Core ETFs Optimized for Maximum Return

To answer my own question of what ETFs are critical to most portfolios, I put together what I call the “Essential Twelve.”  The plan is to cover the U.S. Equities, Emerging and Developed International Markets.  REITs, commodities, bond, and treasury instruments are included in the following analysis.

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Failure To Use Index Instruments Is Investor Mistake #3

Investor mistakes one and two, failure to save early and neglect to develop an investment plan are interchangeable in their ranking.  The order of the following mistakes is not all that important either.  Take heart as I think I made all these mistakes.  Fortunately, I did begin to seriously save in my early to mid-thirties.  Even that is a late start.  I had no investment plan when I began saving other than to use no-load mutual funds.  Index funds did not exist when I began investing, and when they did come into vogue, I still stayed with no-load mutual funds.  Big mistake, and that brings me to mistake number three (3).

Don’t make the mistake made by approximately 80% of all investors – thinking you are smarter than the market.  To be sure, there are a few investors who manage to selecting an array of stocks that outperform the broad market, but anyone who thinks they can build a global portfolio using only individual stocks needs to have their mind candled.  If you think I am in error regarding mistake #3, do your own research and seriously examine the laws of probability.  Try building a portfolio by stock selection, and by all means, use the TLH Spreadsheet to see if you are smarter than the market.  Maintain this stock only portfolio with your index oriented portfolio for 30 to 40 years and I think you will get the picture.  Read a number of the Top Ten Investment books to further strengthen your spine when it comes to using index funds rather than taking the path of an active investor.  Read all the blog posts on Passive vs. Active investing.

Following The Golden Rule of Investing is a no-brainer.  Week after week ITA readers see Dashboard screenshots that lay out investment plans.  We also model the use of index ETFs in all the portfolios we track, so readers of this blog bear witness to overcoming the first three mistakes.  I doubt any reader will take issue with mistake #1.  Some will argue that an investment plan is not all that critical, particularly those who think they are sharp stock pickers.  The real difference as to the facts of investing comes into sharp focus when one decides to become a passive or active investor.  I’ve done both, and I come down strongly on the side of passive investing, even though I still infrequently pick a stock for a portfolio.