A big part of investing is psychological. It’s not just about math; it’s about managing your mindset, your moods, your attitude. I wish I could teach all investors to have an attitude of humility about the stock market.
I try to be humble in my approach to investing. No one knows the future. No one knows for sure which stocks will do best, which industries will grow faster, which companies or countries will outperform the rest.
It’s good to have convictions. It’s good to believe in what you’re investing in. And some of the best investors have a certain dash of ambition and healthy ego that drives them to succeed in the first place. But investors need to guard against arrogance and overconfidence.
As a humble investor, I try to own a well-diversified portfolio that includes basically all the stocks in the U.S., and some international stocks. With a well-diversified portfolio, even if I’m wrong about some of my ideas about the future, even if some stocks or sectors disappoint or underperform, my money can keep growing.
Let’s look at two exchange-traded funds (ETFs) that could be a good fit for this humble-investor approach.
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Vanguard Morningstar Total Stock Market ETF: 3,531 U.S. stocks of all sizes
This fund is a foundational piece of my portfolio. It’s how I invest in U.S. stocks — all of them. That’s right: The Vanguard Morningstar Total Stock Market ETF (VTI +0.65%) lets you own pretty much the entire publicly traded U.S. stock market. It holds 3,531 U.S. stocks, including large caps, mid-caps, and small caps. It’s delivered powerful annualized returns of almost 15% during the past 10 years, and just shy of 12% during the past five years.
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Why do I own this fund instead of an S&P 500 index ETF? There’s nothing wrong with buying S&P 500 ETFs. But I want even more diversification. I’m not confident that the biggest names in the stock market will always deliver better results than the smaller companies.
What if mid-caps and small-cap stocks outperform the large-caps of the S&P 500 for the next 10 years? Sometimes underrated companies and underdog stocks end up surprising people who counted them out. This total stock market ETF lets you own the underdogs and overlooked sectors of the stock market, as well as the big names that get lots of glory and praise.
Vanguard International High Dividend Yield ETF: 1,565 stocks from 45 countries
Sometimes U.S. investors are overconfident about the success and strength of the U.S. stock market. They assume that domestic stocks are always the best in the world, and that the U.S. is the only place they need to put their money.
One fair argument against buying international stocks is that major U.S. companies already do a lot of business with other countries. Goldman Sachs research says that S&P 500 companies earn about 28% of their revenue outside the U.S. market. That might be enough international exposure for some U.S. investors.
But I like to own some international stocks. I want diversification. There are billions of other people in the world who get up every day and go to work to build the future. I’ve lived in Japan and traveled in Europe, and I know that not all the best ideas and success stories happen in America.
For that reason, I like what I’ve read about the Vanguard International High Dividend Yield ETF (VYMI +0.02%). I don’t own this fund, but sometimes I wish I had bought it a few years ago. It’s delivered annualized returns of about 14% for the past five years, 22% for the past three years, and an impressive 35% in the past year.
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This international ETF holds 1,565 stocks from 45 countries. It’s much less tech-heavy than the U.S. stock market. The top 20 stock holdings include:
- Major international banks from Australia, Canada, Japan, Spain and the U.K.
- Global pharmaceutical giants from Denmark and Switzerland.
- Household name brands like Nestlé (NSRGY +2.26%) and Toyota Motor (TM +0.26%).
- Major global energy stocks like Shell PLC (SHEL -0.17%) and TotalEnergies SE (TTE -0.74%).
Why buy either fund…or both?
Ultimately, for me, the point of investing is not to impress other people or win arguments on the internet. The point is to have financial security — to have more than enough money for my family at every stage of life.
I own the Vanguard Morningstar Total Stock Market ETF because it’s a low-cost way to own thousands of U.S. stocks of all types and sizes. I don’t know which sectors or companies will do best, so I want to own them all. The market can move faster than I can.
And I also own international stocks. The Vanguard International High Dividend Yield ETF is a good example of an international ETF for humble investors, because it owns a wide range of dividend-paying value stocks that might be off the radar of other investors.
Sometimes the less glamorous stocks and industry sectors end up being big winners, right when the less humble investors least expect it.
