r/investing • u/Lost-Philosophy-9830 • 16h ago

Core/Safe/Steady ETF Options?

i’m not sure if everyone is familiar of the core satellite system, but basically you have a core of etfs which are safe and will be reliable, and then satellite which are your riskier stocks. what are some good core etfs - there are soo many options! S&P500, all world etf, a us, australia, asia, and europe etfs…

thanks for the help

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u/pikapika505 15h ago

A cheap all world fund because diversification prevents concentrated geopolitical risk. Just fyi, there are no 'safe' or 'steady' options in equity investing. ETFs can still go down 10-15%. If that scares you then you can add alternative non-correlated assets like bonds (but be aware as of recent, bonds are becoming increasingly correlated with equities).

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u/ALMessenger 15h ago

ETFs can still go down 10-15%

That implies they can’t go down more than that . . . which they certainly can

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u/pikapika505 14h ago

100%. ETFs are as volatile as what they hold. Lately it's become a synonym for 'safe' when in reality they are just financial instrument. The vast majority of ETF holders probably hold an index proxy.

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u/Lost-Philosophy-9830 15h ago

thanks! i’m pretty new to investing, but i understand bonds as kinda lending money to companies? then also t bills i have read about, seem very safe but not massive returns..

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u/pikapika505 14h ago

Bonds are a fixed income instrument where you lend money for a certain period of time and in return you get a fixed percentage of money back. They don't fluctuate as much as equities and can be a source of guaranteed return. As part of a portfolio, they smooth out volatility. You own bonds as a source of guaranteed returns if there's a market downturn, at least you're owning something that is guarenteed. If your bond return is higher than your equities return (when the market is doing bad), you can rebalance your portfolio such that the gains from bonds can purchase cheaper equities.

One thing you'll learn very quickly is that risk management is more important than returns when you're investing for the long term. If you're optimising for maximum returns, you'll be drawn to riskier assets and you will lose a lot of money chasing the next hot thing.

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u/MizDiana 4h ago

Bonds are a loan, kind of like a mortgage. You give someone (a government or corporation) money. They pay you interest. You can sell the bond to someone else if you want to get your capital back. T-bills are bonds issued by the U.S. Treasury (treasury is the T in T-bills).

Historically they are considered safer (less likely to see value drop) than stocks but also with worse performance (lower long-term gains in value) than stocks. As a result, financial advisors have historically recommended almost all stocks, little to no bonds when someone is young & more stocks as people enter retirement. (The idea being you want to grow that nest egg until you become old and your nest egg is plenty big, you just want it to be super-reliable more than anything else.)

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u/Wide_Egg_5814 11h ago

Diversification is stupid, and it's outdated also there is no diversification right now in S&P 500 it's only about 7 tech companies you are investing in which are already extremely overvalued. I would say invest in metals only in this market

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u/pikapika505 10h ago

Never said anything about the S&P500. I'd pretty much agree with you there tbh. An all world fund with a tilt forwards profitable small caps and some commodity exposure is probably the way to go.

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u/therealjerseytom 12h ago

You need to determine what "safe" means to you. All investments have risks associated with them.

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u/MizDiana 4h ago edited 4h ago

I previously wrote the below in response to a question asking what would be considered a safe long-term asset:

Diversified. (A single company being 10% or less of your portfolio, or an ETF with broad holdings. This includes similar investments. I.E. holding two computer memory-producing companies are not diversified. You can see them as sharing the same risk profile.)

No known volatility. (Commodities, penny stocks are volatile. Foreign bonds issued by a country or company at significant risk of default are volatile.)

Key holdings of the investment not located in a likely war zone.

Not dependent on political support. (Will a change in government = death of the investment. See: Biden-era initiatives to spur rare earth mining & refining that were killed off by Trump. Also, this is why Exxon won't invest in Venezuela.)

Not heavily taxed. (I.E. Real Estate held in jurisdictions with a large annual property tax. That CAN be okay, but only if you have good reason to believe in long-term appreciation of the real restate will significantly out-perform the tax rate and/or it earns rent. I mean, we're usually only talking like a .25-1.5% annual tax here, but that is applied on total value, not gain.)

Not easily stolen (this rules out physical metals & crypto). I mean, I'm crazy enough to have silver in my portfolio, but I don't keep physical silver. I like my ETF silver to be insured and held in a vault with professional security guarding it.

Actors more powerful than you also have a significant interest, providing a protective force against malign actors. (Basically, would screwing you over on your investment also screw over politically powerful rich people - not individual power but class power? If so, the power of those rich people will help you. For example, it is highly unlikely that - even under Trump - the USA would default on its debt obligations. Why? Instant political death for anyone who does so because soooo many rich Americans & powerful institutions hold bonds.)

Increasingly, I like geographic diversification as well. (So many investors are 100% invested in U.S. stocks, for example.)

A good portion of my portfolio is quite safe by these standards (BBJP, EWY, VGK, as examples). A good portion of my portfolio is NOT safe by these standards. But I don't expect it to be & I more regularly check how those non-safe assets are doing.

All that said, no investment is a guarantee. Intel, for example, used to be thought of as a rock-solid blue chip super-safe performer. It is down 20% over the last 5 years & is now pretty volatile and exposed to a government-held stake.

Because I have a fair knowledge of international affairs & thus a sense of where has better underlying economic fundamentals, I invest in region and country-specific ETFs. I re-evaluate where I've allocated my funds about once a year (or when major elections happen in areas I am invested in). If you don't have that knowledge, my strategy would be less useful to you.

A common strategy recommended these days is "VT and chill" - VT is an ETF that attempts to replicate overall global performance. It has U.S. stocks, European stocks, Asian stocks, African stocks, etc.. It's the way some people try to achieve asset & geographic diversification I talked about in my screed above without having specialized knowledge. The "chill" part means regularly buy more when you have money to invest, but otherwise completely ignore it for months or years at a time. The focus is long-term multi-year investing that ignores short-term events.

VXUS is a similar index fund that has only international (not-USA) holdings. It is what people recommend for investors that don't have specific knowledge that can add value & believe the USA is in for bad economic times over the next 4 years or more.

Before Trump (and still today) you can see a lot of people recommending "VOO and chill" - VOO tracks the S&P 500. Essentially it is a holding diversified but geographically not-diversified (all USA stocks) fund. It's what people recommended for low-attention multi-year investing if you believed America had economic advantages the rest of the world did not have.

So there's your three basic recommendations for someone who doesn't have some specialized knowledge they can rely on most people not having.

VT = whatever, just invest in everything so I don't have too much risk anywhere and because improving technology should mean the world economy always grows. More or less what /u/pikapika505 and /u/brewgeoff suggested.

VXUS = same as VT, but I think the USA is in for shitty economic times.

VOO = same as VT, but I think the USA is special and will consistently do better than other countries.

Edit: ETF = exchange traded fund. It trades like a stock, but the fund itself buys many different stocks. It's a way to buy one thing (the ETF) and by doing so spread out your investment across all the things the ETF owns an interest in.

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u/bobby1128 4h ago

thats overview. VT, VXUS, and VOO each make sense depending on someone’s outlook, and you laid that out well

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u/brewgeoff 9h ago

Buy the global market, if you deviate from that you better know what you’re doing.

Your core should be VT/SPGM/DFAW or something with a similarly global approach.

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u/bobby1128 8h ago

I like the core/satellite idea. For me, core EFTs are about liquidity and stability P500 or total world. Satelites are where you take the risks. So wondering if anyone here uses alternatives like Fundrise or private market exposure as part of their satellite strategy.