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investing in 2021 with the dad investor

What I’m investing in for 2022 (and how)

Table of Contents

Can I beat the market with my stock market investing in 2022?

Watch and see what I’ve done and am about to do with my own money this year as I explain my strategy and technique.

I’ll take you through the process I go through as I aim to grow and build a better investment portfolio.

Find out if I really have any skill as a “Dad Investor” or is it just luck that I’ve managed to find success in the past?

Article Outline:

  • Disclaimer
  • Explaining my 2022 Investing strategy
  • Tools I’m using
  • Core portfolio
  • Satellite portfolio

Disclaimer

This year I’m going to show you what I do with my own money to add to my investment portfolio.

But before we go any further I need to explain some things.

Call this a disclaimer, or a word of warning.

This post and project are for entertainment purposes only. That means I’m doing this to give you something to read, enjoy and find interesting. Please don’t use this as a guide or framework for how you should or could invest. Every decision I make is applicable to me in my situation.

I already have a sizable investment portfolio. I’m not starting from scratch, I’ve been investing for decades and am not going into this cold. Take care of your financial position before you start investing.

The investments I make this year will be more ‘active’. This is due to me wanting to find more growth opportunities, which will mean I’ll be reading researching, and spending time finding specific stocks I think are going to grow. It goes against the passive approach so many experts recommend, but it’s what I want to do this year.

If you are new to investing, then you could likely be overwhelmed with what you are about to read. find conflicting perspectives with what you have read elsewhere. Investing does not need to be this complicated. I am making it because well, its in the name here, so I want to do this. You can easily be a passive investor. I have plenty of articles already that can help you do that in this section of the site

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My investing strategy for 2022

I’m a massive advocate for starting any investing journey with a strategy.

It’s the first thing I question when people ask me about tools, stocks or apps.

A good enough investing strategy (doesn’t have to be a 15-page compendium) can be a helpful, reliable guide to reference throughout your decision-making process.

The strategy: a Core-Satelitte investing approach

Here is what I'm focusing on this year:

  • I will investment monthly (at a minimum) half of any surplus our household has, with the aim to hold these investments for at least five years
  • The Core of the portfolio will be investing passive ETFs that are market covering and low cost (a hands off option)
  • The Satelitte part of the portfolio will be built through more active investing, with individual stocks being selected and added to throughout the year
  • The allocation of funds put towards Core and ETFs will start at 65% core and 35% Satellite
  • I will be using a variety apps, brokers and research providers to help me with my decision making and execution through the year (more below)

Before we talk about how that will all work in 2022, let's back it up a bit and look at where I'm at right now.

What is core-satelitte investing?

I look at my portfolio in a few different ways – by geography, sector, product type – but right now I'm focused on whether my investments are ETFs or individual stocks.

The reason being is that I'm applying a core-satellite investing approach.

This approach is a way for investors to stick to tried and true passive investments that track major indexes while adding to that with some actively managed investments.

What does that really mean?

Filling up your portfolio into two pieces – core, and satellite investments.

The core piece is full of ETFs that are hands-off and managed passively. These ETFs include markets covering funds like IOO (top 100 global companies), VGE (companies in emerging markets), or FAIR (sustainably focussed Aus companies).

Consider everything in the core your mainstream ETFs and investment types.

The Satellite piece of my portfolio is full of investments that I will spend time researching and are likely to be individual stock selections.

So while the core portion is more focused on the average stock market returns, I'll use the satellite investments for a high-risk high reward approach to “beating the market”.

By beating the market I mean getting more than the average market returns.

I only nominate a proportion of my portfolio to the satellite investments.

This combination of passive and active investments gives me a way to be boring and reliable but also active in investing. It's not for everyone and most investors actually will recommend you go all core in your investment if you don't have the time or motivation to be an investor.

Deciding the allocation to what is core and what is satellite

While it's one part deciding to go with a Core-Satelittle investing approach, the other part is to nominate what percentage of each is making up your overall portfolio.

Currently, I keep 65% of my investments in core investments and 35% in satellite.

I'm happy with the 65% in ETFs gaining an average stock market return of 7-8%, while the satellite investments I'm aiming more for 20%.

