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The Hard Way is the Right Way

The Hard Way is the Right Way

You’ve probably noticed that I’ve spent a lot of time over the past six weeks talking about ETFs.

This is a pretty good summary of the thinking on the current state of the ETF industry—if you haven’t read these pieces, I suggest you check them out.

And of course, my new ETF-focused newsletter, ETF 20/20, launched on Monday. The response has been overwhelming, which shouldn’t be a surprise. Imagine being coached on building a diversified ETF portfolio by an ETF expert—at a cost of a dinner for two at Applebee’s. Including drinks.

People say ETFs are cheap, and ETF advice, like robo-advisors, is cheap. This takes it to another level.

Get a lifetime subscription now for just $39 - Jared Dillian's ETF 20/20 - Join Now

I am motivated to do this out of a sincere desire to help individual investors. It’s something I’ve wanted to do since 2003. The tricky thing about investing is that if you go to Barnes & Noble and look at the Personal Finance section, you will see a lot of book titles that lead you to believe investing is easy. 12 Easy Ways To Do This, 7 Easy Ways To Do That.

That’s a lie. Investing isn’t easy. It’s one of the hardest things you’ll ever do. And it’s hard because there are no answers! Right now, the answer seems to be plow money into the Vanguard 500 Index Fund. But what if that isn’t the answer going forward? What if the market environment changes?

And that is why investing is hard—you have to learn how to play a game in which the rules constantly change.

So this is more than just about picking some ETFs, slapping them in a model portfolio, and selling a newsletter. This is about teaching you to be intellectually flexible.

Which is the hardest thing in the world to do.

Here’s what we will try to do in ETF 20/20:

  • We will build a diversified portfolio…
  • That will grow over time.
  • Maybe not faster than the S&P 500…
  • But certainly with less volatility—much less.

That last bullet point is the most important part, because volatility is scary. My guess is that most S&P 500 index fund investors have lost perspective on how volatile the stock market can actually be. Most of the time, it’s practically unsuitable for individual investors.

ETF 20/20 isn’t “7 Easy Ways To Build A Portfolio With ETFs…” because there are no easy ways. I’m not gonna lie to you.

All I offer is about two decades’ worth of mistakes—and of course, almost two decades of being an index guy, with lots of technical expertise.


In the last few weeks, I’ve received some good questions about ETFs and ETF 20/20. I’ve answered some of them by email, but I thought I’d take this opportunity to answer a few more:

From Kevin M.: [Is] ETF 20/20 For beginners or experts?

ETF 20/20 is good for anyone who is struggling with finding the right asset allocations. That definitely includes beginners, but a lot of experts, like financial advisors, find themselves in the same position.

A lot of the conventional wisdom on asset allocation goes like this: 70% stocks, 30% bonds, you’re done. But there’s a good chance that that simplistic approach will be insufficient going forward. Not many people are putting a lot of thought into cross-correlations across asset classes. This is the stuff that I think about every day.

Beginners will learn about how ETFs work and the basics of building a portfolio. Experts will learn to approach asset allocation in a way they hadn’t considered before. Everybody wins.

From George R.: How do retirees hedge their portfolios when they feel they can't ride out the next correction?

This is a question that lots of people are struggling with right now.

The best way to hedge an asset is to simply sell the asset. Some people feel like they have to be fully invested… for some reason? I don’t know. To keep up with your neighbors? This is a bad reason.

For people in this position, with both stocks and bonds as overvalued as they are, you really have to think hard about what belongs in your portfolio and what doesn’t.

Now, there are ways to hedge, but there is a cost. You could simply short an index ETF like SPY or IWM. I know you are thinking—why not buy an inverse ETF? Please do not do that, for reasons I have described here.

You can also buy out of the money put options on an index ETF, like SPY. But there is a cost associated with doing that. And then there is the issue of timing—if you hedge with options, and the market moves higher and then options expire worthless, you are not going to be as excited about hedging the next time around.

I prefer to keep it simple—lighten up, move to cash, buy cheaper assets.

From Mike K.: Is it foolish to have a portfolio composed entirely of ETFs, assuming those ETFs are appropriately diversified? Do you really need individual positions now?

I’m not the only one building portfolios strictly of ETFs—robo-advisors are doing it as well.  You know how robo-advisors work—you give them your money, and they quantitatively allocate it across an array of lost-cost ETFs. They charge you about 25 basis points for the privilege. Here is the amazing thing about ETF 20/20—we are doing the same thing, and possibly better, for just $39. And I can make a pretty good argument that my asset allocation skills are better than the roboadvisor quantitative model.

ETF 20/20 is the newsletter I’ve wanted to start since 2003. In my other letters, I help complicated people do complicated things. ETF 20/20 is for everyone.

If you’re new, and you need help building a safe, diversified portfolio, it is for you.

If you’re an expert… and you need help building a safe, diversified portfolio, it is for you.

And we’ll have some fun along the way.

You might want to think about signing up now. If you put it off until you get home tonight, you might forget.

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We welcome your comments. Please comply with our Community Rules.

Oct. 20, 2017, 4:19 a.m.

Could you please let me know what do you think about physical etf vs synthetic etf?
And what about the issuer risk?
thank you

jack goldman
Oct. 19, 2017, 1:23 p.m.

My opinion? Investing is a scam based on counterfeit currency and fake news, you know, like CNN or Facebook, or movies. All fake. In real US Treasury silver dollars the Dow was 995 US silver dollars in 1966 and 995 silver dollars in 2016. Zero growth. A complete fraud. The debt notes are inflated from 995 “Federal Reserve” debt notes in 1966 to 20,000 “Federal Reserve” debt notes in 2016.

Investing is a fraud because it’s based on a felony fraud of counterfeiting. During this counterfeiting fraud many people have had their life time wealth transferred from Main Street families to Wall Street. This is a financial crime that is not prosecuted, a global theft, counterfeiting currency, counterfeiting the score. It’s not investing when the measurement is fake Federal Reserve debt notes. Measure the Dow index in real US Treasury money, silver dollars. There has been ZERO GROWTH in the Dow and stocks since 1966. Get it?

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