Master Passive Wealth: Building Your Portfolio with Index Funds & ETFs

1. Introduction and Course Outline: Hello, hello. Welcome to the course. I'm super excited to have you on board and can't wait for you to dive into the course. As part of this course, my goal is to equip you with the necessary education and knowledge so that you can make your own investment decisions to help set yourself up for success throughout your investing journey and execute your plans for short term and long term goals, whatever they may be. By the end of this course, you'll be able to create your own portfolio from scratch using low fee broad market index funds, and will learn how to manage risks using fixed income assets. If you're interested in building wealth over a long time horizon to achieve your financial goals using simple and passive approach, this course is definitely for you. Here's a quick look at the course outline. First, we'll begin by talking about what is an index and what is an index fund, and then we'll cover various topics such as different types of index funds, passive index investing, why invest with index funds and how to invest in index funds. We'll talk about different brokerages and account types. We'll talk about account distribution and how investors allocate money to different types of investing accounts. We'll then cover researching specific funds and ETFs and how to find more information and details about those ETFs. We'll go through some model portfolio we'll discuss managing risk levels. We'll talk about what rebalancing is, how you can accomplish rebalancing and how frequently you should rebalance your portfolio. Next, we'll cover what dividends are and what you could do with dividends. Then we'll go through some common portfolio types and ETF funds. We'll look at some historical performances, and to wrap up the course, we'll look at compounding. We'll look at it compounding, calculated and we'll play around with some numbers so that you can understand the power of compounding in your portfolio over a long time horizon. So without further ado, let's get started. 2. Index: Okay, so what is an index? So, by definition, index is a measure of something and serves as a benchmark. It is used to compare certain things or areas together. Now, in the stock market world, an index is a collection of assets or companies. It is a measure of change in the securities market. It follows a certain criteria and set of requirements. A committee sets these requirements. If companies meet the requirements, they are eligible to be included as part of the index. Companies are given a certain weight in terms of allocation in that specific index. Now, there are many different indices out there. They target different sectors and different companies, for example, finance, energy, retail, ecommerce, information technology, healthcare, real estate, and so on. Here are a couple of examples of widely known indices out there. The first one is called the S&P 500, which we will be talking about throughout the course. This index tracks the largest 500 corporations in the United States. If you're using a platform such as Yahoo Finance, you'll see that the ticker symbol for this is GSPC. And basically, this index is a measure of how the US market is performing. In example two, we have the NASDAQ composite, and this index tracks companies that are in the technology and healthcare sectors. And the Yahoo Finance ticker symbol for this is IXIC. As mentioned earlier, an index is created based on a specific set of criteria. Now, in this slide, we're actually going to cover the criteria for the S&P 500 index. But please note that these criteria is at the time of this recording and things may change in the future. So this is just an example. So in order for a company that is being publicly traded on the stock market to be included in the S&P 500 index, it needs to have a market cap of a certain size. In this case, at least 13.1 billion. The value of its market cap trade annually, at least a quarter million of its shares trade in each of the previous six months. Most of its shares are in the public's hand, had its initial public offering at least one year earlier, meaning the company needs to have gone public for at least a year and have a positive sum of the previous four quarters of earnings, as well as the most recent quarter. So basically, what this is saying is that the company needs to generate profits consistently. Also, please note that at the end of the course, I have included a slide that contains all the resources used in the course, so feel free to refer to those if you would like more information or would like to do more in depth research. 3. Index Funds: Okay, now that we understand what an index is, let's go ahead and talk about index funds. When it comes to investing, you can't actually invest in the index itself. And because of this, fund providers create funds that mirror the index, and that way, investors can invest in index funds that mirror a specific index. Now, there are many different fund providers out there, but they are typically two major types of fund providers. So the first type is the major banks and financial corporations. Here are a couple of big ones in the United States that a lot of investors and people are familiar with Charles Schwab and JP Morgan. And here are a couple of pure fund providers that are very popular, Vanguard and BlackRock. Index funds will follow the performance of their corresponding index very closely. So for example, if the index goes up by 1% given a specific day, the fund will also go up by roughly 1%. If the index goes down by 1% given a specific day, then the corresponding fund will also go down by roughly 1%. To illustrate this point, I'm doing a side by side comparison here with the S&P 500 index and then S&P 500 Index ETF fund. So as you can see on the right here, we have a chart that illustrates the performance of these two different variables. In blue here, we have the SMP 500 index, and in yellow, we have the S&P 500 index ETF Ticker symbol spy. And as you can see here on the chart, we're looking at a six month performance as of the time of this recording. And as you can see on the chart here, it's very actually hard to see the blue line because the yellow in overlays the blue line very, very closely. Over here, there's areas that you can see both the yellow and blue line, and also here you can see the blue line. But it's very hard to tell the difference because they basically lie on top of each other, and that's how closely the index fund is actually following the index. Also, if you look at the numbers down here, you can see that for that specific time frame, which is a six month time horizon, SMP 500 was down 1.42%, and SMP 500 index fund was down 1.46%, which is very similar. Different types of index funds out there, but the most popular types of funds are mutual funds and exchange rated funds, short for ETF. They're very popular for passive investing, and they do not require much time or effort once you set them up. Now, when it comes to investing in mutual funds versus ETFs, they are very similar, but there are some differences that you as an investor, need to be aware of, and you need to decide and choose what works best for you and for your goals. 4. Mutual Funds: Let's start by going through mutual funds first. Mutual funds are baskets of securities such as stocks, bonds or other types of assets. They're usually hand picked and selected by a fund manager, and the fund manager manages the fund actively. Now, because of this active management, mutual funds have much higher management fees compared to ETFs. However, when it comes to purchasing or selling mutual funds, there is no commission fee. You can purchase partial units. Fraction of a unit, for example, doesn't have to be a whole number. You can set up pre authorized deposits from your checking or savings account. And once you do that, the money automatically gets transferred into the account, and that money will then be used to buy units of that mutual funds, depending on what you configure it as. And this basically puts you investing on autopilot and your mind as ease, and then you can go ahead and do better things with your time. Um, this is perfect for you if you prefer less control and a hands off experience, if you would prefer to have a professionally managed portfolio, and with mutual funds, you can trade, meaning buy or sell units at any time. It doesn't have to be during market hours. Mutual funds come in many flavors, each tailored to different investment goals and risk tolerances. Equity funds offer growth potential through stocks while bond funds focus on steady income. Balance funds give you a mix of both worlds, combining risk and stability. Index funds are a popular low cost option that mirror market indexes, and sector funds let you zero in on specific industries. Knowing the different types can help you pick the right fund to match your financial goals. Taxes are an often overlooked aspect of mutual fund investing. Even if you haven't sold your fund shares, you may still owe taxes on capital gains and dividends distributed by the fund. Holding mutual funds in tax advantaged accounts like a TFSA or RSP, can help reduce or defer these taxes. It's also wise to pay attention to a fund's turnover ratio. Funds that buy and sell frequently can generate more taxable events. Understanding these tax implications can help you maximize your after tax returns. 5. How ETFs Work: Let's take a moment to see how ETFs actually work, and the concept here is the same for other types of index funds, such as mutual funds. But for now, let's just focus on ETFs and see how they work. You can simply think of an ETF as a collection of companies, and these companies are included in the ETF fund if they meet a certain criteria. Now, the important thing to note is that these companies are assigned a specific weight within the ETF fund. Consider the following example, ETF. This ETF fund consists of four companies. Company A takes up 50% of the fund. Company B takes up 30% of the fund. Company C takes up 15% of the fund, and company B takes up 5% of the fund. Now, let's say this is you and you have $100 that you want to invest into this ETF. You invest $100 into this fund by buying shares of this example ETF, the fund manager will take your money and spread it across these four companies according to their specified way allocation. So the fund manager will take $50 and buy shares of company A. They'll take $30 and buy shares of company B. By $15 worth of shares in company C and buy $5 worth of shares in company D. So by investing in this one ETF, you have now invested into four companies, which is a great way of reducing risk and diversification. Now, you might think to yourself that $100 is not a lot of money. So how can the fund manager take $50 and buy shares of company A when the shares of company A is $200 per share? You're absolutely correct. But that's a nice thing about the ETF ecosystem. The fund manager is not going to purchase shares of the company every single time, every single investor actually buy shares of that ETF. There's a concept of inflow and outflow of money. So what happens is that a lot of investors are going to purchase the shares of this ETF, such as the institutional investors or retail investors. They're all going to buy the shares of this ETF or units of this ETF. And what happens is that that results into an inflow of money, and the cash will pile up. And when the time is right, the fund manager is going to take that cash and spread it across these companies into the ETF fund according to their percent allocation. 6. Why ETFs: All right, now that you're familiar with ETFs, let's talk about why you might want to consider investing with index ETFs. Well, to begin with, there's less risk because you're investing in a collection of companies and not just one. So if you put all your money in one company, and if anything bad or unexpected happens to that company, you are risking losing all of your money. And this is the downside of putting all of your eggs in one basket. Other advantage to index ETFs is that there's less volatility in your portfolio because you're diversifying. You're essentially diversifying by investing in different companies across different sectors. When it comes to ETFs, there's no active management because there's very infrequent rebalancing required, and this is what we refer to passive investing approach because you're spending very, very little of your time managing your portfolio, and you can spend majority of your time on doing the things that you actually enjoy. Also with ETFs, there are very low fund management fees. Now, when you're looking at different ETFs or different index funds, you might see multiple management fees. But the one that you actually want to pay attention to is this one called management expense ratio, short for MER, and it's usually presented in a format of a percentage. Now, in ETFs or with passive index ETFs, these MERs are very, very low compared to mutual funds. Investing with ETFs is very easy and effortless. It's perfect for long term Horizon, and there are many commission free options available. You just have to do some research and see which banks or which providers or brokerages actually allow you to purchase ETFs for free. There are many options out there. Just make sure you pick one that's popular and properly insured. Now, having said that, even if the bank or your brokerage charges you for ETFs, it's not a huge deal because you aren't going to spend a lot of time doing this throughout the year. You might add to your portfolio once a month or perhaps four times a year. So if you're doing this actively, then the commission fees would add up. But if you're doing this few times a year, then the commission fees are negligible over a long period of time. Another nice thing about investing with index ETFs is that you will save a ton of time and energy because you don't have to spend that time doing research into a specific company. When you're owning individual stocks, you're basically owning a piece of business for that specific company. So my recommendation, which we'll talk about a little later in the course, is that you shouldn't own individual stocks. If you do then you're going to have to put in a lot of time. It's almost like a full time job because you have to put a lot of time doing research. You have to keep up with the news every single day for that specific company. You have to follow up with their financials. You have to listen