Together I can hopefully beat the market. Even if it's a marginal 1 or 2% then that's still me “beating the market”.

If you are looking to start this type of approach, then it's easier to scale up your satellite investments than jump straight to a combination as I have. For example, if you are 100% into ETFs then maybe go 5 or 10% in satellite at first to see if the strategy works for you.

A note on investing strategy: This type of investing strategy is not for beginners. It’s a DIY strategy suited to my personal preferences. I’m not in the business of giving strategic or product recommendations. Please proceed with caution as you read this and discuss with a financial partner, planner or someone close if you are looking to make big financial decisions with your money.   

Tools I’ll be using to invest this year

Throughout the year I’ll be relying on a few tools from the tool bag to help me build that portfolio.

Raiz – Since launching custom portfolios, this is my preferred choice to invest in ETFs as all the ones I want to buy are there. Everything can be automated and is my favourite way to quickly build a robust wealth-creating portfolio

Stake – An online broker for trading primarily US-listed stocks and ETFs. I will be using this platform to build my satellite portfolio this year. The best thing about Stake is you can buy shares fractionally, so for as little as $50 you can buy some of the biggest most expensive companies in the world.

Make sure you sign up for a Stake account to get a free stock if thinking of investing in the US.

SelfWealth – My online broker of choice for the ASX but now with the ability to do US trading. Nice, clean interface, well priced and you can get 5 free trades when you sign up! Read more here.

Sharesight – Phenomenal portfolio account management. Would not be where I’m am with confidence and investing strategy without it. The tools to replace your spreadsheet and combine all your investments into one place.

Simply Wall St – Fantastic Australian-made research tool that helps aggregate information on stocks that help you make strong financial decisions.

Independent Reserve – This is my choice for buying and holding currencies. Yes, we’ll get to Bitcoin and Gold in this article.

I am an experienced investor so am comfortable managing a few different platforms and tools.

Another note I should make is that I have an account in Spaceship.

I don't include it in my core-satellite approach as I use it to hold my emergency fund money. This is 6 months of expenses that we consider “saved” for an emergency. We are comfortable having it there with the hope it earns more than a savings account would.

Where my money is invested via investing tool

The core of my portfolio (passively managed ETFs)

Currently, my core portfolio is all managed through Raiz and its custom portfolio feature.

This is a way to build an all-in-one portfolio of up to 14 ETFs (plus bitcoin) that I can easily invest into like it’s a savings account.

Rather than buy individual ETFs via CommSec Pocket or SelfWealth, I can include them in my Raiz custom portfolio and buy into a portfolio that will always be balanced the way I like.

I also appreciate that Raiz lets you invest fractionally, so even if I have $5 to invest I can do it. The alternative is waiting until you have the amount needed for one share of your investment (IOO for example is $100+ dollars per share).

So what exactly does my Raiz portfolio look like? Here it is, straight from the app.

65% of my investments are kept here in this portfolio.

There are five ETFs included, with the addition of 5% bitcoin (because why not?)

  • IOO – Global 100 Companies
  • FAIR – Ausarlian Sustainability leaders
  • RARI – Socially Responsible Large Cap
  • RCB – Corporate Bonds
  • VGE – Emerging Markets

This is a 78/22 split of stocks and non-stock investments. The 22% being Bonds and Bitcoin.

The idea of this portfolio is for it to simply mimic what the markets are doing around the world and here in Australia.

Over decades the markets these ETFs follow have performed consistently and should provide me on average around 7-8% a year.

There will be volatility but I'm experienced enough to wear it and know there are more good times than bad.

Now back to Raiz. The beauty of this platform is that I can add money into it and that money is automatically split around the six investments I've selected.

If you did this via a broker you'd need to spend time and money putting your dollars into each investment individually.

If I were to transfer in $100 into this portfolio, I know that 25% goes towards IOO, 23% towards FAIR, 5% towards bitcoin and so forth. The balancing is already done for me and it's fantasic.

So that's what makes this core portfolio so hands off.

I will not touch this account at all this year. It's all set up and I even have a direct debit setup so that money will be added regularly without me even doing anything.

A note on rebalancing

Balancing and rebalancing are important parts of DIY investing.

