With my personal transition to more passive investing in progress, lately I’ve been forced to think seriously about broad market themes and long timelines. That doesn’t mean I will stop putting out specific equity ideas here on the blog…in fact, I plan on doing more of that. It’s just that for my personal accounts, I’m taking more of a “hands off” approach to my trading (since I’m decent at identifying ideas but just shitty at trading them).
So I think more about the proverbial “set it and forget it” portfolio. Not a portfolio designed to win next Thursday, impress people on Twitter or successfully predict which flavor of financial psychosis Wall Street will embrace next, but one built to survive almost anything: war, recession, inflation, deflation, geopolitical chaos, currency debasement, artificial-intelligence mania, commodity shortages and medical science advances that could allow Janet Yellen to live to be 500 years old and serve 7 more terms as both Fed Chair and Treasury Secretary.
Hey…you’ve got to be prepared for every worst case scenario, right?
Anyway, my goal in thinking about this type of portfolio management would not be to hedge against every imaginable outcome by hiding cash in the walls and waiting for civilization to end. The goal would be to own a reasonably small collection of assets that should continue to matter regardless of which version of the future arrives.
I tried to narrow the list to 10 ETFs because it’s a nice round number. I settled on 11 because I wanted to cover enough of the investing universe to try and get my tentacles nearly everywhere. So here they are. If today I could only own 11 ETFs…regardless of their valuation today but thinking very, very long term…buy them automatically and leave them alone for the rest of my life, this is what I would choose.
As I first talked about days ago, and reiterated on Julia La Roche’s podcast a couple days ago, Invesco S&P 500 Equal Weight ETF (RSP) would be the foundation.
Look, I still want broad exposure to corporate America. I’m not completely disillusioned with things. I just don’t necessarily want a supposedly diversified index in which a small group of enormous technology companies (one of which being Tesla trading at 300x earnings) increasingly determines whether I can someday afford to eat something other than Top Ramen.
The standard S&P 500 ETFs are weighted by market capitalization, which means the more expensive and enormous a company becomes, the more of it the index automatically buys. This has worked spectacularly during the era of mega-cap technology dominance, but it also means investors are continually directing the most money toward whatever has already gone up the most.
RSP gives every company in the S&P 500 approximately the same weight. That creates much broader exposure to industrials, financials, healthcare companies, consumer businesses, manufacturers and other economically useful enterprises that have been reduced to rounding errors in the traditional index. In other words, less exposure to the ongoing AI bubble now, which could be handy if it winds up popping.
It also imposes a mechanical form of discipline: periodically trimming the biggest winners and redistributing that money into the rest of the market. It may trail badly when five stocks are carrying the entire country on their backs, but for a portfolio intended to last forever, I’m comfortable betting that the other 495 companies will occasionally remember they exist.
Next is an ETF that may wind up being my “best idea” sector for next year if things continue the way they have.