into every one of their earnings calls to ensure that the company is on track. They're hitting their targets. Their revenue is growing, their profits are growing, their costs are reducing. They have plans for the next three to five years. You understand their business model, and there's just so much things to keep track of, and all of that takes a lot of time and energy. This is something that you don't have to if you're investing with index ETFs. The one thing I really like to reiterate in the course is that you shouldn't buy single stocks, especially if you're a beginner investor, and there's several reasons for that. First of all, it's very, very time consuming because you have to be keeping up with the daily news. You have to listen to all the conference calls, all the earning calls, and you have to read all the ten K and ten Q reports. And all of this takes a tremendous amount of time. If you're just holding one company, now, imagine if you're holding ten different stocks. You have to do all of this for every single stock or company in your portfolio. So if you're just not the type of person who wants to, you know, take time out of their life and spend that time on these things, I would rather do better things with your time, then I recommend that you do not buy single stocks. Are also too many variables that you can't control when you hold individual stocks or companies. If you've ever taken a management course or if you're taking courses throughout your MBA program, you know that it takes a lot for a company to succeed. And here are several variables that I've outlined here. These are not everything, but these are some of the most important ones. The first one being management execution. You have to make sure you have the right people on the management layer to make sure that the company does well in different aspects such as revenue growth, controlling and cutting down on their expenses, profitability, cash flow, and proper use of asset utilization and asset allocation. Next, there are a lot of things that could happen with the numbers because some folks look at different statements such as the income statement, balance sheet and cash flow statements. But the truth is, those are just numbers on a paper, and numbers and financials can be manipulated. So for someone who's reading the financial statements from the outside of the company, such as, you know, outside investors or retail or institutional investors, they wouldn't get the whole picture as to what is going on inside. So the numbers you're looking at could potentially be manipulated. I'm not saying they are, but they could be, and you have no way of knowing. There's also, the company has a lot of intellectual property. So imagine if something happened to that intellectual property. So for example, one day, one of the employees just walked out with the blueprint or the source code or the patent of whatever product it is that the company is building or manufacturing. That company could potentially be facing a franchise risk or bankruptcy, essentially. There's also other factors such as data breach. So if a company gets hacked by, for whatever reason, and hackers gain access to their data, this is a major hit to the company. And again, this is something that investors cannot control at all. It's just something that will happen and the company would have to deal with. And sometimes companies don't recover from data breaches. There's many examples in the past, if you want to look that up. Also the inability to respond to market changes and competition. So a lot of times companies do well, and then they don't pay attention to the market shifts or the consumer direction. And because of that, they can't respond to competition, and other companies overtake those competitions, sorry, overtake those companies, and you end up your shares end up depreciating because the company could potentially go out of business. There's also natural disaster. So if a company that you're investing in manufactures products, for example, in plants and have plants, if anything happens, such as a flood or storm that damages that manufacturing plant, then the company will have to take losses. And again, that is bad for the company and the share price. There's retaining employees and top talent, market sentiment. Sometimes it doesn't matter how well the company you're investing is doing, if Wall Street or the market thinks that the company is not worth the price, well, then the share price will depreciate due to many factors and your portfolio could take a downturn. And then there's revenue concentration, another example of what could go wrong with the company. So companies have three or four big enterprise clients, and there's a concentration of revenue. And for whatever reason, if one of those customers decides to leave the company, they're going to take all of that revenue with them, and this is, again, a very major hit to the financials of that company. So as you can see here, there's just way too many risks, and your portfolio is exposed, very high exposure to risk, especially with things or variables that you can't really control. And this is exactly why I'm suggesting that you stay away from buying single stocks and holding them in your portfolio. 7. Banks and Brokerages: In this section, we're going to cover the banks and brokerages that you can use in order to invest in index funds. When it comes to banks and brokerages, there are many different options out there. For instance, most major banks allow you to open a direct investing account which you can then use to trade stocks, ETFs, mutual funds, and other types of assets. When choosing a bank or brokerage for your investing journey, you want to make sure that the option that you choose is trusted by majority and is popular and well known in the investor community. You also want to make sure that the bank or the brokerage that you choose is properly insured. Here are a couple of examples, FEIC in the United States and IIROC and CIPF in Canada. You also want to look for options that offer commission free trades for ETF. Some brokerages or banks allow you to do this for free when you're buying or selling ETFs. Some of them charge you commission. Again, as mentioned earlier, it's not a big deal if they charge you a commission as long as the fee is reasonable because you're not going to be doing this frequently throughout the year, maybe once a month at most or once every quarter. But if there is an option or if you're able to find an option that allows you for commission free trades, it's even better because you're also saving that commission fee as well. Um, a lot of banks and brokerages are moving towards that trend now to offer free commissions for buying stocks and ETFs or at least ETFs. And if you're able to find that option, then great. If not, don't worry about it too much. Throughout your investing journey over a ten, 20, 30 year time horizon. This is not going to be a big deal. And one last recommendation when it comes to choosing a platform is try and pick one that is easy to use. It has a friendly and easy user interface because we don't want to spend too much time in the platform. We simply just want to log in, place our trades, buy our ETFs, and log out. The whole point of this course and this style of investing is that we don't want to spend too much time on this. So it'll be great if the platform is very easy to use. Now, whether you're using the platform for the very first time or you're a beginner investor, there's going to be a little bit of a learning curve involved, but trust me, it's not difficult. Once you place your first trade or second trade, you'll get a hang of it, and it'll be very quick after that. And it would also be great if the brokerage or bank you're using has great customer service, especially to begin with, because if you're trying to configure your accounts, transfer over money, open the accounts, if you hit any types of issues along the way or as part of the process, it would be great to have a customer service where you can quickly get ahold of someone to help you with resolve your issues. But over time, customer service becomes less important because you already know how to do everything yourself. Pretty much nowadays, everything can be done online. So this becomes a little bit less important over time, but it's great to have that in the beginning where you're trying to get started with the process. When it comes to major banks that let you open investing accounts, there are many different options out there. Here are a few examples. In the United States, we got JP Morgan Chase and Charles Schwab. In Canada, we have RBC, TD, CIBC, and BMO. Besides major banks, you also have an option to open different types of investing accounts in major brokerages. Now, the difference between a brokerage and a bank is that the brokerage is typically just specifically used for investing. They don't offer things such as savings or checking accounts, mortgages, line of credits, credit cards, and other types of product offerings that a bank does. Having said that, a lot of brokerages also try to compete with banks. So although they might start by offering investing accounts, you may see certain brokerages actually start offering different types of accounts such as checking or savings, credit cards, mortgages, and so on, sometimes even physical locations where you can go in and do your banking needs. And this is primarily because the brokerage wants to actually compete with banks and gain market share. In the financial sector. But most brokerages start as just purely investing accounts. Here are a few examples in the United States. You have Fidelity, TD Ameritrade, Robin Hood, and weevil. And in Canada, you got quest rat and Wealth simple. 8. Account Types: Now that you've learned about major banks and brokerages you can use to create your investing accounts, it's time to take a look at different account types and how you might go about allocating money to these account types. Each account type has a different purpose, so let's dive in. Here, we've outlined different types of investing accounts that you can open. The first one is called a non registered account or also known as the taxable account. When you're buying or selling ETFs, and if the result of those trades end up being a capital gain, then you have to pay taxes on those realized capital gains. Now, conversely, if you have capital losses, what you could do is you could use those losses to offset your capital gains and pay less taxes. But this all depends on the tax rules and the country or the region that you reside in. But the important thing to understand is that this is a taxable account and it's not tax sheltered. Next, we have the tax sheltered accounts. These are the type of accounts where you do not pay any taxes on any capital gains or any dividends. And usually these accounts have a certain limit per year. So you cannot put unlimited amount of money. Every year, you can allocate a certain amount of money up to a certain limit. Then we have the retirement accounts. In these type of accounts, you do not pay any taxes until money is withdrawn for income after retirement. Next, we have the margin accounts. These are the types of accounts that are actually leveraged, and by that, we mean that you can borrow money from the brokerage for investments. So for example, if you put in $1,000 and fund your margin account with $1,000, the brokerage might allow you to place a trade or buy stocks or sell stocks or buy ETFs or sell ETS for two or three times that amount. So for example, let's say you put in $1,000, but the brokerage might actually allow you to buy up to $3,000. The important thing to note here is that only out of that $3,000, only $100 of that money is yours, and the other 2000 is actually borrowed from the brokerage, and that's the money that you have to pay back at some point. Now, I do not recommend margin accounts to any investor out there, especially if you're trying to take a passive approach and invest in index ETFs, and you have a long time horizon, there's absolutely no reason for you to ever open a margin account. And again, I highly recommend that you stay away from margin accounts. One last thing to note about margin account is that if you're using leverage in your margin account to buy your ETFs, if for whatever reason, it takes a downturn, the bank or the brokerage might call you and force you to close that position at a loss. And this is really bad because you end up losing a lot of money. But if you were actually buying your ETFs, not using leverage in regular accounts, you could simply just wait it out until things are back to normal again. But if you're using leverage, you may have no choice but to sell at a loss. So this is one other thing to keep in mind when you're using leverage in a margin account. And I highly recommend you stay away from this account type. You don't need it when you're investing in index ETFs over a long time horizon. So please try and stay away, especially if you're a beginner and novice investor. And even if you do have a margin account, just please try to use the money that you actually have in the account and do not use any leverage to buy your ETFs. Lastly, I highly recommend that you speak to a financial advisor to see which account type best suits your goals. Now that we know about different types of accounts you can open and investing, let's take a look at a few examples. Here are some account types that you can open in the United States. The first one is called the four oh one K. Now, this is a bit of a special account because this is an employer sponsored contribution account, and this is where the employers will match a percentage of the contribution. So, for example, if you contribute 3% of your paycheck, the employer will match up to 3% as well. And this account has a limit that can vary every year, depending on the rules and how the rules change. But I highly recommend this account if your employer is offering it because in theory, it's free money, and you are getting 100% return. So whatever money you're putting in, the employer is putting in up to that amount. So it's almost like if you're getting an exact match, so let's say 3% and 3%, it's almost like you're making 100% of your money back. So highly recommended if your employer is offering it. Next account type in the list is called an IRA account. Now, with IRA accounts, you got two different types. You got the Roth IRA and the traditional IRA. With Roth IRA, it is a self directed account, and basically you pay taxes