Without a rebalance you may find yourself over-invested in something, which can distort the way your portfolio continues to run. Setting parameters for how you target each investment type – whether by my groups, geography, risk, or fund – helps you build something aimed at meeting the goals you have in mind.  

E.g. You buy $100 in bitcoin and $100 in gold, wanting 50% of each. Bitcoin doubles in price and gold stay the same so now you have 75% bitcoin and 25% gold in your portfolio. It’s out of balance and you’ll need to rebalance to get back to the 50/50 you were aiming for.

The most typical way to rebalance is to sell off some of your over-allocated investments (in my case div stocks) and rebuy you underexposed group (in my case growth stocks). Because I’m planning to invest regularly I’m just going to focus on buying mostly growth stocks to make up for its low exposure.

Building the satelitte – picking stocks and leveraged ETFs

OK so for those investors who want to be a bit more involved and chase the bigger returns this is the more fun stuff.

While 7-8% is a nice stable number, you still like the sound of your investments growing 20%+ a year most years.

With 65% of my investments in Raiz and the Core part of my portfolio, the rest sits in the satellite part.

This is a combination of anything I'm interested in and what I think will make more money than a the mainstream core investments.

This year I'll be looking at two ways to get some crazy market gains

  • High growth stock picks
  • Leveraged ETFs

The 35% that I'm dedicating to satellite investing will be split across investments that fit in these categories.

I'll explain each and why I add them to my portfolio

High growth stock picks

I enjoy picking stocks.

Because it's not just the possibility of making good money, but the ability to own a share of a good company.

Good companies make good money.

I find that ETFs include everything. 500, 1000 or even more companies in one investment fund.

I don't need that many companies and I don't want that many companies.

I just want the winners. Companies I know. Ones that have a good track record.

When you pick stocks it's important to set yourself some rules around what is in and out of your watchlist and buy list.

Because there are so many companies able to invest in, it's helpful to set these rules to narrow things down easily for you.

My rules for finding high-growth stock picks.

These were formulated a lot off the back of reading and researching plenty around how to find and assess stocks to by

  • Buy within your circle of competency
    • The sectors have good understanding are retail, technology and finance
  • Make sure the companies are of quality and know how to grow
    • Are sizable – large cap rather than small
    • Have a good track recording of growing over the last 10 years
  • Look for key indicators to indicate company is strong in past and future
    • No or easy to pay off debt
    • Decent earnings
    • Good ROE and ROIC
  • Find companies that work and provide for billions
    • Rather than a niche unique offer, I want something everyone can use.

Companies I've put into this category based on my rules and research include:

  • Amazon
  • Paypal
  • Microsoft
  • Tesla
  • Nvidia
  • Netflix

If you noticed these are all overseas, specifically US stocks, then yes that is something I will be focussing on. I personally believe the Aus market is overvalued. Most of the stocks I would want to buy are priced to high and so instead will be looking aborad.

Just because these companies make it through my screening process means I will invest in them. I will still need to do due diligence and make sure I buy at a good price.

Tesla and Nvidia for example were booming in 2020 and 2021 so I need to make sure that their price matches the value of the company.

Amazon and Paypal on the other hand had their stock price plateau and drop in 2021. The question for them I need to find does that price again matches the value of the company.

I explain further down how I research and assess stocks I'm keen on investing in.

Leveraged ETFs

A new type of investment for me in 2022 is leveraged ETFs.

These are funds that track a common index (like the S&P 500) but are leveraged so they correspond to 2x or 3x what that index normally does.

So if the market grows by 1%, then a 3x leveraged fund would grow 3%.

The same applies if markets drop as well, so the risk is equally magnified.

I want to explore this type of investment as it is similar to how property works. You put down a $100k deposit for a $500k house and if the house grows 10%, it's valued at $550k.

To me, leveraged ETFs are at least worth a try.

I know there is a massive risk that if the market drops my money drops x3/

BUT, the market actually grows more often than not so I am prepared to weather the storm knowing it's the least likely thing to happen.

