Three Questions from a Student

[Three Questions from Students] CLEC Investment and Financial Management Education Channel Date of writing: December 17, 2019

Question 1:

I have seen that SPY/QQQ have been at high levels recently. Should I buy an ETF with high dividends and low volatility such as VYM when entering the market? Because the market is already at a high level now, the next correction should be very strong, right?

Answer 1:

Don't predict the market!

You can invest in SPY QQQ VYM, but you should consider long-term returns, not short-term risks!

If QQQ has increased tenfold in ten years, SPY has increased eightfold, and VYM has increased fivefold.

Which one do you want to invest in!

Short-term things are like the probability of a shooting star appearing, no one knows, but long-term returns are predictable! Don’t pretend that you know what the market will do in the next two or three months! If I had known, I would have been as rich as Buffett! (Did you know two months ago that the market would reach new highs? Did you know about the 2008 crash!)

Because I didn’t get rich because I thought I knew it in the past, so when I thought that I was “high” and “should buy xx”, I thought I was a “god” and thought I knew it! In fact, I don’t know anything!

Question 2:

I just feel like I always make a bit of a loss when buying at high prices. . .

If divided is included, the overall return rate of SPY/QQQ/VYM or even KBWD (yield 8.65%; YTD return 18.31%) is similar? It seems that you mentioned it in the videos of the previous two episodes.

From this point of view, is it more reasonable to enter a high dividend ETF when the market risk is high, then sell it and buy a high growth ETF when the market falls?

However, I don’t quite understand whether I have to pay service fees when buying and selling between different ETFs? Will dividends be paid only at the end of the year? If this is the case, then my operation is not worthwhile.

Answer 2:

KBWD’s dividend yield is only 8%

This year, because stocks have performed relatively well, ETFs with high yields will also rise a bit.

Therefore, KBWD's dividend plus stock price increase will only have a return of 18% this year. Usually dividends average an annualized return of 10%, and the stock price will not rise in the long term.

SPY's dividend plus share price return this year is 29.5%

QQQ’s dividend plus share price return this year is 36%

You decide which one to invest in. If you feel that the stock price is high, it will be higher in the future.

Thinking that the operation will be perfect is impossible. It's relatively simple to imagine.

In a word, don't consider short-term risks, long-term profits are the focus of our investment.

If you want to use clever operations, you will not get any benefits.

Question 3:

QQQ always has a higher return rate than SPY, so SPY has very general meaning to us. Is there anything wrong with this judgment?

Answer three:

No problem! As long as you can accept that short-term QQQ shocks are greater than SPY; long-term QQQ returns are higher than SPY.

When investing, you must first know what you want!

I usually recommend thinking like this: "Focus on long-term returns, ignore short-term shock risks, and buy without operating."