now and you save on taxes later, and it has a limit. With the traditional IRA, it's also self directed, but you save taxes now and you pay taxes later. This account also has a limit. And then you have the non registered taxable account. With this account, you'll need to pay taxes on all capital gains, but it has no limit. Here are the different account types that you could open in Canada. The first one is called the Registered Retirement Savings Plan, short for RRSP. Now, this is a type of retirement account. It's tax deferred. It has a limit every year that you can contribute money to, and also you can do the employer match program similar to the four oh one K in the United States. Next, we have the tax free savings account, short for TFSA, and this is a tax free or tax sheltered account. So if you have capital gains or if you're making dividends in here, nothing is taxed. This also has an annual limit, so you can only contribute a certain amount of money to. And lastly, we got the non registered taxable direct investing account. So very similar to the United States one when you have to pay taxes on any capital gains and dividends that are incurred in that account. It comes to margin accounts, these are the leveraged account types, and I highly recommend you stay away from this account type. You don't need it when you're investing in index ETFs over a long time horizon. So please try and stay away, especially if you're a beginner and novice investor. And even if you do have a margin account, just please try to use the money that you actually have in the account and do not use any leverage to buy your ETFs. 9. Fund Allocation: Now when it comes to fund allocation, you may choose to allocate money and cash to these accounts however you like. And by no means this is financial advice, but consider this as a recommendation from smart and successful investors. So to begin with, if your employer is offering four oh one K, you definitely want to start by taking advantage of that first. So what you want to do is you want to match the employer's contribution only and nothing more. So, for example, if your employers going to match 3%, you want to start by just contributing 3% and nothing more. Next, what you want to do is you want to max out the Roth IRA account. And then once that's done, you want to come back to your traditional 4o1k, and you want to contribute more cash and money to max that out. And once that's done, lastly, if you have any money or cash left over, you want to invest the rest in a regular taxable brokerage account. Now, again, another recommendation I have here is to make sure that you talk to your financial advisor about which account best fit your goal. When it comes to fund allocation, here's a recommendation from successful investors, and by no means, this is financial advice. You have to do what's best for you and what best fits your needs and goals and lifestyles. So please do consult your financial advisor about the different account types and how you should be allocating money to those. But here's a recommended outline in terms of how you should be contributing money to different investing account types. Want to start by contributing to the RRSP account, which is the retirement account we covered earlier. If your employer is offering a match program, definitely start by that. And just like very similar to the four oh one K, you want to contribute only to match the employer. So, for example, if they're doing 3%, you want to do 3% to start with. Next, you want to go and max out your TFSA account. Then you want to come back to the RSP and max it out yourself. So even if the employer is not going to match the rest, you still want to max that up because this is a retirement account. And this is if, for example, you want to reach early retirement, this should be your focus here. And then, lastly, if you have any money left or any cash left to invest, then you want to put the rest in a regular taxable non registered brokerage account. 10. Research ETFs: In this section, we're going to cover how to research different ETFs so that you can find enough information to see that if this is the right choice for you when it comes to investing. So the purpose of this research is to understand and gain information on what index does an ETF follow? So what is the main goal and purpose of this ETF? What are the holdings? So what companies are included in this ETF? What does the historical performance look like? For example, how did ETF perform over the past three month, year to date, over the past five years or over the past ten years and so on. And we can also find information on management fees. So how much does the fund provider charges investors in terms of keeping the maintaining the fund and also rebalancing the fund? What type of dividend yield does the ETF produce, and how often do those dividends are being distributed to investors? You can begin your search by using Google and type in keywords such as the SMP 500 ETF or ETFs, World Market ETFs, index fund ETFs, or dividend ETFs, whatever it is that you're looking for. You can also type in the direct Ticker symbol. If you happen to remember that off top of your head, you can just directly type the ticker symbol into Google as well. For example, Spy, which is the Ticker symbol for the SMP 500 ETF. Also have access to many different platforms out there. Here, I've outlined a few free ones that are well known and widely used by investors. So we have Yahoo Finance. We have Seeking Alpha, we have Tip ranks, and we have Morningstar. Depending on what type of bank or brokerage platform you're using, sometimes those platforms also make this information available. So for example, some platforms actually have a section where you can go and find information and research a specific fund or ETF. If you happen to know the fund provider for that specific ETF, you can also navigate directly to the fund provider's website, find the ETF, and there you can find information on their website and also through the fact sheet that is also hosted on their website as well. In this lecture, we'll walk through a couple of examples. The first one being the SMP 500 Index ETF, Ticker symbol Spy. The fund provider for this is SPDR, some folks call the Spider, and it's being offered by State Street Global Advisors. And the second ETF we'll look at is the NASDAQ 100 index ETF, Tier symbol QQQ, and this one's being offered by Invesco. 11. Example 1 SPY: Right, let's start by going to google.com, and let's go ahead and search for Yahoo Finance. And for me, it's the first results here. So if you go to Yahoo Finance, you can see that this is basically the homepage of Yahoo Finance, and this is what the platform looks like. You can see that here you have the major indices and how they performed for this specific day. And over here, you got the search for new symbol and companies. So this is where we can actually start by typing in our Ticker symbol for our research. In this case, we're looking at Spy first, the S&P 500 Index. So let's go ahead and type that in. And as you can see here, this is the first result here, SPDR S&P 500 ETF Trust. That's the one we're looking for. And once you enter or input your ticker symbol, you can see that we presented with a dashboard here with some high level information. So to start with, you can see that we are defaulted on the summary tab. On the left hand side here, you can see that we have some information about price action. So this was the previous close. So this is the price that was the ETF actually closed as yesterday. This was the opening price. Today, bid and ask prices, days range. This is how the price action performed today, the low of the day and the high of the day. This is the 52 week range. So over the past 52 weeks, the volume for today and the average volume, which is calculated based on the last 30 days. Now, we don't really care much about this information. This is just noise for investors who are long term focused. On the right hand side, net asset, this is important because this tells us how much of investors' money are under management. And you can see that for this fund here, there's about 386 billion as the time of this recording. Also, there's some other information that are of importance to us. So for example, yield here, this is the dividend yield, and you can see that this is the trailing 12 month dividend yield, so 1.52%. This is the performance of the fund year to date. So year to date, this fund actually has been down, and it's been performing -19.35%. And if we look at the expense ratio here, the expense ratio, this is the management fee and this is actually fairly low for an ETF. So this is great to see 0.09%, and this is the inception date. So this is when the fund was first created. Here you have a quick chart here with some preset filters. So this chart right now is showing the one day performance. You can click on five days. You can see that over the five days quickly by just looking at this visualization, you can see that it ended up being flat. It started around here, and then it ended up around here in a five d period. So pretty much remains flat. You can look at the one month. You can see one month it actually has gone down. Six month it's relatively down from where it started. And if you look at the year to date, it's also down. It started and then it went all the way down. It started at roughly 466 and currently it's at 382. This is the one year performance, five year performance, and the MAX performance. You can see that when you're looking at the longtime horizon. So when the fund was in inception in 1993, you can see that since then, the fund is significantly up, and this is exactly why the daily price action to us long term investors is just noise, and those are the things that we ignore because over the long term, the consensus is that the stock market will move up as long as the economy is doing well. The next tab that is of use to us is the holding stab. So if you click on that, you can see that there's a lot of information about this ETF here provided. So you can see the overall portfolio composition, 99.74% stock. So this is basically saying this ETF is all stocks. And here, you can see that we can see the breakdown of the sector ratings in percentage for this specific ETF, which is the S&P 500 ETF. And this ETF, again, follows the SMP 500 index. So here you can see that the breakdown basic materials at 2.39%, consumer cyclical, 10.13%. You have financial services, real estate, consumer defensive, healthcare, utilities, communication services, energy, industrials and technology. Now, if you take a look here, you can see that technology has the highest weighting in this ETF at almost 24%. The next in the list is healthcare and the one after that is financial. So this is a great breakdown of the sector ratings. And if you scroll down just a little bit more, you can see that the top ten holdings of this ETF for the total percentage of 27.3% of this ETF, which is the total assets in these ten top holdings. And you can see that the first one here is ranked as Apple and Apple is currently sitting at 5.9%. Next, you have Microsoft at 5.6, and then third, you have Amazon at 4.05. Just keep in mind that over time, these companies and these allocations may change depending on their performance throughout the year and throughout the quarters of a specific year. Now, let's scroll up, and the last tab you want to look at is performance. This also highlights some very good information for us for this specific ETF, and this one is basically showing us the performance of this ETF over different time horizons. And this is really showing us historical data. So here's a high level overview of how the fund has performed, this specific ETF spy has performed. You can see that year to date, the total return has been negative -19.35%. And if you scroll down here, here's the performance outline. So year to date, we're at -15, three month we are at -2.5. One year is -13.97 and so on. You can see that over a ten year period. We've actually averaged a total positive return of approximately 12.88% per year, and this is actually a great return if you're looking from, you know, ten year time horizon, right? Some years the fund will do really well and some years it'll do bad, but the average is about 12.88%, which is quite impressive in terms of how much your money is being appreciated every year on average, over a long time horizon. And then if you go down a little bit more, here you can see the breakdown for the annual total return by percentage. And you can see that over here in 2021, we gained about this fund gained about 28.59%, which is just absolutely amazing. In 2020, it was 18.40%. In 2019, it was 31.29%, which is, again, absolutely amazing. For a fund that's supposed to return approximately 10%, 31% is it's just almost three times that. So this is just absolutely amazing. And over here, you can see some years like in 2018, the fund didn't do too well. It was -4.45%. In 2008, during the financial crisis and the housing crisis, you can see that the fund actually performed really bad at -36.97%. And during the 2001 and 2002, the fund performed pretty badly three years in a row. So -9% -11% and -22%. So as mentioned earlier, the goal here is when you're investing over a long time horizon, some years the fund will do really well. Some years the fund will not do well, but the point is over a long time horizon, on average, the fund should give you roughly approximately somewhere between 10% to 12% per year. Now, this is all from historical data. It doesn't mean that in the future, the fund will repeat giving you that exact same number moving forward every year. All right, now, let's go back to Google and see if we can find the same type of information for this specific ETF through the fund provider's website. Now, we know this fund is being provided by SPDR and the ticker symbol for this spy. So let's go ahead and type that in. And as you can see here, the first link is exactly what we're looking for. Look at the website here, SSGA. So if you remember, the provider name was State Street Global Advisors, and the ticker symbol is Spy, and this ETF is the SMP 500 ETF Trust. So this is exactly the type of link we're looking for. So go ahead and click that. And now this takes you directly to the State Street Global Advisor website and directly to the Spy information page. On the main page here, you're provided with some high level information about the fund, so you can see that the price of the ETF is $383.40. The base currency