I plan to invest in three ETFs throughout the year, all focussed on the US markets:

  • TQQQ – 3x leveraged NASDAQ 100
  • UPRO – 3x leveraged S&P500
  • FNGU – 3x leveraged FANG+ Index

The first two are quite common – with the ASX equivalents being TECH for the Nasdaq 100 and IVV for the S&P 500

The last, FNGU, is an ETF that tracks 10 FANG stocks. These are the likes of Amazon, Alibaba, Apple, Netflix, Google.

These are all companies in my wheelhouse and I have great understanding. With this ETF I have the ability to invest in them with leverage.

In terms of how the leverage works with returns let's look at the past year of the leveraged vs non-leveraged equivalents.

  • TQQQ returned 139% with NDQ returning 37%
  • UPRO returned 125% with IVV returning 34%

As you can see, while the standard ETFs were amazing the leveraged ETFs only magnified these gains.

I'll be dropping in a set amount into these three ETFs to see how I cope with the ups and downs of leverage in 2022.

A note on dividends

For most of my investments, I have investments paid directly to me (as opposed to participating in dividend reinvestment plans).

I’ll pool all this money together and use it to either add to alternative investments or growth stocks.

Dividends get paid in Jan and July for most of my investments, with some also having quarterly or monthly payments as well.

Alternative Investment tactics

Through 2021 I invested in Bitcoin and Ethereum as an alternative type of investment.

I likely won't be adding anything more into cryptocurrency as it's mostly a bet that it is something of value.

I enjoy understanding the mechanics of the company behind the stock. With crypto, there is none of that so don't find as much meaning in owning currencies.

Summary of where my money will be invested

As you have read already money will be put into ETFs and stock picks via a core-satellite approach.

Here are some graphs to illustrate exactly how the makeup of the portfolio may look.

This is a potential way the portfolio could look as it assumes I go through with what I intend to invest in.

Yep if you look at it this way it could feel like it's all over the place.

The thing is all the green and blue areas are managed by Raiz. It's hands-off and done.

The pick and purple shaded areas are up for interpretation. I talked about the stocks and Leveraged ETFs that may make up this part so I've just provided a chart for how that may ultimately look.

Again, the idea of the core is to generate a solid 7-8% returns a year, with the satellite shooting for the moon.

Next steps

Raiz is all set up and running. The core is done.

The next step for me is to get into Leveraged ETFs.

I will use SelfWealth to buy into the ETFs TQQQ, UPRO, and FNPU at first.

Next it will be up to me to get into research mode as I find out which companies are worth my time and money.

I'll also note that I will be adding to my investments on a regular basis. Even if I'm not trading on a regular schedule, I will be adding money to my Stake account so that I can be ready to buy when needed.

For how I actually find, assess, and get ready to buy individual stocks you can read on.

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How I pick stocks through research and analysis

Research is paramount if you are picking individual stocks.

I’ve been exposed to this failure in the past.

You are buying a share of a business so you need to act like a manager.

To do that I set myself some ways to identify whether a stock that I'm interested in is going to be one I want to manage (as a part-owner).

And as a manager, I need to know plenty about it before I put my money into it.

After all, if a friend came up and said he wanted some money to start a cafe, art studio, or hot air balloon company, you'd probably have a few questions.

Everything I'm about to explain is provided in video format in my online course on investing.

Here are the two lenses I look through for stocks:

Macro

For a company to make to get me interested in researching them it has to speak to me at a MACRO level. This means it needs to be:

  • Something I know and understand
  • Able to solve problems for millions
  • A business I want to own (not a sector, country or price)
  • Want to invest in it for a long time
  • Match my personal values

Once I feel like I’m on to something I then look at the details, the more micro details.

Micro

This is really due diligence progress.

I'll expand on this area a bit more when I get time, but for the moment I look at the numbers and filings f the companies. This is all publicly available information so it can take a bit of time to find. I do use Simply Wall St to help speed this process and fact-finding up.

I look for each company that passes the micro-test to have:

Strong Growth

  • Free Cash Flow

Strong Return

  • High Return on Capital
  • Excellent Management & Good Governance

Low Risk

  • Simple
  • Predictable
  • Dominant Companies with Large Barriers to Entry
  • Limited Exposure to Extrinsic Risks
  • Strong Balance Sheet

Tactics to find good growth companies.

