Vanguard FTSE All-World UCITS ETF (USD) Acc – VWCE

 

VWCE, an ETF launched by Vanguard in 2019, has been the talk of investors lately.
This ETF optimally follows the FTSE All World index and includes more than 3500 mid and large cap companies in around 50 countries, developed and emerging. The scope of this index is very relevant, claiming to cover more than 95% of the global stock market. At the moment, Vanguard is the only company that appears to follow the FTSE All World Index. VWCE is often seen as the rival of the iShares IWDA ETF as both have vast global diversification. However, IWDA only includes developed countries, having to be complemented with another ETF that only covers emerging countries, for example the IWDA+EIMI combination can cover the global market. Thus, the great advantage of the Vanguard ETF is that with just this asset, it is possible to obtain “almost” total global diversification.
Another interesting factor is the fact that VWCE is available in two of the most used online brokers in Europe with free commissions, if investors comply with a set of rules already exemplified in these two articles: Degiro, XTB.

Analyzing the diversification of VWCE, there is greater exposure to the information technology sector, but overall this ETF is comprehensive, as it diversifies into other areas with similar percentages.
Evaluating the list of companies shows that around 14% of VWCE is represented by its 10 largest companies, a normal and acceptable value given that more than 3500 holdings make up this ETF. The list is made up of very recognized big caps, such as Apple, Microsoft or Amazon. The high geographic exposure of its Top 10 in the USA is notable, only two of the companies are headquartered outside that country, in this case TSCO in Taiwan and Tencent in Hong Kong. Analyzing the stock market results of this TOP 10 individually, a growth trend is evident in all companies in the short and, mainly, in the long term.

NFTs hit ETF market

 

Non-fungible tokens (NFTs) are heading to ETF land after New York-based Defiance ETFs became the first ETF issuer to offer exposure to the emerging market last week.

The Defiance Digital Revolution ETF (NFTZ) listed on New York Stock Exchange on 2 December with a total expense ratio (TER) of 0.65%.

Tracking the BITA NFT and Blockchain Select index, the ETF’s basket is rules-based, rebalances quarterly and offers physical equity exposure to a universe of companies that generate at least 50% of their revenue from blockchain, cryptocurrency and NFT-related activities.

The index contained 34 securities weighted between 0.5% and 4% apiece, as of last month. These constituents are drawn from NFT marketplaces and issuers, blockchain technology companies and crypto asset management, trading, banking and mining. 

While ETF investors already had access to a range of crypto and blockchain thematic products, NFTZ attempts to break into the burgeoning – and to many, unfamiliar – NFT space.

Enjoying regular media attention and dubbed the Collins Dictionary word of the year for 2021, NFTs are either unique or rare physical items or more commonly units of data, such as photographs, videos, audio, blueprints and other digital files.

Like cryptocurrencies, they rely on storing data on a digital ledger (blockchain) to provide proof of ownership. Unlike digital assets, NFTs are non-fungible, meaning they are not mutually interchangeable.

Between November 2017 and February this year, $163m had been spent on NFTs. Defiance said by October this year, the products’ trading volume had surged to $15bn, with a single piece by the artist Beeple, called Everydays: the First 5000 Days (pictured), selling for $69.3m.

In an interview with Insider, Defiance co-founder and CIO, Sylvia Jablonski, said: "The NFT revolution will fundamentally change the economic model for artists, athletes, creators, and many more industries that we cannot even conceive of today.

"NFTs could be bigger than the internet,” she concluded.

Attempting to tap into this trend, NFTZ has a 6.5% weighting to fintech banking firm Silvergate Capital, 5.6% to cyber security provider Cloudflare and allocations between 4.5% and 5% to crypto miners Bitfarms, Marathon Digital and Hut 8 Mining.

Interestingly, some of its largest exposures with a clear link to the NFT investment thesis include 4.5% to Coinbase, where users can buy and sell NFTs, and a considerable 5% to Playboy Group, which launched its own range of NFTs called ‘Rabbitars’.

As with many burgeoning sectors, offering a basket exposure to listed securities comes with the challenge of balancing theme purity with diversity. In NFTZ for example, most NFT exposure is either provided by allocations to an adjacent industry (such as blockchain and crypto) or those with slight, direct involvement in NFTs (such as Playboy).