is in USD, and asset under management is 359 billion. Note that this number is actually in million, so just add three zeros, which actually makes it 359 billion worth of money under management. Now, over here, you can see the expense ratio. So over here, we have 0.09% of management fee. If you scroll down a little bit here, you can see the key features about the specific ETF. So you can see that it talks about how this is trying to yield the performance of the S&P 500 index. It talks about the diversity of this index and the companies that it holds. And this is actually the inception date January 1993. And if you scroll down a little bit, you'll see some more high level information about the fund. So you can see that, again, the expense ratio over here, the distribution frequency is quarterly. This is how often the fund will distribute dividends to investors. And if you scroll down a little bit more, over here, there's a section on yields, and here you can see that, for example, the fund distribution yield was 1.65%. There's a little I icon here. This is for information. And if you hover over it, there's a tool tip, which will give you more information about basically any attribute that you see on this page. But regarding the dividend, the fund has yielded 1.65%, and we saw earlier that this dividend is being distributed to investors on a quarterly basis. All right now on the top here, you have several tabs. So let's go ahead and click on performance, and this should quickly help you jump to the performance page. And here you can see the fun performance through different visualization. First, you have the chart. And as you can see here, you have the one month quarter to date, year to date, one year, three year, five year, and ten year. And if you just hover over this, you'll see a tool tip, and you'll see the actual numbers here. So, for example, the one month performance, we are sitting at approximately 5.56% in terms of the appreciation. And if you look at year to date, we're actually down approximately 13.19%. If you look at over the ten year period, we are actually averaging about 13.19% per year. And also, if you scroll down here over here, you can see the same type of information being presented in a table format. Okay, let's go ahead and click on the Holdings tab. So this should take us to the holdings section of the information page. And you can see here, it actually shows us the top holdings page. And again, this is sort of the top ten holdings and broken down with percent allocation. So you can see Apple is sitting at 6.1%. Microsoft is sitting at 5.57%, and Amazon is sitting at 2.32%. Now, one thing I do want to highlight here is that when you saw earlier on Yahoo Finance, you may see some slight discrepancies in the numbers. And this is because Yahoo Finance is a free tool. Sometimes the information are not real time. Sometimes it lags in terms of information, but I would say that the fund's website is actually more up to date because typically, the fund provider has to update their numbers on a daily basis to keep up with the real time data for investors. So you may see some slight discrepancies. My suggestion is, if you do see that, go and look for numbers directly on the fund provider's page. As I mentioned, sometimes the free platforms lag behind because they convey the most up to date information on a daily basis. And sometimes it may take a day or two for them to update the numbers. And here you can see all the numbers and all the companies and their breakdowns and the shares held for each company. Also, this is only the top ten companies. SMP 500, as the name suggests, it tracks the 500 largest corporations. And if you click over here, there's a link here and it says, download all holdings. So if you go ahead and click this, it will download the entire holdings, and you can open that. I believe it's Excel file. So you can actually open that. Usually it's Excel or CSV file, and you can open that and look at all the companies and their percent allocation. Excel file will not only just show you the company name and the person allocation, but it also shows you the company's rank and weighting within the index itself. Now, if you scroll down a little bit, you'll see the section called sector allocation, and this presents the breakdown of sector allocation in the index and the fund. So on the left hand side, you can see that this is a sector breakdown for the fund, the ETF fund itself, and then the right hand side, it's the index sector breakdown. And if you take a look here, just visually, you can see that they're pretty much the same, and that's exactly the whole point behind the ETF index fund because the ETF mirrors the index. So over here, you can see that information technology is taking up about 25.71%, and let's go ahead and hover over the index. Sector breakdown for information technology, and you can see that it's 25.70%. So it's pretty much identical and exactly the same number. And that's exactly what we would expect from an ETF that is following a specific index. Next, you got the healthcare over here at 15.83%. The index is 15.83%, so exactly the same number. Then you also have financials, industrial, communication services, and so on. And again, if you scroll down a little bit more, you can see that again, it's the same information being conveyed in a table format. There's one last thing I'd like to cover in this lecture, and if you scroll all the way to the top here, there's a section called Quickinks and there's some documentation here being provided by the fund provider. And the most important one I want to bring your attention to is called the fact sheet. And this is pretty common for most fund providers when you go to their website. So let's go ahead and click on that. And this is usually in the type of a PDF file. So let's go ahead and zoom in a little bit. And you can see that this PDF file basically pretty much conveys the same type of information we saw earlier on the main page. Um, it's just another means of conveying the information about this specific ETF or index fund. So you can see there's a section called key feature that talks about the ETF following the S&P 500 index. Here's on the right hand side here, we have a table that quickly shows the performance over a specific time periods. And if you scroll down here, you can see sort of like the management fees on the bottom here, some characteristics about the fund, top holdings and top sectors, and so on. So again, this fact sheet is just another means of providing the information about that specific index fund. 12. Example 2 QQQ: All right, next, let's take a look at the NASDAQ 100 ETF called QQQ. So go back to Yahoo Finance and let's actually type T your symbol in. And this is the one we're looking for because it's provided by InVSco. So this is the QQQ trust. So go ahead and click that. And as you can see, this is exactly what we're looking for here. So we got the Invesco QQQ Trust, and this is the NASDAQ 100 ETF. And again, this is the type of similar information that you saw with S&P 500. So we got 164 billion under management in assets. And if you scroll down here, you can see that the dividend yield for this particular fund is a lot less than the S&P 500. And because this is mainly a growth fund. And you can see that the performance this year so far, it hasn't been great because the technology sector has been hit really hard. And right now, the return for this year to date has been -34%. And you can see that the expense ratio here. So this is the management fee. This is actually a lot higher than the S&P 500 ETF that we inspected in the last lecture. So this is also something to keep in mind. Now, let's go ahead and jump into the holdings here. And if you scroll down here, again, this is mostly all stocks. You can see that in the breakdown composition here. It's pretty much 100% all stocks, nothing else. There's zero bonds in here. And if you actually scroll down here, you can see that a lot of sectors here are actually have very little weighting. In term when compared to SMP 500. So for example, basic materials has 0% weighting, real estate 0% weighting, energy 0%. This is because this fund, the NASDAQ 100 index is actually primarily focused on technology and healthcare. So if you take a look here, technology takes up to 48%. So almost 50% of this fund, index fund is basically taken up by the technology sector. And you can see that 15% is communication services, and then 15% is by consumer cyclical. So you can see that technology takes a major um weight in this ETF. And again, if you go down in the top holdings here, you can see that you may recognize some of these companies that we saw earlier in the S&P 500, but take a look at the percent allocation here. In S&P 500, Apple was also sitting at number one in terms of rank, but the percent allocation was about 6%. Over here, it's actually about 11%. Microsoft is weight allocation is about 10%. Amazon is 7%. So same companies, well, it's not exactly the same companies, but at least for the first three are the same companies, but the percent allocations are a lot different when compared to the SMP 500 and primarily because this fund focuses on technology and growth. And if we scroll up again to performance, here you can see sort of like a similar information in being presented to us. So overview, year to date, this fund has performed about -34%, so we are in the negative for this year. Um, and here is some presets. So year to date -27%. One month we got -0.85%, three months -8%, and one year -27%. And if you go down here, you'll see the annual total return percentage breakdown based on historical data. So you can see that in the 2000 the fund did very, very bad because of the um.com bubble, and you can see that almost -36% in 2000 -32% in 2001, and minus -37% in 2002. The fund started to perform really well starting 2003, so almost up 50%, which is a massive gain. And after that, it was sort of steady. And then you can see in 2009, technology did pretty well. Despite the housing crisis, and it was up 54%. And pretty much after that, it was up to 2021, things were going pretty well in terms of growth and price appreciation. And in 2022, the fund hasn't performed very well because given the economic situation and all the limitation that has been caused by the recession that we're going through. So this is the annual total return history of the NASDAQ 100 ETF QQQ. Okay, now let's find the same type of information for the QQQ ETF directly on the fund provider's website, which is Invesco. So let's go ahead and type in QQQ. And if you hit Enter, you can see that there's some information here Invesco QQ trust series one. This part here, this is just Google Finance presenting you with information and a chart with some presets. So you can click on these if you want to play around to see the five performance, one month performance, six month, year to date, one year, five year and MAX. And over here, if you scroll down, you'll see several links. Here you see Yahoo Finance, which we talked about. And this link here is the invesco.com website. And this is exactly where we want to go because Invesco is a provider, and we are interested in the QQQ ETF fund. So as soon as you click on here, this is actually going to load the main page for the QQQ ETF. So on this main page, there's a lot of information being presented to us about the QQ ETF, which is simply a fund that follows the NASDAQ 100 index. And you can see that the ticker symbol here is QQQ. The price is 266.6. Number of holdings is about 101 companies at the moment in the CTF, and asset under management is about $147 billion. And if you scroll down a little bit, you can see that the top ten holding and their percent allocation. So you can see that Microsoft is currently taking 12.61%. Apple is taking about 11.68%, and Amazon is in third place taking about 6.05%. Again, remember that these companies and allocations will change depending on their performance and how that maps out to the criteria defined by the index. And if you scroll down a little bit here, you'll see a button that's called see all holdings. Again, this is at the moment this ETF holds 101 companies. You only see the first ten here, which are the top ten by percent allocation and rank. But if you want to see all of them, you can simply click on this and it'll open up a model, and here you will be able to scroll down and see all 101 companies, their name, the sector they're in, and their allocation. And you can also sort here. There's a low button arrow button here, up and down arrow button and you can sort by these things company name, sector and allocation. And if you scroll down, you'll be able to see all 101 companies here in this ETF. Also, if you'd like to download a copy of these holdings, you can simply click Download. And again, that'll give you either an Excel file. Typically, it gives you an Excel file or CSV file, sometimes a PDF file depending on the fund provider and their website and what they're offering. So this is the holdings, and if you scroll down a little bit more, you'll see sector allocation. So as you saw earlier, this specific fund is focused on growth and technology. So you can see that information technology is actually taking approximately 50% of the fund allocation. Next, you got communication services in second place at 16%, and then you got the consumer discretionary at 14.26%. If you scroll down a little bit more, you can see the breakdown here. So information technology. I'll show you the companies for that specific sector and their percent allocation. And here is just the breakdown of each sector. So whatever it is that you're interested in, you can just expand the arrows here and it'll present information to you that way. And over here, you got some more details about the funds. So take your sample, the exchange it trades on, the inception date, the expense ratio. So here it's 0.2%. For the S&P 500 SPI ETF, we saw that was 0.09. So even though 0.2% seems a lot higher than the other ETF we looked at earlier, Um, it is still considered low because mutual funds have typically have an expense ratio or MER of one or 2%. I've even seen some that are 3%. So 0.2% is considerably less than those numbers. So it's still a very good reasonable management fee. Number of holdings right now is sitting at one oh one, again, asset under management and some more information here about the fund. Okay, let's go ahead and scroll all the way to the top of the page. And there's a tab here called performance. So go ahead and click on