Stocks Versus ETFs: Backtesting Two Killer Portfolios

Which path should you take? [View in browser]( [The Juice Logo] BROUGHT TO YOU BY: [Logo]( Proprietary Data Insights Top ETF Searches This Month Rank Ticker Name Searches #1 [SPY]( SPDR S&P 500 ETF 185,655 #2 [QQQ]( Invesco QQQ 142,356 #3 [IWM]( iShares Russell 2000 ETF 63,898 #4 [VOO]( Vanguard S&P 500 ETF 31,741 #5 [SMH]( VanEck Vectors Semiconductor ETF 29,099 #ad [Dive into Expert Picks - We Spill the Best Daily!]( Brought to you by [Stansberry Research]( [Wall Street legend warns: “A new dawn is coming”]( [ Stansberry Research - Wall Street legend warns: “A new dawn is coming”]( CNBC's Jim Cramer once said: "I learned a long time ago not to be on the other side of a Chaikin trade." Since Chaikin accurately predicted the 2012 Priceline collapse, the 2020 crash, and the 2022 bear market, over 1 million people have chosen to follow his Wall Street warnings. Today he's stepping forward with a new warning – one he's never shared with the hedge funds, banks, and brokerages he worked with over 50 years on Wall Street. "A new dawn is coming to the U.S. stock market," says Chaikin, who's traded through nine bear markets. "It's time to throw out the investment blueprint of the last decade and prepare for a massive shift." [Click here to access his new warning, and #1 stock recommendation.]( Stocks Versus ETFs: Backtesting Two Killer Portfolios If you look through The Juice’s massive, but still growing archives of personal finance and investing thoughts and knowledge (see today’s Freshly Squeezed section), you’ll find quite a few installments that advocate ETF investing. We take deep dives inside all types of ETFs and find that, generally, it’s easier for most investors to construct diversified portfolios using a handful of ETFs rather than by purchasing individual stocks. Using ETFs can help you avoid putting all your eggs in one basket of just a few stocks. The broad exposure — within specific ETFs and across different types of ETFs — also helps hedge weakness in one area of the market with strength in another. With this in mind, it’s a good exercise to compare past performance between the individual stock and ETF approaches. Of course, past performance isn’t indicative of future results. Plus, when you look in the rear view mirror like this, it’s easy to think that you made a mistake if the path you took didn’t return as much as the comparison case. This isn’t necessarily the case. It’s easy to say you would have purchased this or that 5, 10, 15 or 20 years ago. It’s much harder to have actually done it and let whatever it is ride over this period of time. Still, there’s value in this type of exercise. It can help guide, though it probably shouldn’t dictate what you do going forward. So, we took the ETFs in today’s Trackstar top five and backtested their performance. We replaced the Vanguard S&P 500 ETF (VOO) with the popular Schwab US Dividend Equity ETF (SCHD) to not duplicate SPY and get a pure dividend fund into the mix. We allocated 20% of our capital evenly across: - SPDR S&P 500 ETF (SPY) - Invesco QQQ ETF (QQQ) - iShares Russell 2000 ETF (IWM) - Schwab US Dividend Equity ETF (SCHD) - VanEck Vectors Semiconductor ETF (SMH) We ran performance with a $10,000 total investment, starting on January 1, 2015. Almost ten years ago. We used portfoliovisualizer.com to get this done. Here is a summary of the results: - $10,000 invested in January 1, 2015 would be worth $40,901 as of June 30, 2024, for a cumulative return of 309.01%. - Over the period, the portfolio generated a return of 15.98% per year, with 76 out of 114 or 66.67% of months positive. - The best year for the portfolio was 2019 with 37.46% return and the worst year over the period was 2022 with -21.60% return. So, investing in these ETFs like this basically quadrupled our $10,000 investment. For our individual stock portfolio, we took two stocks from each ETF. While the selection wasn’t random, it wasn’t wholly scientific. We went with solid names from the top ten holdings in each ETF. We also attempted to move away from tech with our selections from IWM and SCHD given that one of the points of ETF investing is sector diversification. Of course, this creates a bias towards this approach because, as these firms have grown and their stock prices have gone up, they have become more important to each ETF. But this is okay, as we’ll explain when we conclude. We gave