NFTs are also an innately difficult asset to gain direct exposure to via the ETF structure. While some NFT issuers and providers of the underlying blockchain technology are listed companies, the original creators of the assets themselves are individuals or small groups, such as Beeple, Larva Labs and even Edward Snowden.

More broadly, the product class faces similar challenges to those levelled against crypto. 

For instance, scams, custody issues, accounting errors and association with nefarious activity have seen digital assets face questioning for potential security concerns.

Similar issues are raised against NFTs but also concerns around proof of ownership in an unregulated market. Also, NFT owners may have ownership rights but are not covered by copyright law, such as the right to dictate adaptation or reproduction.

Similarly, crypto, blockchain and NFT-related securities are subject to high valuation volatility. In just three days of trading, NFTZ had fallen -10.4%.

On a positive note, the product's launch is another step for ETFs into increasingly exotic niches and indicates investors are still looking to wrapped products for diversified exposures to future themes.

Is Cryptocurrency a Good Investment?

 

 

Cryptocurrency risks

Cryptocurrency exchanges, more so than stock exchanges, are vulnerable to being hacked and becoming targets of other criminal activity. These security breaches have led to sizable losses for investors who have had their digital currencies stolen. 

Safely storing cryptocurrencies is also more difficult than owning stocks or bonds. Cryptocurrency exchanges such as Coinbase (NASDAQ:COIN) make it fairly easy to buy and sell crypto assets such as Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH), but many people don't like to keep their digital assets on exchanges due to the aforementioned risk of cyberattacks and theft.

Some cryptocurrency owners prefer offline "cold storage" options such as hardware or paper wallets, but cold storage comes with its own set of challenges. The biggest is the risk of losing your private key, without which it is impossible to access your cryptocurrency.

There's also no guarantee that a crypto project you invest in will succeed. Competition is fierce among thousands of blockchain projects, and projects that are no more than scams are also prevalent in the crypto industry. Only a small number of cryptocurrency projects will ultimately flourish.

Regulators may also crack down on the entire crypto industry, especially if governments begin to strongly view cryptocurrencies as a threat rather than just an innovative technology.

And, with cryptocurrencies being based on cutting-edge technology, that also increases the risks for investors. Much of the tech is still being developed and is not yet extensively proven in real-world scenarios.

Cryptocurrency adoption

Despite the inherent risks, cryptocurrencies and the blockchain industry are consistently growing stronger. Much-needed financial infrastructure is being built, and investors are increasingly able to access institutional-grade custody services. Professional and individual investors are gradually receiving the tools they need to manage and safeguard their crypto assets.

Crypto futures markets are being established, and many companies are gaining direct exposure to the cryptocurrency sector. Financial giants such as Square (NYSE:SQ) and PayPal (NASDAQ:PYPL) are making it easier to buy and sell cryptocurrency on their popular platforms, while other companies, including Square, have collectively invested hundreds of millions of dollars in Bitcoin and other digital assets. Tesla (NASDAQ:TSLA) purchased $1.5 billion worth of Bitcoin in early 2021.

While other factors still impact the riskiness of cryptocurrency, the increasing pace of adoption is a sign of an industry maturing. Individual investors and companies alike are seeking to gain direct exposure to cryptocurrency, considering it safe enough for investing large sums of money.

Is crypto a good long-term investment?

Many cryptocurrencies like Bitcoin and Ethereum are launched with lofty objectives, which may be achieved over long time horizons. While the success of any cryptocurrency project is not assured, if a cryptocurrency project achieves it goals, then early investors could be richly rewarded over the long term.

For any cryptocurrency project, however, achieving widespread adoption is necessary to be considered a long-term success.

Bitcoin as a long-term investment

Bitcoin, as the most widely known cryptocurrency, benefits from the network effect -- more people want to own Bitcoin because Bitcoin is owned by the most people. Bitcoin is currently viewed by many investors as "digital gold," but it could also be used as a digital form of cash.