that, please. And here you can see a history of performance between the NASDAQ 100 and S&P 500. So over here, they've provided us with a really nice visualization in using line charts. And over here, we are doing a comparison between the NASDAQ 100 index and the S&P 500 index. Now, this is sort of like a hypothetical growth of $10,000 invested back in 2013 here. And this is showing you the performance. Now, let's go ahead and just to keep things simple here, let's go ahead and uncheck this. So right now, what we're looking at is we're looking at two line charts. The one on the top here, this top one here is actually presenting the QQ ETF. The bottom line is presenting the S&P 500 index. But you can simply think of that as a S&P 500 ETF, such as Spy because the ETF is supposed to mirror the index. So in theory, they're the same. Now, over here, this presentation is comparing the two since 2013, and you can see that from 2013 here all the way till 2017, the performance were very similar. So NASDAQ 100 did outperform the SMP 500 by a little bit. But really starting 2017 is when things really, really took off here, and you can definitely notice the difference or the delta between the two lines. So the wider the gap between them, the higher the outperformance or the underperformance, depending on how you want to look at it. So over here, you can see that the NASDAQ 100 ETF QQQ has significantly outperformed the SMP 500, starting in 2017 until now. Now, the one thing to pay attention to or keep in mind is that does that mean the NASDAQ 100 will outperform SMP 500 in the future? Absolutely not. Because this is all based on historical data and no one really knows what's going to happen in the future. The important thing to understand here is that the NASDAQ 100 is really a growth fund, and it focuses on technology and healthcare. But the SMP 500 is a lot diversified. So it does focus on other sectors such as real estate and energy that the NASDA 100 index does not focus on. So S&P 500, just because the NASDIk has outperformed S&P 500 over the past several years, it doesn't mean that the S&P 500 is a bad investment. In fact, it's a very safe investment because there are more companies in the index, right, about approximately 400 more, and also it covers more sectors, meaning it's more diversified. So it really depends on what your goal is when you're actually investing in different types of ETFs. So again, one is more stable and diversified across more sectors, and the other one is focused on technology and healthcare. And here, again, this presents us the performance in terms of comparison between the two funds. One last thing to cover while we're on the website here, scroll up to the top, please. And there's a button here called Fact Sheet. So go ahead and click that. And again, this opens a PDF file that highlights the information about the fund QQQ. So let's go ahead and zoom it a little bit. And again, very similar to the S&P 500, this PDF just presents us with some high level information. You can see that here it just talks about some quick performances and comparison. So growth of $10,000 in QQQ, it would have been from 2012 here, it would have been approximately $42,885. And you can see the color coded legends here, the Russell 3,000 versus the NASDAQ 100. And Russell 3,000 is really an index that covers smaller cap companies. And if you scroll down here, you can see the description of the fund and basically what it focuses on. Here, there's information about the ETF. So the ticker symbol, it talks about the yield, it talks about the holdings, number of holdings, management fee at 0.2%, which exchange it is being listed and traded on and so on. On the right hand side, you got the table in terms of performance with some presets, so year to date, one year, three year, five year, and ten year since inception. So you can see over the ten year on average, this one has done about 15.67%. So really, really good. But in terms of inception, it's done about 8%. And this is if you scroll down, there will be some more information in terms of top holdings, the percent allocation of each company, the countries and regions that are involved, and the breakdown of each sector within the fund. 13. Managing Risks: In this section, we're going to learn how to design a portfolio from scratch. Before designing your portfolio, you have to learn how to manage risks, and the way to do that is to understand your risk tolerance. So what you have to think through is your short term goals versus long term goals, and you have to understand how much of equities, meaning stocks versus fixed income assets you want to keep in your portfolio. So the higher the percentage of equities, the higher the level of risk and volatility you're willing to take on in your portfolio. Many investors manage risk with bonds in their portfolio. So what is a bond? A bond is simply considered as a fixed income asset and is a corporate debt that is tradable on the stock exchange. There are several advantages in using bonds in your portfolio. One is that it introduces lower volatility. So the more bond you have, the lower volatility you'll see in your portfolio throughout time. And the second advantage is that bonds pay dividend, whether you invested in a specific bond or a bond ETF, it will pay you dividend, which is sort of like an interest in a savings account, and you can consider that as income in your portfolio. What is the relationship between stocks and bonds? Well, in theory, when stock market is on an upward trend and the prices of stocks are going up, bonds remain flat or the prices might go slowly down. When the stock market crashes or corrects and prices fall, bonds should go up. Now, this is the general theory. It doesn't actually have to follow the above in real life. In fact, I've seen cases where the stocks have gone down and bonds have also gone down at the same time. Stock market can be unpredictable, and this is something you need to be aware of and be prepared for. But in general, the more bond you have in your portfolio, the less risk and less volatility you'll see in your portfolio. One point I like to highlight is that you don't have to use bonds to de risk your portfolio if you don't want to or if you don't understand bonds. There are other types of fixed income assets that you could use in your portfolio instead. For example, you could use treasury notes, certificate of deposit, guaranteed investment certificates or GICs for short. This is an option available for Canadian investors, and it's very similar to certificate of deposit. You could simply just invest in dividend funds because dividend funds typically don't appreciate in price that often. They usually trade sideways, but they have the consistent, steady income through dividends. And if you want to go very low in terms of risk, you can just simply have cash in a savings account that collects interest. 14. Portfolio Allocation: All right, now let's walk through several portfolio types and take a look at the portfolio allocation when it comes to bonds and stocks. The first type is called aggressive. So typically, in this type of portfolio, investors usually do 90% stocks or we also call those equities and 10% bonds. Sometimes more aggressive investors will do 100% equities and 0% bonds. Next, we have the growth portfolio. So the growth portfolio is a little bit less aggressive than the aggressive portfolio. And as you can see, the portfolio allocation is 80% in equities and 20% in bonds. And the last one is called the balance portfolio. And a balanced portfolio is more conservative, and we are looking at 60% in equities and 40% in bonds. 15. Portfolio ETFs: Thanks for following along in the course so far. And now that we know how to manage risks using bonds and stocks in our portfolios and their composition and percentage allocation, we're going to design a well diversified portfolio using different ETF funds. Because our main goal is to create and maintain a well diversified low risk portfolio, when it comes to equities and stocks, we want to have exposure to the entire world and the world market. For that, we're going to focus on the US market equities. We're going to focus on the Europe market, and developed countries. And lastly, we're going to make sure we have exposure to the emerging markets. Now, emerging markets is a little bit iske. That's why I'll get the least amount of percentage allocation. But potentially we are actually investing in emerging markets because of their potential growth in the future, and that's why we want to have exposure. And lastly, we'll invest or create a portfolio using bonds. And we're not going to create a portfolio using one specific bond, but instead, we're going to use a fund, which is a collection of bonds or an aggregate of different funds to again, reduce the risk and keep things diversified. For this exercise, we're going to create a model portfolio using Vanguard ETFs. Vanguard is one of the largest and most popular fund providers in the United States and North America. Vanguard provides many, many different ETFs and index funds for pretty much anything you can imagine. For this lecture, we're going to focus on the following. First, we're going to look at the US market. Vanguard has an ETF called VTI, which is the Vanguard Total Stock Market Index fund ETF. They also have a fund called EA, that's the Ticker symbol, and this is the Vanguard Developed Market Index Fund ETF, which covers European developed markets, Australia and some other countries. Then we have the Vanguard emerging market, ticker symbol VWO, and that is the Vanguard Emerging Market stock index fund ETF. And lastly, we have the bond ETF. This is the Ticker symbol B and D, and this is the Vanguard Total Bond Market Index fund ETF. So one thing you might be asking yourself is, how did I find those ETFs? Well, it's actually pretty simple and easy because I know that Vanguard is one of the largest fund providers in the United States. So all I did was I hopped over Google and I typed in Vanguard ETF. So let's go ahead and do that. And in the search result, you want to scroll down until you find this URL here or this link. This is called investor.vanguard.com, and as you can see the description here is the Vanguard Investment Product list. This is exactly what we're looking for. So go ahead and click on that, please. And here now we are taking to the Vanguard's official product list page for all the ETFs. And you can see that this information is being presented to us in a table format. There's so many different ETFs out there. Van Guard pretty much has an ETF for anything you can think of broken down by different categories or sectors. You can see here consumer discretionary ETF. We have the consumer Stables ETF. We have an Energy ETF. We have a dividend ETF. We have so many different ETFs that we can choose from here. And in this table, we are given some high level information. So, for example, you can see that this is the ticker symbol in the table. This is the description of that. Here's the asset class. Here's the risk level, here's the expense ratio. So you can see the management fee here on a high level. So, for example, for the energy ETF, the expense ratio is 0.1, but for the dividend ETF is 0.06. And this is exactly how we would go about finding the information that we want, and we covered that earlier in the earlier lectures and slides when we were talking about researching ETFs. If you find a specific ETF that you're looking for, all you have to do is click on the description and it'll take you to the next page where it focuses all the information on that specific ETF. Now, when you first come to this page, note that it already applied the filter for us. The left hand side is the list of filters that you could apply. And by default, it already created and applied this filter ETFs, which is really nice because that's exactly what we want to look at because Vanguard provides a lot of different funds, for example, mutual funds. And because our main focus of the course is to look at index ETFs and broad market ETFs, we filter the list, so it takes us less time to go through this table of information and find what we're looking for. So by default, this is applied because we came from the Google Search. If it's not applied, please go ahead and apply it because it narrows down the list for you and makes it easier to go through the information. There's other actual filters that you can apply here depending on what criteria you're looking for. One thing I like to do here is I like to click on management style and check Index and apply that filter because for me, my interest is investing in broad market index ETF funds, and that's exactly what I'm looking for. So applying that filter helps me go through the information faster because it narrows down the list of funds on the right hand side that I can look at. Also, I like to go to strategies and click on total Market ETFs. And if I click that, you can see that the narrowed down the list. And over here, this is exactly one of the funds that we were covering in the earlier studies, B&D, which is the total bond market ETF. Also on the bottom here, you got the VTI, which is the equities, ETF for the total stock market that we would like to use to create our portfolio. So this is exactly the process I go through every time I want to find or research a specific ETF for a specific purpose in my portfolio. 