each stock a 10% concentration, which helps offset this bias at least a little. - Apple (AAPL) and Microsoft (MSFT) from SPY. - Amazon.com (AMZN) and Meta Platforms (META) from QQQ. - Sprouts Farmers Market (SFM) and Ensign Group (ENSG) from IWM. - BlackRock (BLK) and Pfizer (PFE) from SCHD. - Nvidia (NVDA) and Intel (INTC) from SMH. Here is a summary of the results on this portfolio: - $10,000 invested in January 1, 2015 would be worth $106,972 as of June 30, 2024, which represents a cumulative return of 969.72%. - Over the period, the portfolio generated a return of 28.33% per year, with 75 out of 114 or 65.79% of months positive. - The best year for the portfolio was 2023 with 76.00% return and the worst year over the period was 2022 with -27.39% return. So, obviously, much better results. If you’re saying, well The Juice must be idiots for advocating ETF investing, we politely disagree. There’s something that irks us about large corners of the financial media. While they say that past performance isn’t indicative of future results and talk about diversification, they rarely get into the on-the-ground practical and psychological aspects of long-term investing. Or even short-term trading for that matter. It’s so easy to look at out-sized returns in AMZN and NVDA over the years and feel like an idiot for not buying these stocks ten years ago or as recently as earlier this year. It’s not so easy to have actually made these purchases and stuck with them or have made them in meaningful sizes. Do the people who look back and write about ten baggers and such ever bring up things like: - As stocks, especially high-flying tech stocks, keep going up, lots of investors fear buying the top. Even as “the top” goes higher and higher they don’t buy — or sell prematurely — due to this fear. - It’s easier to know that NVDA is a powerhouse today than it was in 2015. - Volatility can spook people. So would you have ridden the waves? As humans, we do a lot of self-preservation. In the day to day and with larger actions and decisions in mind. Some people are more likely to take risks than others. Many people, including quite a few long-term investors, will trade the possibility of a higher reward amid high and often scary risk for good, but not as great reward amid lower risk. There’s nothing wrong with this. This is part of the reason why mutual funds and ETFs exist in the first place. It’s easy to look at the history of individual stocks and even the market in general and kick yourself with what ifs. It’s much harder to find a course of action you’re comfortable starting and sticking with over the long haul. [Warning: Prepare for a Cash Avalanche]( The Dow crossed 40,000 for the first time in history... The S&P has hit over 30 all-time highs since the start of the year. The words "mania," "euphoria," and "frenzy" are all over the financial press... So why are top hedge funds currently dumping their stocks? According to Goldman Sachs, hedge funds haven't gone on a selling spree like this since 2017. It's a record off-loading of stocks. What's really going on? And what does it mean for YOUR money in the coming weeks? [Click here to see the viral video viewed by over 6 million people.]([Ad] The Bottom Line: Finding the balance between risk and reward with an appropriate strategy for you is absolutely a bigger win than looking back on percentage gains and the eventual value of $10,000 you probably never would have invested that way to begin with. That being the way that produced a ten-bagger. Take your four-baggers with ETFs and your favorite individual stock picks and be super grateful. 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Copyright ©2024 InvestingChannel. All rights reserved. 1325 Avenue of the Americas, Floor 27 & 28 New York, New York 10019 Disclaimer: This is not investment advice. This InvestingChannel, Inc., newsletter is for information purposes only and is based on opinion. Futures, forex, stock, and options trading are not appropriate for all investors. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can ensure returns or eliminate losses. InvestingChannel, Inc., makes no representation or implication that using any of the methodologies or systems in this newsletter will generate returns or insure against losses. Investors should be cautious about any and all investments and are advised to conduct their own due diligence prior to making any investment decisions. [Link](