Investors in Bitcoin believe the cryptocurrency will gain value over the long term because the supply is fixed, unlike the supplies of fiat currencies such as the U.S. dollar or the Japanese yen. The supply of Bitcoin is capped at just under 21 million coins, while central-bank-controlled currencies can be printed at the will of politicians. Many investors expect Bitcoin to gain value as fiat currencies depreciate.

Those who are bullish about Bitcoin being extensively used as digital cash believe that, over the long term, Bitcoin has the potential to become the first truly global currency. 

Ethereum as a long-term investment

Ether is the native coin of the Ethereum platform and can be purchased by investors wishing to gain portfolio exposure to Ethereum. While Bitcoin can be viewed as digital gold, Ethereum is building a global computing platform that supports many other cryptocurrencies and a massive ecosystem of decentralized applications ("dapps").

The large number of cryptocurrencies built on the Ethereum platform, combined with the open-source nature of dapps, creates opportunities for Ethereum to also benefit from the network effect and to create sustainable, long-term value. The Ethereum platform enables the use of "smart contracts," which execute automatically based on terms written directly into the contracts' code.

The Ethereum network collects Ether from users in exchange for executing smart contracts. Smart contract technology has significant potential to disrupt massive industries, such as real estate and banking, and also to create entirely new markets.

As the Ethereum platform becomes increasingly used worldwide, the Ether token increases in utility and value. Investors bullish on the long-term potential of the Ethereum platform can profit directly by owning Ether.  

Should you invest in cryptocurrency?

Owning some cryptocurrency can increase your portfolio's diversification since cryptocurrencies such as Bitcoin have historically shown almost no price correlation with the U.S. stock market. If you believe that cryptocurrency usage will become increasingly widespread over time, then it probably makes sense for you to buy some crypto directly as part of a diversified portfolio. For every cryptocurrency that you invest in, be sure to have an investment thesis as to why that currency will stand the test of time.

If buying cryptocurrency seems too risky, you can consider other ways to potentially profit from the rise of cryptocurrencies. You can buy the stocks of companies such as Coinbase, Square, and PayPal or invest in an exchange like CME Group (NASDAQ:CME), which facilitates crypto futures trading. While investments in these companies may be profitable, they do not have the same upside potential as investing in cryptocurrency directly.

How to get started with investing in the stock market in 2020?

Do you feel overwhelmed with investing? And you do not know where to start with investing? Do you want a simple guide on how to get started with investing?
Then, this guide is exactly what you need! It will guide you through the steps of starting to invest.
I have written many articles about investing on this blog. But I have recently been reminded that I did not have an article on how to get started! I should have started with this article.
First, I am going to cover the things you should know before you start investing. And then, I am going to cover how you could get started with investing.
And what better time to start investing than with the start of a new year?

Know why you want to invest

First of all, you need to understand why you want to start investing. Your reasons to invest will matter a lot on how you are going to invest.
There are many reasons to invest in the stock market. But they can be grouped into two categories:

1. Investing in the short-term to buy something. It could be to buy a new house, for instance.
2. Investing in the long-term for your future. It could be to pay for your retirement. Or you could invest in the long-term for the education of your child.

Now, it is essential to know that investing is a long-term game. If you want to buy a house in the next year, it is probably not a good idea to invest now. Why is that? As we will see in the next section, the stock market is volatile. It will provide good returns, but only on average. If you invest now and the market goes down 20%, what are you going to do?
So, I would only recommend investing if you are investing for the medium or long-term. You need to answer a simple question: Can you wait until the market recovers if it goes down?
For instance, if the market went down 20% next year, will you be able to wait one year or more until it recovers?
If you cannot answer yes to this question, you are probably better off investing. There will be some negative years in your investing journey. And you will need to wait until it recovers. Selling in a downturn is the worst thing you can do!

Know why you should invest

You already know why you want to invest. But do you know why you should invest? Could you not save money and let it rest in a savings account and achieve the same goals?
There is one big problem with cash: inflation! The value of your money will decrease over time. Inflation increases the prices of goods over time. On average, inflation goes up.
Inflation means that the money you acquired through hard work will have less value in the future. With the same amount of money, you will be able to afford fewer goods.
And the problem with bank accounts is that they do not follow inflation. By leaving money on your bank account, it is losing value over time.
On the other hand, investing in the stock market has higher historical returns than inflation. Investing means that you will generate more value from your money. And inflation will not eat up all your gains.
And since the returns will be higher, your money will grow without you having to do anything. You want your hard-earned money to work for you!

