic).

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#6

Stay right where you are, VOO is a great fund