16. Portfolio Types: All right, now that we know which ETFs we want to use to create our portfolio, let's go ahead and take a look at the allocation across those funds in our portfolio. First, we'll start with the aggressive type portfolio, and this was the 9010 portfolio, 90% stocks, 10% bonds. Now here, we've allocated the money across four different ETFs. So 50% of the money will go to VTI, which is the US total Market ETF. 25% of the money or the funds will go to VEA which is the European developed country and Australia market. Then we have 15% going to VWO which is the emerging markets, and we have 10% of the money going to the bond total market ETF. Next, let's take a look at the growth portfolio. So in this one, if you recall, this was the 80 20 portfolio, so a little bit more of the fund will be allocated towards bond. So let's start by VTI. We will allocate about 45% to VTI, which is the US stock market, we'll allocate about 23% to VEA about 12% to VWO and about 20% to bonds. Lastly, we have the balanced portfolio. This was the 60 40 portfolio. So we're going to allocate about 35% of the funds to the US market. We'll allocate about 17% to VEA, 8% to VWO and 40% to bond. Please note that the numbers and percentages we covered in these three portfolios for our ETF allocation are arbitrary. They're driven from common templates out there, but at the end of the day, you have to choose what works best for you. So you have to understand what your goals are and what your risk tolerance is, and based on that, you can decide what the percentage allocation to each of these types should be in your portfolio. You can also contact your financial advisor to ask for help and recommendation on these breakdowns. Okay, we've covered a lot of information throughout the course up to this point. So let's pause for a second and test our understanding. As part of this quiz, what I would like you to do is build a similar portfolio to what we just covered with Vanguard ETFs. But instead, I would like you to use Black Rock Ishers ETFs and see how you do. 17. Contribution and Frequency: That you understand how much of your money needs to be allocated across different ETFs in your portfolio and the portfolio composition, let's go through an exercise to see how we would contribute to that portfolio. For this exercise, let's use the aggressive type portfolio, and hypothetically, let's say you have about $10,000 that you want to invest into this portfolio. Well, you have two options. You can either invest all this money across your portfolio all at once, or you can do it gradually over the span of one year. So for example, once a month or once a quarter, whatever best fit your needs. Let's say you decide to invest all the money all at once. So the $10,000, the way we would break them down and allocate across ETFs is based on percentage. So because in the aggressive type portfolio, VTI takes 50%, 50% of 10,000 is 5,000, so we're going to put 5,000 into VTI and buy that many numbers of shares. And all you have to do is whatever day that you're trying to invest, you just have to look at the VTI, the price of VTI per share. And you can simply just divide 5,000 number by the price of VTI, and they'll tell you how many shares you can buy from VTI. So for example, if VTI today trades at $10, you just go 5000/10, and that's 500. So you can buy 500 shares of VTI, and that will give you the percent allocation, equivalent percent allocation of 50% in your portfolio to VTI. Then we want to invest 25% of our 10,000 into VEA, so that is approximately or the equivalent of $2,500. Then we want to put 15% into VWO the emerging market fund, and that's $1,500. And the rest, which is the remaining 10%, which equates to $1,000 goes into our bond ETF. Now, another question you might be asking yourself is how frequently you should invest and contribute to your portfolio? And the answer is really it depends on your situation and your life. It depends on your income, and it depends on how much money you have left over after paying your bills and expenses and other things in life. So, ideally, the general recommendation is that if you can invest or contribute once a month, that's great. At the very minimum, try and contribute at least once per quarter. Contributing once a year is generally bad idea because you want to try and dollar cost average throughout the year, because throughout the year, things will be some days will be up, some days will be down. And if you're investing frequently enough, you can try to get an average between the ups and downs and not necessarily always on the downs or always on the ups. Now let's refer to the following graph, which illustrates the stock prices versus time. Now, the general consensus is that the stock market will continue to do well and go up over time, as long as the economy is doing well and as long as the companies are performing well. But in reality, it's actually not going to be a straight linear graph. In real life, the stock market is doing something like this over a long time horizon. So you can see that there will be times where the stock market is doing really good, and these are the peaks here, and there are times where the stock market might not be doing good, and there could be a recession or economic downturn, or the companies are just not executing well, or the sentiment of the market is not good, and this is where things actually draw back and correct. So in real life, it's not really a straight line, and it's more of a line that's represented on this graph. Now, when it comes to dollar cost averaging, investors and what works best over a long time horizon is the frequency of which investors are actually purchasing and contributing to their portfolio. So, for example, the more frequently you contribute, the better average you're going to get. So over here, for example, this red dot here, we are let's say this is a point in time where as an investor, you go in on that specific day and you're putting some money into buying some ETFs and contributing money to your portfolio. Well, as you can see here, this is the peak, and this is where the prices are at the very highest at that moment in time, right, relative. And over here, you decide to on another day a month later, for example, let's say, you decide to actually go ahead and distribute some more money and allocate more funds to your portfolio. Well, over here, you're actually contributing on a day where it's actually at its lowest. So you're actually getting the best value for your money because here the prices are the highest, so it's the most expensive, and here is the lowest, so it's the least expensive. Thing is, it's almost impossible to time the market because if you could, you would always buy at the lowest, lowest lowest. But in order to achieve a nice average, which is basically what this red line is presenting, you want to try and purchase funds as frequently as you can. Now, obviously, you don't want to do that every day, but once every two weeks or once every month is sufficient enough for you to achieve an average like this. If you were to buy the fund or ETFs once a year, you could end up anywhere on this graph here. So you could, for example, end up on the peak here or you could end up at the lowest point here. But if you end up in the peak here, this is the worst case scenario where you're just getting the prices at the most expensive. And this is what you want to try to avoid, and dollar cost averaging helps you do that. 18. Rebalancing: Now that you've learned how to contribute to your portfolio and allocate funds across different ETFs, let's talk about rebalancing what it is, how you can rebalance your portfolio, and how often you should rebalance your portfolio. That you've created your portfolio and started investing, throughout the year, percentage allocation will fall out of alignment. Certain ETFs might outperform, meaning they will exceed above the desired percentage, and certain ETFs might underperform, meaning they will fall below the desired percentage. Now, rebalancing is simply the act of realigning all the ETFs to their initial designated weight in terms of percentage, and this only needs to be done once or twice per year. Here's a very simple example. Consider an aggressive portfolio. Now, let's say, at the end of the year, VTI is sitting at 55% and B and D is sitting at 5%, and VEA and VWO remain unchanged. Now, in order for us to rebalance this portfolio, all we have to do is simply sell 5% worth of shares from VTI, and then we'll use the proceeds and cash from that transaction to buy 5% worth of B and D, which is our bond ETF. The end result is that VTI is now back to 50% allocation and B and D is back to 10%, and now our portfolio is back in alignment and meets our desired composition. Now that you've learned what rebalancing is and how to rebalance your portfolio, the next question you might be asking yourself is, well, how often should I be rebalancing my portfolio? And the answer is, you do not need to rebalance your portfolio frequently. In fact, once or twice a year is sufficient enough. The key thing to remember here is that this is passive investing, which requires very little time. When we look at broad market index funds, they don't change that often. For example, the S&P 500 index gets rebalanced quarterly to reassess the companies that are in the index and to ensure that they are still meeting the criteria. Now, if the S&P 500 is doing this four times a day, four times a year, why would you need to do it any more than that for your portfolio, which is based on market index funds. So at the very most, you can rebalance your portfolio four times a year if you would like to, but once or twice a year, again, is sufficient enough. 19. Dividends: This section, we're going to learn what dividends are and how you can use them in your portfolio. When it comes to dividends, you can simply think of them as interest or cash back paid to the shareholders for investing in the company. When investors and shareholders purchase stocks of a specific company, they're taking a chance by investing their money in the company, and the company will use that money to grow the business. And if the business actually executes well, the company will start generating a lot of revenue and profits. And then the company will use part of that profits to reward the shareholders by paying them dividends. Dividends are also known as distribution or yield when you're looking through different platforms or product fact sheets. ETFs will hold companies that pay dividends, and because of that, you will get paid dividends for owning that specific ETF in your portfolio. Dividends are typically presented in a form of a percentage on an annual basis. For example, Spy, which is the SMP 500 ETF, pays 1.65% worth of dividend annually. Now, please note that this is true as the time of this recording, and this number may change in the future. Also when you're researching ATFs, you want to look for dividend amount on product fact sheet or provider's website or other free platforms we've covered throughout the course. And please do keep in mind that not all ETFs pay dividends. So now the question is, what can you do with dividends? And the answer is, it really depends on your situation because dividend is form of a cash back. You can really use that money to buy anything. You can use it to pay your bills, your expenses, to maintain your current lifestyle. You can use it for traveling or just simply save the money. But the general recommendation is that if you don't need the money to survive, then you should invest it back into your portfolio because this will create what is known as the compounding effect. And this will help your portfolio grow faster over time because now you have two sources of income not only you have your own money going into it on a recurring basis, you also have the cash that is being generated from dividends going into your portfolio as well. And you won't notice this effect when you're first starting out and when your portfolio is smaller in size. But when your portfolio becomes larger over time, you will definitely notice this effect. For example, let's say you're starting out with $1,000 in your portfolio, you may get about $10 a year worth of dividends, which is not much money. But when your portfolio reaches $10,000, you may now be getting $100 a year worth of dividends. And when it reaches $100,000, you might be getting $1,000 worth of dividends. And if you're getting 1 million, then you might be getting $10,000 worth of dividends. So as you can see, the larger your portfolio grows, the larger the dividends will become and the cash you're generating in terms of income from your portfolio, and when you're using that cash and putting it back into the portfolio, it'll help it grow even faster. In the scenario where you've decided to reinvest the dividends back into your portfolio to help it grow faster, you can accomplish this through two different ways. The first way is manually. So when you're holding an ETF in your investing account, depending on the distribution frequency, sometimes that could be monthly, quarterly, biannually, or annually, but depending on the fund and the distribution frequency, you will get cash deposited into your investing account, and this would be the same account that you're holding your ETF fund. Now, all you have to do is use that cash and manually buy more shares of different ETFs in your portfolio. This second method is called drip, and this is short for dividend reinvestment plan. Some funds and brokerages support this feature and allow you to enable this. And this is simply automatically reinvest the dividend into the fund for and if you can enable this feature, that'll be great because it puts you investing on autopilot. You don't have to put the money back into the fund manually and use your own time to purchase the shares. Also, for those brokerages and banks that do charge commission fee every time you buy ETFs, when you enable the drip feature, every time it reinvests and buy more shares of that specific ETF automatically, it does not charge you commission fees. 20. Common Portfolios: This section, we're going to walk through some common portfolio types together so that you can see if potentially any of them peaks your interest and if you'd like to use them as a template to create your own portfolio. The first type is to have a very simple portfolio that consists of only one fund. So for example, the SMP 500 Index ETF fund. With this one fund, you're being exposed to the economy of the entire United States. You're buying one thing, so it does not require rebalancing. And also, as you're allocating and contributing more money to your portfolio, the fund grows faster because you're allocating your money across one funds and not multiple funds. And the other option is that if you don't like the SMP 500, because it only has 500 companies, you can go for something that's more diversified and you can actually choose VTI, for example, and just hold VTI in your portfolio, which is exposing you to the total stock market. So that's another option. So for our next portfolio type, we want to look at something that's a little bit more diversified. So instead of holding just one fund in our portfolio, we're going to hold two funds. So, for example, we can go with the S&P 500 index ETF and the EAFE index ETF. Having these two funds in our portfolio, we will gain exposure to United States. We will gain exposure to developed countries in Europe and Australia and some more countries, and our portfolio is diversified internationally. Next, we want to go one step further, and instead of holding just two funds, we're going