Know the stock market

Then, you also need to know the stock market. Do not worry. You do not need to know everything about it! You do not even need to know the details!
But there are several things you need to know before you even consider to invest in the stock market.
First of all, there is no such thing as an investment without risk! All investments have some risks. It is up to you to decide on how much risks you are willing to take.
Even low-risk investments will have negative returns some time! If you pick a low-risk instrument such as government bonds, you will still experience some downturns. There have been some years were bonds had performed very poorly. We are talking minus 20% in a single year!
You only lose money if you sell in a downturn. You should mix up paper losses and realized losses. If you check your account one day and see you are ten percent down, this is only a paper loss. If you sell, it will become a realized loss. It is essential to understand this.
Finally, you should not time the market. Timing the market means that you buy or sell at a particular time in the hope of making a profit. For many people, this means waiting to buy or selling early. But on average, you will lose this bet with the market. People are not able to beat or time the market.

Know the difference between stocks and bonds

In the stock market, there are two main instruments: bonds and stocks. There are others as well. But these two are more than enough to get started.
A bond is a debt that is issued by an entity. This entity could be a government, a municipality, or a corporation. To keep it simple, you should only focus on government bonds. They are the safest and most straightforward. A bond has a duration and interest rate.
When it needs money, the government will issue bonds that people can buy. In return for their money, the issuer will receive interests regularly. Once the bond reached its duration, the issuer will receive its money back.
The stock of a company is the set of all the shares of this company. You do not buy stocks directly, but you buy shares of stocks. By purchasing a share of a company’s stock, you will own a part of the company.
People investing in stocks are expecting the share price to grow. Generally, as the company grows, so does its share price. Another advantage of some shares is that the company pays a dividend to its shareowners.
Once a company has some money, it has several choices. It can invest it in itself to grow. Or it can give it back to the shareowners in the form of a dividend. This dividend will be given in cash to you into your broker account.
In practice, there is one significant difference between these two instruments: bonds have smaller risks and smaller returns, while stocks have higher risks and more profits.
In short, it means that stocks are great for the long-term. And bonds are better for the shorter terms. But bonds will reduce the volatility of a portfolio. They are good for your risk tolerance.

The Psychology of Bear Markets

The desire to feel safe when danger is lurking is a primal instinct. We feel it in the streets, we feel it in nature, and we sure as hell feel it in the stock market.
Everyone has a breaking point, and it’s only in times of distress that we learn where that point is. The psychology of a bear market goes something like this.

Everybody’s tolerance for pain is different, but for the purposes of this mental exercise let’s assume your breaking point is a 40% decline. Let’s also assume that you don’t sell at the exact bottom, and the market goes lower after you move to cash.

If you sell 40% below the highs, when stocks are 45% off the highs, that would be 8% lower than where you sold. When stocks are 50% off the highs, that’s 17% lower, and at 55% of the highs, they will be 25% below the levels that you ran from.

As bad as you felt before you sold, that’s how good you’ll feel now. You had the foresight to get out before it got worse. You protected yourself and your family from danger.

This makes sense from an evolutionary perspective, but in the market, bad things happen when system 1 overrides system 2.

So you’re in cash, now what?

Do you wait for stocks to go lower before you buy? How much lower? And forget about passively waiting, do you actively root for stocks to go lower? Selling might give you short-term relief, but what type of person wants to root for stocks to go lower? Believe me, that’s not a place you want to be.

If stocks bounce, do you get frustrated? If they keep going higher do you get mad? If they get back to the place where you sold do you get back in? If markets blow past the point you sold do you get angry? Do you think markets are rigged? Do you ever get back in?

If you sold yesterday with the market down 10%, what do you today if it closes up 4%?

This is why you should never think in terms of “in or out.” If you have to downshift on how much volatility you can stomach from the stock market, fine, do it. But like Obi-Wan said, only a Sith deals in absolutes.

