The Only ETF You Need Right Now

It’s All About the KISS Principle

Keep It Simple, Stupid

Henry Jennings | 2 September 2024 | nabtrade

According to Henry Jennings at Marcus Today, the power of ‘compound interest’ in the markets is the most powerful force in the universe. He says, if it’s good enough for Einstein, it’s good enough for him.

Passing on Financial Foresight

I have been in the financial markets for many years. Some would say I am well past my ‘best before’ date, but I like to think of it as ‘experience’. I am also a parent of two late twenty-something kids. To me, they are still kids; maybe I am still stuck in the past there, too.

Now, my son has finally saved up enough money, mainly through a nice tax refund, to invest in the markets. I have been trying to drum this financial foresight into both of my children for a long time. It is a tough world out there, though, for youngsters. The siren call of living life in your twenties is the same as it was when I was in my twenties in London during the eighties. I always say that it was the financial equivalent of the sixties for music, fashion, and culture.

A Lesson from Experience

I was a child of Margaret Thatcher. I was a Yuppie—happy to admit it. I’m sure my children are also enjoying their own twenties, but I’m trying to ensure they do not make the same mistakes I did by not planning for the future. After all, it was almost impossible to contemplate being 60 then. It is still hard to contemplate retirement. That is an admission of being old—something I do not feel yet.

“Dad, Where Do I Invest My Money?”

His question is, “Dad, where do I invest my money?” I have offered to match his investment. It’s tempting to buy some life-changing, dodgy mining explorer and keep his—and my—fingers crossed for a stunning company-making discovery. Tempting, but I lecture kids in years 11-12 on investments and stress, as many advisers do, and the power of compound interest. The power of compounding is the most powerful force in the universe. Good enough for Einstein, good enough for me.

He, like many of his generation, has some ESG concerns. It’s something I’ve kept in mind while helping him make this decision.

Making the Sensible Choice

I’m going to be sensible and advise him to buy a dull ETF. The issue is, financial markets are at all-time highs—so, is this a good time to buy? The trader in me says no, wait for a correction, then buy. After all, we have seen a 6% move in the ASX in August alone—from an all-time high to 7600 in the space of a few days.

The trouble is, a ‘Flash Crash’ does not come along every month. Opportunity knocks, but sometimes we’re not home. Or maybe we are, but cowering under the bed, hanging out with the monster that lurks there.

A Familiar Name or Broad Exposure?

I had an idea that maybe he should invest in a name that he knows—Apple, Google, or even Nvidia. But again, these are at all-time highs and may have done their dash. I could cover it with a Nasdaq ETF or even an S&P 500 ETF. After all, 25 stocks make up 50% of the Index these days, and I’m sure he would know the names. But again, all-time highs.

Nothing will put him off investing further money in this fund than it going straight down from Day 1. I know there’s dollar-cost averaging, but that assumes he has a dollar to add every month—not easy when life beckons.

The Power of Compound Interest

I am reminded of the excellent graphic from Vanguard showing the growth of your investment in different assets. 30-year returns on $10,000 invested in certain assets.

Source: Vanguard

Calling in an ETF Expert

Given all this, I phoned a friend—an ETF expert no less. He has one ETF to rule them all: QUAL, the VanEck International Quality ETF. It is unhedged. I think the KISS principle applies.

I have also toyed with recommending QUS, a Betashares S&P equal-weight ETF. It removes some of the bias to tech. Maybe he wants that bias? Maybe he wants to invest in Nvidia? Given its growth, it may not be that expensive!

Maybe keep it simple and go with a Nasdaq ETF—straight tech focus?

Decisions, Decisions

So many questions, and all the time, I am cognizant of indices being at such lofty highs. Equally, the money is burning a hole in his pocket, and if I dither, he will just spend it on something frivolous like rent or food. I need to strike while the iron is hot.

I’m going to go with an old favourite, and one of the biggest: the iShares S&P 500 AUD ETF (IHVV). No currency risk. He will never know the difference anyway. Nothing worse than being right about asset performance and having those gains wiped out by currency risk.

Source: Vanguard

Now, I just have to sell him on the concept. The chart above should do the trick! Wish me luck.