to hold three funds in our portfolio. So for example, in this template, we're going to use the S&P 500 index ETF. We're going to use the EAFE index ETF, and we're going to introduce the third fund which is the emerging markets ETF. This way, having these three funds in your portfolio, you are gaining exposure to the broad range of emerging market companies and the potential future growth that could come with these companies, and again, you're diversifying internationally. Now that we've reduced risk by diversifying our portfolio, we can go one step further and make it more stable and less volatile by adding bonds to our portfolio. With these four ETFs, we are still diversifying internationally. We have now lower volatility in our portfolio, and we are getting additional income from the bond interest in a form of cash, and we still have world coverage. Can also create your own portfolio by mixing and matching different types of index funds and your risk tolerance. For example, you could create a portfolio that holds only two funds. The first one being the S&P 500 index ETF and the other one could be a bond ETF, and that's all you need to have in your portfolio. And based on your risk tolerance, you can allocate the money across these two ETFs accordingly. So for example, for a growth ETF, you would allocate 80% of your contribution to the S&P 500 ETF and the other 20% to the bond ETF. Here's a three fund portfolio that is very popular nowadays, and this is currently one of my favorites. So the first ETF is something foundational and stable, such as the S&P 500. The second ETF is something that's a growth fund, such as the NASDAQ 100, and the last ETF is a dividend fund. And this is primarily for those who don't like or don't understand bonds and also for those who prefer higher income than bonds. So some of the bond ETFs out there yield somewhere between 1.2% annually in the form of a dividend or interest, but some of the dividend funds out there actually yield somewhere 3-5% worth of dividend or cash in your portfolio, which is much higher than bonds. Now, one of the reasons that this three fund portfolio is really popular amongst investors and also one of my personal favorites is because of its resiliency to different economic downturns. So in order for us to talk about this, we have to talk about macro economics for a second. So as everyone knows, inflation is simply the rise of prices for products and services over time, and we all know that we always have inflation. On average, it's roughly about 2%, and that's the increase you typically see every year. Now, recently in 2022, there's been a lot of global supply and chain issues and product shortages, and this has caused higher than normal inflation. And we're seeing we have seen inflation at record high numbers compared to the past. Now, when we have this high of an inflation, the governments need to step in and what the governments usually do in this situation is they rise the interest rate to battle inflation. However, when you raise interest rates, it is harder for companies to borrow money or raise debt in order to grow their business. And because of this, businesses no longer have the capital to invest in research and development and innovation. And some of these companies might even go out of business due to their level of cash burn throughout this period. So what you will notice, and this is in theory, it doesn't always happens like this, but what you might notice is that the growth fund falls the hardest throughout this period. And this is because the growth fund, such as the NASDAQ 100, is very focused and concentrated in the technology sector. During this period, everyone knows that the market, the stock market in general is going to do bad and the prices for everything will fall. So at least having money into a dividend fund provides a steady level of income. And because everyone is going to sell off their other stocks or other funds and rotate money into the dividend funds, you also see a nice price appreciation across different various dividend funds. Now, this idea is pretty much the same with the other four fund portfolio type that we talked about except here instead of a dividend fund over there, you have the bonds or other types of fixed income assets. Now, when during an economic downturn and where things are very difficult throughout businesses, it's not a good idea to be invested in a single company that pays dividend and because dividends are not guaranteed. For example, if one of the companies that you are investing in that pays dividend might decide to stop paying dividend because they need to conserve cash in order to keep the business together and running. So the better choice is to have a dividend fund or a dividend ETF because there you have a collection or a basket of companies that pay dividend. For example, it could be 50, 70, 80 or 100 companies. So if one or two of them stop paying dividend, you are still getting some level of income through the other companies that are still in the ETF or dividend fund of your choice that you're investing in, and at least you're getting that u income in your portfolio. And this is one of the reasons why this is very popular portfolio. And in general, when you have difficult times in the economy, a lot of people's portfolios are going to be down, but the question is how much down, right? That's the question. And when you have a portfolio like this, for example, if somebody that only has a growth ETF in their portfolio and not a dividend ETF or not a foundational ETF, such as the SMP 500, which is well diversified over multiple sectors, not just concentrated on technology, well, this type of portfolio might go down a lot if you only have a portfolio that has one growth fund in there. This will drop pretty hard during these situations or economic downturns. But if you have a three fund portfolio such as this, then it would drop less. So for example, in the first example, where you just have a portfolio of one growth ETF, that might drop, for example, 30% but if you have a three fund portfolio, such as the one we covered here, it might drop 10% to 15% instead. And conversely, during economic upturns, where everything is doing great, economy is doing great, everything is exploding and everything is going up. Well, if a typical portfolio, such as just the dividend, if you had a portfolio that only had one dividend fund, that one is going up by 10%, for example, if you have a portfolio such as this where three fund portfolio such as this where you also have the foundational S&P 500 and a growth ETF, such as the NASA 100, yours might go up by more in terms of percentage, right? You might see a lot more gain. For example, it could be 15, 20 or even sometimes 30%. The thing the way you have to look at this is the overall portfolio. So all of your funds, you have to see that as one portfolio and what the performance of all the funds are together. Here, I would like to illustrate that point with a couple of examples. On the right hand side, we have a chart where we are comparing three different funds. So the yellow one on the top here, this is a growth fund. So this is QQQ NASDAQ 100. The middle blue line here, we have the foundational ETF, this is Spy which is the SMP 500 ETF. And on the bottom here, the green one here, we have the dividend fund. This is VIM, and this is the Vanguard High dividend ETF. You can see that right now we're looking at the past performance of the past five years, and you can see that the growth fund, the NASAQ 100 is outperforming both of the other funds by a lot here, right, especially in the beginning of 2022. So pretty much from the start of let's say 2019, all the way till end of 2022, the growth fund is actually outperforming both the SMP 500 and the dividend fund, ETF. And you can also see the numbers on the below here, so you can see that over the past five years, the NASDAQ 100 is up about 65%. The SMP 500 is up about 40%, and the Vanguard dividend ETF is up about 24%. Now, let's take a quick look at the one year performance. So here we are looking at the performance of 2022, and this is where we had a recession, and you can see that things are exactly reverse now. So you have the NASDAQ 100, which is the yellow line here. This one is actually the worst performing one. And you can also see the number here on the bottom. This one is over the last year, this one is down 33%. In the middle, you got your foundational one S&P 500, and this one is down 20%, but take a look at the dividend fund here, the VYM or Vanguard high dividend ETF. This one is only down 4%. So when you're comparing being down 4% versus being down 30%, that's a huge difference, right? This is something you have to understand. The difference here is massive. It's just enormous. And this is why having all three in your funds will average the damage that this downfall is going to do in your ETF. Because if you were only invested in the NASDAQ 100, well, it's easy. You're just going to be down 33%. But if you're allocating your fund across different sorry, if you're allocating your money across different funds, where you're not going to be down 33%, you're going to be down less because you're also investing in dividend ETFs, and you're also investing in SMP 500 or possibly other funds, whatever you think is best for your goals and strategy, so this is sort of like a way to mitigate risk. And again, this is why this three fun portfolio or portfolios such as these that match this type of template are very popular because of their resiliency to macroeconomics. Regardless of which portfolio type you choose to start your investing journey or whether you just built your own from scratch that is not covered in this course, the key to success is keep things simple and diversified. You do not want to hold more than five ETFs in your portfolio unless it's absolutely necessary, and you always want to pay attention to management fees. This is denoted as MER and usually is in a form of a percentage in product fact sheets. 21. Common ETFs: ETFs covered in this section are also commonly used by many institutional and retail investors out there. Here's a list of ETFs that could be purchased by the US investors. So for S&P 500, we have Spy. These are all the Ter symbols here. So we got Spy. We got VOO, we got IVV. So the VO is the S&P 500 fund ETF that is being offered by Vanguard, and IVV is the S&P 500 ETF being offered by ISHRes. For EAFE, we have IEF A, EFA and VEA. For emerging markets, we have IEMG and VWO and for bonds, we have B and D and AGG. Please note that there are probably more funds out there for these categories. These are just some of the popular ones that are widely used by investors. Here, we have the ETFs broken down by category that is essential to every portfolio. We have the foundational ETFs. So we have the SMP 500 and for this, we can use VOO, which is the ETF offered by Vanguard, or we can go with total stock market, and for this, we can use VTI or SCHB. For Growth ETF category, we could use the NASDAQ 100. So for that, we can use QQQ, or we could use VUG which is the Growth ETF from Vanguard. We could use VGT, which is the technology, information technology ETF from Vanguard. We could use SCHG, which is the Growth ETF from Charles Schwab, or we could use SPY G or we could use IVW. And for dividend ETF category, we could either use VYM or SCHD. Here are several ETFs that could be used to build a portfolio for Canadian investors. For S&P 500, we have FE, VSP, XUS and XSP. For EAFE, we have XEF XIN and EF. For emerging markets, we could use VEE or XECFor the Canadian markets, we could use VCN and XIC and for bonds, we could simply use VAB, ZAG and XPB. Here are the ETF categories broken down. So for the foundational ETFs, we could use S&P 500, and for that, we could use ZSP. For growth ETFs, we can consider the NASDAQ 100 index fund, and for that, we could either use ZNQ or XQQ. We could use TEC, which is the TD technology index, and for dividend ETFs, we could either use VDY XDV or XEI, and these are all perfect index ETFs that you could use to, for example, build a three fund portfolio, which we covered earlier and very similar to its US counterpart. For Canadian investors, there's also another great option available, and these are called asset allocation funds, and they are lineup products that are offered by different fund providers, and they're simply a fund of funds. So here you have multiple ETFs in one ETF. And this is a great solution if you want to keep things simple because you're just buying one ETF and that ETF has an underlying four or five ETF. And because of this, no rebalancing is required. All the rebalancing is being taken care of by the fund manager, and it only happens a few times a year. So the expense ratio or the MER is still relatively low for this product line. All you have to do is pick your risk level, and that's simply determining the ratio of stocks versus bonds. And you also through these products, you also gain exposure to the US market, to the Canadian market, international market, emerging market, and bond. And again, depending on what options you choose. So for example, if you choose an all equity aggressive portfolio, that's 100% stocks and 0% bonds. So it really depends on what you choose. And overall, it's a great all in one solution for Canadian investors that you could consider. Here, I've broken down the asset allocation funds and their equivalent ETFs. So for the first row, we have 100% stocks. So again, this is considered the aggressive portfolio, and Vanguard offers an asset allocation fund for this specific risk level called VEQT and VEQT is all stocks, so 100% stocks and 0% bonds, and ISHRes is offering this similar ETF called XEQT. Now, if you want to look at the growth one, which consists of 80% stocks and 20% bonds, Vanguard is providing ETF called VGRO and ISHRs is providing a similar product called XGRO. And when we're looking at a balanced ETF, that's consists of 60% stock and 40% bond, here Vanguard is offering this ETF under the Ticker symbol BAL, and ISHAes is offering the same type of ETF under the Ter symbol XBAL. Let's take a quick moment to look inside of VGRO to see what the composition looks like. If you recall, VGRO was the Growth ETF being offered by Vanguard, and all of this information can be found on Vanguard's official website. And if you recall, the Growth ETF is the allocation is 80% stocks and 20% bonds. Now, as you can see here, the first item is the US total Market Index ETF. This one is taking roughly about 36% of the fund. Next, we have the Canada market, and this one is actually taking roughly about 24% of the fund. Next, we have the developed countries. This one is taking about 15.63% of the fund, and then we have the emerging markets, and this one is taking roughly about 6% of the fund. Now, you can see that in this ETF, we are holding three bond ETFs. So we got the Canadian aggregate, we got the global aggregate, and we got the US aggregate. And the important thing here is that if you add the percentage allocation for all three bonds bonds, they should equate to roughly 20%. Let's take a moment to look inside of XGRO to see what the composition looks like. Remember that XGRO is very similar to VGRO. The concept and the idea is the same. It's an asset allocation. ETF fund that is being offered by another provider. In this case, it's ISHRes. But the goal is still the same to provide all in one solution to the Canadian investors. If you look at the breakdown here, you have the ETF ITOT which is the exposure to the US stock market. This one is sitting at roughly about 36%. You have the EAFE index, and this one is sitting at about 20%. You got the TSX is the Canada market, so take your symbol XIC. This one is sitting at 20%, and then you have the emerging market I EMG, and this one is sitting roughly at about 4%, and the rest are bonds and cash, and you can go through this in more detail. 