Rising interest rates, warnings over a prolonged recession, a crashing pound and, yes, tumbling share prices: it’s pretty grim out there.
Of course, none of this is stopping me from continuing to put fresh money to work. You see, the great thing about being a Fool is that I’m investing with a long-term perspective. Why? Because we know that market wobbles like this are both inevitable and temporary.
Today, I’m highlighting two ‘passive’ funds that I have every intention of continuing to buy in these tricky times… and holding until I’m well into retirement.
Passive (normally) wins the race
As they sound, passive funds — in the form of index trackers or exchange-traded funds (ETFs) — merely deliver the market return. So, I am not trying to beat the benchmark here. That might sound blasphemous to some stock-pickers but we know that even the best fund managers underperform over the very long term.
With one click of a mouse, I can also get instant diversification across multiple sectors. Theoretically, this makes these funds a lot less risky than buying single company stocks, although stock-picking is my main portfolio approach.
Since they don’t require much in the way of human input, fees for passive funds are usually low too. That leaves more of my money to compound in the years ahead.
One passive fund I plan to hold for decades is Xtrackers MSCI World Quality Factor. As it sounds, this invests in a basket of 300 or so stocks that score well on quality metrics (high return on equity, low leverage and stable earnings growth). Think Apple, Microsoft, Nike and Nestlé. While the current economic picture isn’t pleasant, I sincerely doubt any of these businesses are under threat.
Granted, few of the companies in this fund will be trading on bargain valuations. However, I’d much rather pay more for quality. After all, many supposedly great value stocks are cheap for a reason (like high debt, poor trading)
Another ETF I own is iShares MSCI World Small Cap. This fund invests in a portfolio of minnows from around the world. So, my returns aren’t dependent on any one country or continent performing well. Due to its small-cap focus, I’m also avoiding any overlap with the aforementioned quality fund.
But there’s another reason I’m invested here. Research has consistently shown that, as a group, smaller companies deliver higher returns because they can grow faster than your standard blue-chip. I’ll have some of that!
No sure thing
As positive as I am about the above funds, it’s important to highlight a few caveats.
First, I’m aware that saying I’ll hold for 30 years sounds extreme. In reality, many things could come along and tempt me to make changes to my portfolio.
This is why these ETFs feature in my Lifetime ISA. Even if I sold my holdings, I wouldn’t be able to access the money without paying a huge penalty. In a sense, I’m protecting myself from myself.
But there’s also no denying that markets could continue falling in the months ahead. As much as this may be an opportunity to acculmulate shares, I also know it won’t feel nice if it comes to pass. That’s why it’s vital for me to remember that this uncomfortableness is the price I must pay to reap the rewards later down the line.
The post Forget crashing share prices. I’m holding these passive funds for the next 30 years appeared first on The Motley Fool UK.
Markets around the world are reeling from the current situation in Ukraine… and with so many great companies trading at what look to be ‘discount-bin“ prices, now could be the time for savvy investors to snap up some potential bargains.
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Paul Summers owns shares in Xtrackers MSCI World Quality Factor and iShares MSCI World Small Cap. The Motley Fool UK has recommended Apple, Microsoft, and Nike. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.