I’ve told you about the vetting process I use to filter companies from like to want (the macro and micro process), but here is a rundown of each step I take to find companies.

There are certain sectors that growth companies find themselves in. Such as:

  • Materials/Resources
  • Energy
  • Discretionary products
  • Industrials
  • Technology

An easy way to invest in these sectors is to invest in an ETF that covers one sector like these. On the ASX there are a few:

  • Materials – QRE
  • Energy – FUEL
  • Industrials – the WHF LIC
  • Technology – NDQ, TECH, ASIA

I haven’t been able to find an ETF for discretionary spending on the ASX but there are a few in the US, like XLY on the NYSE.

So that’s an easy way but many ETFs diversify too much for my liking and I don’t want to have everything, just the winners.

So how do I find the winners?

What I like to do with ETFs like these is have a look at the holdings or the companies within the fund.

Each product page should allow you to find the entire listing of holdings (either on the page or via a download).

NDQ for example has 100 tech companies, while TECH has 34 in it.

I also look through the list of holdings and highlight any companies I have good knowledge of and might want to research further.

Me highlighting companies I know and have an interest in from a list of holdings found the ETF TECH.

Here is me looking over the holdings of ETF TECH. 

Having investigated a few ETFs already and highlighting some companies I have some interest in I have suddenly built a list of stocks to research further.

Companies I've researched (the watchlist)

After finding some interesting companies via the methods above, I now have a bit of a list.

It's full of companies I feel are interesting, have some meaning to myself personally and potentially are reasonable value.

Note: these are not stock recommendations or even companies I want to buy. They are just a list of interesting companies I need to find out more about to see If I want to invest in them.

  • Tesla
  • Nvidia
  • Paypal
  • Amazon
  • Facebook
  • Google
  • Amazon

Once I have a little list like this I do some individual research on them by reading the annual reports,

I explain via video the end-to-end process of how I find and research stocks in my New Investor Bootcamp online course. Check it out.

Then it's time for some microanalysis.

I’ll be aiming to find out – is there potential for strong growth, without too much risk?

To do this, I’ll turn to one of my favourite stock analysis tools Simply Wall St.

A portfolio view of companies I have on the watchlist
Get an indication of what the intrinsic value of the company is vs its share price.
More data to help verify that a company is actually running well

On the platform, each stock has a profile page you can review. The fantastic thing is that the tool does a heap of calculations for you (massive time saver) including a crack at the real intrinsic value.

It’s up to you how much you use this data as fast as it is aggregated and generated from public sources.

Building the stock waitlist.

If a company goes from being interesting to investable then it sits on the waitlist.

This is a list of companies good enough to be bought when the price is right.

What I aim to do is buy the company below its intrinsic value. Otherwise, known as the sticker price (by someone like Phil Town).

It’s like getting something on sale.

When do stocks go on sale? Mostly when investors are fearful.

The news cycle breaks stories that have investors going in and out of stocks.

During periods where the market reacts, we can then buy the stock knowing the business is worth more than what the market is selling it for.

So what companies made it to my waitlist?

None yet. I still need to research.

I can't understate the importance of thorough research prior to investing in a specific stock.

Read the annual reports, documents on the ASX, history of management, performance, and what sets it apart from its competition.

When I am ready to buy a stock – I practice owning it

Wait, what – a practice? Yeah, a practice. It's a way for me to sink my teeth into something without sacrificing too much.

Rather than go 100% all-in on a stock, I'll ease my way in.

Let's use $10k as an example. I might put $500-$1000 into that company as a practice investment. Owning a stock changes many things for an investor. Emotions, thought process, strategic thinking. Once you have skin in the game things become a lot clearer.

It's quite often you buy something and instantly regret it. It's easier to do that with $500 than $5000 so that's what I consider part of the process. Practice.

If I still feel confident after the ‘practice' I'll then add my parcel for investing in installments. Maybe $2k of that $10k at a time until I'm happy to be invested.

That’s it for now.

A bit of homework for me and some actions I’ll take in the first quarter of this year.

Hopefully, I can be in a place soon where I can feel confident in my decisions and just ride my investments while adding more money to them.

Ideally, I’d like to beat the market or at least the long-term average of 7% that the market seems to find.

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