How I’m Investing in a Post Pandemic World – #3

Continuing on the question of diversification vs. concentration from my previous post… 

My dividend growth investing strategy for income, income growth and value using individual stocks put me clearly in the diversification camp, which reduces what’s called unsystematic risk or business risk.  The other type of risk is systematic risk. Systematic risk affects the market in its entirety, not just one particular investment vehicle or industry. It’s generally caused by inflation, political instability, war, and interest rates. Systematic risk is not specific to a particular company or industry, and it cannot be eliminated through diversification, but it can be reduced through owning other asset classes (think bonds, precious metals, fixed income, real estate, etc.). However, assets outside of equity (stocks) have historically always under-performed compared to stocks. So for the sake of this discussion (equities only) I’m only addressing business risk. 

Interestingly the pandemic was/is not completely a market-wide systematic risk event, as clearly many industries have actually benefited from the pandemic and will likely continue to do so as the adoption of their platforms are being accelerated. Some of these industries include: 

• Cloud Computing
• Data Storage Services
• Video Conferencing and Collaboration Tools
• Online Food Ordering and Delivery Platforms
• Ecommerce 
• Hardware and Building Supplies
• Electronic Payments
• Streaming, gaming and video content platforms

Moving into this new mid/post pandemic changed world and economy I would like my future investing strategy to meet these objectives: 

1. Low maintenance, and easy to manage
2. Include a balance of both growth and value
3. Low expenses
4. High performance by taking advantage of future growth industries via concentration, but still provide diversification against business risk
5. Provide dividend income and dividend growth

I know I’m asking A LOT! 

Which is why I have been giving this so much thought. Okay so here is the high-level view of my new investment strategy and then I’ll get into the details, followed by the how and when aspect to implement it. 

I will continue to keep my current dividend growth portfolio, but all future capital will be invested into the following four ETFs evenly at a 25% weighting for each: 

• WCLD – Wisdomtree Cloud Computing Fund
• QQQ – Investco QQQ Trust (Nasdaq 100)
• SPYD – S&P 500 High Dividend
• SCHD – Schwab U.S. Dividend Equity

The first two ETF’s WCLD and QQQ make up the 50% growth component of my investment strategy; whereas, the SPYD and SCHD make up the value, dividend income and dividend growth half of the strategy. 

The following table provides a basic summary of these four ETF’s. 

Looking over the metrics of the four ETF’s in the above table let’s see how we stack up to the first 3 of my investments objectives:

1. Low maintenance, and easy to manage
   Four ETF’s will be very easy to keep track of, especially compared to a portfolio of 20-40 individual stocks. Check ✔
2. Include a balance of both growth and value
   50% weighting is from the two growth ETF’s WCLD and QQQ, and the other 50% weight is from two value ETF’s SPYD and SCHD. Check ✔
3. Low expenses
   While the expense ratio on WCLD (0.45%) is on the high side, the average expense ratio for the four ETF’s is only 0.195%. I can live with that, that’s a low overall expense ratio. Check ✔

Okay folks that’s all for today. Investment objectives #4 and #5 will require much longer explanations, so I’ll go over them in the next post. Also, I need to go over some of the other metrics in the above table as well as doing a deep dive into each ETF. Stay tuned!

Filed in: Investment Principles