22. Quiz: Okay, let's pause for a second and do a quick quiz. What I would like you to do is take a moment and compare the two asset allocation funds, VQT and XQT and find the differences between the two. And you can pause the video here for a few seconds, go do the comparison, note down your findings, and then come back. Thanks for taking the time to compare the two ETFs and completing the quiz. These are some of the differences you may have noticed when you're comparing the two funds. Percentage allocation between different markets, yield, which is the dividend yield, distribution frequency, and the management expense ratio. 23. Performance and Compounding: Before we wrap up the course, I would like to spend a little bit more time to discuss why it is important to invest with index funds and how that could contribute to your success as an investor over a long time horizon. Investing in broad market index funds and ETFs requires very little time. It doesn't require research because you're not investing in single stocks or individual companies, hence you don't have to follow up with the news and performance of those companies on an ongoing basis. Instead, you're investing in a collection of companies that meet a certain criteria and standard. Your risk is also mitigated through diversification because you're investing in multiple companies across multiple sectors across multiple regions. Index funds such as ETFs have very low management fee because they're passive. The index itself doesn't change that often, which means the fund manager for a specific ETF or mutual fund or any other types of index fund does not have to manage the fund and change things on an ongoing basis. Typically, things can get rebalanced anywhere between four times a year to two times a year or sometimes even once a year. Sometimes when you're looking at different product fact sheets, you may see more than one management fee described with several numbers. The one you really want to pay attention to, which is the final number is called MER, also known as management expense ratio. And that one we covered earlier in the course, which is presented in a form of a percentage. Typically ETFs have very low management expense ratios. Some of them go as low as 0.04% up to possibly 0.1%. I've seen some that are close to 0.2% or 0.25%. Typically, these are all very good and low fees in terms of management fees. You want to try and stay away from expense ratios or management expense ratios anywhere over 0.5% because a lot of, for example, mutual funds, have really high management expense ratio percentages and fees, such as 1% or 2%, in some odd cases, 3%. So for ETFs, I would say anywhere under 0.4 or 0.5% is a good low fee for ETFs. I've included a couple of articles for you to read, which I've attached links to at the end of the course here under the resources slide. But an interesting fact is that most active funds underperform the broad index funds, not all of them, but majority of them. And that's because most active funds have a human portfolio manager, and as we know, humans are susceptible to mistake. Obviously, those mistakes are not made intentionally, but mistakes do happen, and because of some of those mistakes, the active funds, most of the time underperform the broad index funds, which are a passive way of investing. Also because you have a portfolio human manager, and because that person is actively managing the funds and actively changing the underlying holdings of that funds, then you have very high management fees associated with active funds. Here, I've included a chart of the S&P 500 index performance over a 90 year period. This starts all the way from 1920, and it goes all the way till the end of 2022. As you can see here, on average, the general direction is up and the S&P 500 has performed really well. The gray areas here in the chart present or denote a recession. So as you can see, from 1920, all the way till the end of 2022, we have had a lot of recessions, but we have always recovered out of them, and we have continued to go higher and higher. So again, the general consensus is that the stock market will continue to go up over the long term, as long as the economy is doing well and as long as the companies in that specific country or region are performing well and executing well, they are innovating and solving real life problem. Here is another chart which is highlighting the S&P 500 index performance over the last roughly ten year period. So this starts all the way from 2010 and goes all the way until the end of 2022. And as you can see here, again, the general direction is up. Let's quickly take a look at the S&P 500 index performance. And this information and table was taken directly from the product page of the Spy ETF on their website. And over here, you can see that over the last ten years, the S&P 500 index has returned roughly about 13.34%. Now, obviously, we cannot invest in the index itself, so this number is really more of a realistic representation of what we would receive as investors. So let's focus on that. So in the past ten years, on average, the fund has returned about 13.19% to investors, which is just incredible. That's a huge gain. Considering that savings account would give you something like 0.2 or 0.5%, maybe at most 1%. So 13.19% is a huge gain for investors, and it's a great return. Now if you look over here, you can see that the index ETF fund, since inception, has roughly returned about 9.78% per year on average since 1993 when the fund was first created. I would like us to spend some time looking at a compound interest calculator and running some numbers because this should give you some high level idea of what type of potential gains you could be looking at from your portfolio on investments over X number of years. There are a lot of different compound calculators out there, but the one I like to use is at investor.gov, so let's go ahead and navigate to investor.gov and once you arrive on this website, what you want to do is hover over financial tools and calculators and over here, select this option that's called compound interest Calculator. And this will take us to the compound interest calculator page. The first step here is defining your initial investment. So this is where you want to put the amount of money that you have available to invest initially. And this also depends on your situation, how much money you have saved up, and so on. So you could put zero here or you could put any number, again, depending on how much money you have saved up and you want to begin your investing and build your portfolio so just to begin with, let's put an arbitrary number here and say $1,000. So this is how much we're going to start and contribute to our portfolio immediately. The next step is the monthly contribution. So this is the amount that you plan to add to the principal every month. So in this case, let's start with something low and simple. Let's say, every month, we can put in $100 aside to contribute to this portfolio. So let's put in 100. And the next thing you want to define here is the length of time in year. So how much you want to how long you want to invest in. So let's keep this simple and go ten years here. So relatively long time horizon. And in step three, this is where you have to define the interest rate. And for this, this is where we want to put in the number of return in terms of percentage for a specific fund that we're interested in. So in order to keep things simple, we saw earlier that the S&P 500 is actually returning roughly about 10% on average since inception per year. So let's go ahead and put in 10%. This is how much we are expecting the fund that we're investing in to appreciate every year. So let's go ahead and put in ten, and compound frequency, you can ignore these for now and then just go ahead and click on Calculate. And here, you're presented with the results. So you have the text result that you can read on the top. So the results are in ten years, you will have 21,000. Now, there are two graphs the bottom one is your contribution. So how much money you're putting in out of pocket. The top one is the future value. So here, your total contribution is actually $13,000 based on $13,000 based on how much of your own money you put in. But after ten years, this will appreciate to roughly about $21,718. Let's go ahead and change some of the attributes. So for example, what we can do is we can increase the number of years, so we want to be invested longer. So let's go ahead and change the ten to 20. And if we hit Calculate again, you can see that that initial number of 21,000 has significantly changed and it has increased to 75,000. So you can see that the longer you invest the more your investment will appreciate over time. So we're still contributing the same amount. We're still putting aside $100 per month. But instead of ten years, we're doing this for 20 years. So after ten years, we actually ended up with 21,000, but after 20 years, which is twice the amount, we ended up with 75,000, which is approximately four times the $20,000 amount. So we doubled the time, but we quadrupled the gain. So that's very important to understand. And now if we go back up here, what we would like to do is, let's go ahead and change something else. So let's say that now we are able to because this monthly contribution will change over time because the more money you make, the more you can contribute. So let's say that we can actually allocate about $500 a month to our portfolio. We want to do over a 30 year timespan. So let's say you start investing in your 20s and you want to retire in your 60s. So let's say 30 year time horizon, we will keep the appreciation the same because we know typical fund like SAP 500 will return roughly about 10% per year. And for the compounding here, let's say that the ETF that you're actually investing in is giving you dividends on a quarterly basis. So let's go ahead and select quarterly. And this is considering that you're taking the dividends and you're actually putting it back into the portfolio and using it to help your portfolio grow faster. So now let's hit Calculate. And with these attributes, you can see that you are basically achieving $1,000,120 over a 30 year span. So again, how much of your money you're putting in, you're putting in $181,000 of your own money. But over the 30 years, that money will appreciate, and it will equate to 1,120,804 $47. So this is really powerful, and this is showcasing the power of compounding in your portfolio. 24. Final Words: We are now at the end of the course, and I'd like to wrap up with a few final thoughts. Having gone through the course, you now possess the necessary education and knowledge to leverage ETFs, to build portfolios that tailor your need. It's very important to understand that things do change and evolve over time. So for example, some of the websites we covered throughout the course, some of the platforms and funds, these things will change over time, so please be mindful of that. Also, this course is designed to give you the education and skill set to help you make your own investing decisions. Although I'm not a financial advisor, I have a lot of experience investing in the stock market, and I myself have made many mistakes, and the purpose of this course is to help you not make the same mistakes. Please note that there's always risks associated with investing in the stock market, and please do always understand what it is that you're investing. So try and invest the money that you don't need right now. So your main focus should be on your goals and your plans. So, for example, if you're saving money to buy a car a few months from now, do not use that money to invest. If you're saving for a down payment to purchase a home next year, do not use that money to invest. If you have a large debt on their credit card that's incurring interest at a rate of 22 or 25%, do not use that money to invest. And instead use your income, use your cash to pay off that debt first, because if you remember, a typical index fund such as S&P 500 is going to appreciate the value of your money that you're using to invest by roughly about 10% per year. But if you're incurring interest at a rate of 25%, then there's a huge gap, and you should focus on paying that gap, paying that debt first. Also, please try and not make investing decisions based on what people tell you where there is hype and also the fear of missing out on massive gains. I would now like to take a moment and say thank you for powering through the course. We covered a lot of information, and I hope that this course provided you with the necessary education and knowledge and to help equip you with the skill set that you need in order to succeed in your investing journey. If you have any feedback about the course, please feel free to reach out. If you have requests for new courses on investing, please do let me know. I'd love to help provide more educational content and help with the learning process as much as I can. And please if you enjoy the course and if you learn something from it, please do recommend this to others as well. Thanks again, and I wish you all the best.