Tim Hanson of The Motley Fool in the US conceived what he called the “humility curve.”
It shows the typical journey of an investor. Typically, investors start with stocks they understand.
They will then increase the complexity of an investment by a few notches (or 10) and put money in riskier prospects hoping for higher returns.
With years of experience, investors go from naive to humble, realizing that complexity doesn’t necessarily have a positive correlation with making money.
Tim Hanson illustrated his own humility chart, which you can see below.
My own investing journey has followed a similar curve, although I’m far from there.
But to go straight back to where it all began, I kept it very simple.
My first ASX investment
If I could pinpoint the momentum of my investing journey, I’d say it was it Commonwealth Bank of Australia (ASX:CBA) who really got the wheels in motion.
See, I was logged into CBA’s “Youthsaver” bank account. Which, as the name suggests, was only available to young people.
As I approached my 18th birthday, the bank sent me a booklet in the mail. They explained that since I’m (officially) coming of age, I’d have to switch to a new account. As such, the brochure has detailed the various options on offer, as well as the various features and “perks”.
Reading through the options, I clearly remember the proposed interest rates that caught my eye. From memory they were around 1%; much too low to my untrained eye.
So this is where my journey into personal finance and eventually investing began.
My research led me to high yield savings accounts. And it introduced me to the wonderful world of ASX exchange traded funds (ETFs).
Back then, there was one ASX ETF in particular, which I kept seeing everywhere. And I thought it was a perfect fit with my investment goals.
This ASX ETF was… the Vanguard Diversified High Growth Index ETF (ASX:VDHG).
What’s so good about the VDHG ETF?
Vanguard’s offering of diversified ETFs was the first of its kind on the ASX.
They are basically an ETF of ETFs. Or more simply put, an ETF made up of other ETFs.
They are designed to make life easier for investors.
Investing gives you access to a sort of ready-made, diversified portfolio.
At the time I was considering buying a few ETFs on Australian stocks, global stocks and bonds. With VDHG I was able to get all of this in one fell swoop. And I would have Vanguard doing the rebalancing for me.
At 0.27%, I also think the management fees are pretty reasonable, falling somewhere between a basic index-tracking ETF and a more targeted thematic ETF.
In particular, the VDHG ETF mainly invests in wholesale versions of the Vanguard Australia Shares Index ETF (ASX:VAS) and the Vanguard MSCI Index International Shares ETF (ASX:VGS).
It also has lower weights than other Vanguard funds in small companies, emerging markets, and bonds.
As a “High Growth” version, VDHG targets a 90% allocation to growth assets (e.g. stocks) and a 10% allocation to income assets (e.g. bonds).
As Vanguard aptly describes, VDHG is “designed for investors with a high risk tolerance seeking long-term capital growth.” Having been able to weather the inevitable market volatility for (hopefully) many decades, I figured this was the ETF for me.
But for investors with shorter investment horizons and/or lower risk tolerance, Vanguard offers three other diversified ETFs: VDGR (growth), VDBA (balanced), and VDCO (conservative). These ETFs have different target allocations for growth and income investing.
But these days, Vanguard isn’t alone in offering diversified ETFs. BetaShares has also thrown its hat into the ring. And the one that interests me the most is her BetaShares Ethical Diversified High Growth ETF (ASX:DZZF). It offers a similar target assignment as the VDHG, but with an ethical focus.
Where is the VDHG ETF in my portfolio?
To date, the VDHG ETF forms a large part of the core of my portfolio. I know it’s running in the background, the Dividend Reinvestment Plan (DRP) and anything that makes worst-case market returns.
And having taken care of my core, I’m happy to take riskier positions elsewhere and invest in individual ASX stocks.
This is often referred to as a “core and satellite” approach to portfolio construction. It combines the best of both passive and active investing worlds.
As I continue down my curve of modesty, I’ve learned that it often pays to keep things simple. The VDHG ETF helps me with this.