I want to share with you how I’ve approaching the recent selloff. I’m continuing to make contributions every two weeks to my 401(k), which is 100% invested in stocks. I haven’t looked at my balance, why would I? I know it’s disgusting, I don’t need to see it. I also cannot, I repeat cannot, touch this money for 25 years. I am under no illusions that this is the bottom, but long-term returns get more attractive as short-term pain gets more acute.

In my taxable account I’ve recently made two additional deposits on top of my automated monthly scheduled contribution. This portfolio is also all stocks, and again, I haven’t looked at the balance. I do have plans in place to make additional deposits if stocks continue to go lower.

This week will shape an entire generation’s view on risk. Young people will remember the coronavirus and they’ll remember what it did to the stock market.

The silver lining of this painful experience is that investors will have a better respect for risk. All the highs they’ve experienced over the last few years are offset by the lows of the last few weeks. It doesn’t feel good now, but we’ll get past this, we always do.

Choose your asset allocation

Whether you decide on mutual funds or ETFs, you will have to choose an asset allocation.
Asset allocation is a fancy term that simply means how much bonds, stocks, and cash you have in your investment portfolio. For most people, cash is not part of their portfolio. So you can focus solely on bonds and stocks. Your cash will stay separated from your investment portfolio.
Now, there are no good or bad asset allocations. You need to know the difference between different asset allocations and choose one that suits you personally!
We have already seen that stocks are more volatile and have higher returns. On the other hand, bonds are more stable but will bring lower returns.
Based on that, your asset allocation should be chosen based on these factors:

1. Your risk tolerance. How much risk are you capable of handling? If your portfolio is down 30%, what will you do?
2. Your investing term. How long will you be investing before you will need this money?

Having a good risk tolerance means the ability to take on more stocks. And a long investing term also means you can have more stocks in your portfolio. But do not take these two factors independently. You need to consider them both.
For instance, if you need the money in 20 years (very long-term) but have a low risk tolerance, you should have a significant amount of stocks regardless.
You should not even consider having less than 40% of stocks. You need stocks to have good returns. Here are the most popular asset allocations:

• 100% of Stocks: Investing for the long-term and excellent risk tolerance.
• 80% of Stocks: Investing for the long-term and good risk tolerance.
• 60% of Stocks: Investing for the medium-term or average risk tolerance.
• 40% of Stocks: Investing for the medium-term or low risk tolerance.

These are only rules of thumbs, of course. Nothing prevents you from a 75/25 portfolio. It would be a perfectly fine portfolio.
And one last thing on asset allocation: It does not need to set in stone. You should not change it often. But you can change it. First, as you age, your risk tolerance may change. And as you get closer to your term, you may want to increase the bonds to avoid a big surprise.

Decide between mutual funds and ETFs

As we have just discussed, index funds are the best instruments to start investing. However, index funds come in two flavors:

1. Mutual Funds. They are funds directly managed by a financial institution.
2. Exchange-Traded Funds (ETFs). They are funds traded on the stock market.

Both of these alternatives are index funds. They both invest in a large number of shares and replicate the index itself. You will need to decide whether you want to invest in mutual funds or ETFs.
The only notable difference is how you invest in them.
To invest in a mutual fund, you will not need to access the stock market. You will be able to invest in mutual funds through a financial institution such as Vanguard or BlackRock. Your big national banks (UBS, for instance, in Switzerland) will also offer access to some mutual funds.
On the contrary, to invest in an ETF, you will need access to the stock market. You will use a broker as the intermediary. And then you will purchase shares of an ETF as it was a stock.
Mutual funds are simple to invest in. However, there is a big issue with them in many countries. Most of us do not have access to good mutual funds. We have access to many funds from our banks. But these funds are significantly more expensive and smaller. So, they are inferior alternatives.
It is the reason why most people in Europe are investing (or should be investing) through Exchange Traded Funds (ETFs).
If you have access to good mutual funds, for instance, in the United States, you can start to invest directly with them. You will need to have a broker account.
If you do not have access to good mutual funds, you will invest through a broker account (more on that later).