Hi there,

Welcome to Finance Friday. Last week, we were inspired by the remarkable story of Ronald Read, who built an $8 million portfolio despite a modest income and no formal financial training. His story serves as a powerful reminder that anyone can achieve financial success through smart investing habits. This week, we'll explore how you can build a diversified portfolio, potentially even easier than Ronald Read did!

Invest Like Ronald Read (But Easier!)

The Core Principles of Ronald Read's Strategy

Let's revisit the key ingredients of Ronald Read's success:

1. Live Frugally: He emphasized living below his means, creating a foundation for investment. By consistently saving a portion of your income, you build capital to invest over time.

2. Invest for the Long Term: Ronald adopted a buy-and-hold approach, focusing on established companies and reinvesting dividends. This strategy aims to benefit from long-term market growth while minimizing the impact of short-term fluctuations.

3. Diversification: While not explicitly mentioned, diversification was likely a key factor in Ronald's success. He held shares in various sectors, reducing his exposure to any single company or industry.

Building a Diversified Portfolio: Beyond Stock Picking

While Ronald Read achieved success through individual stock selection, there are now tools available to simplify portfolio diversification.

Introducing Exchange Traded Funds (ETFs):

Imagine a basket filled with various fruits. ETFs work similarly, but instead of fruits, they hold a collection of stocks. Here's a breakdown of the name:

• Exchange: ETFs are traded on stock exchanges like individual stocks (e.g., Apple, Microsoft, etc).

• Traded: They can be bought and sold throughout the trading day, just like stocks.

• Fund: An ETF pools money from multiple investors, offering instant diversification across multiple companies in a single investment.

There are ETFs that track different sectors, industries, or even specific investment strategies.

The Power of Passive World ETFs

If you could only invest in one type of asset, passive World ETFs would be a strong contender. Here's why:

• Passive Management: Unlike actively managed funds with high fees, passive ETFs track a specific market index, incurring lower costs.

• World Exposure: These ETFs invest in stocks from various regions around the globe, offering built-in diversification without the need to pick individual companies.

Please note that if you have a particular belief in one region you may choose to invest only in that region. If you are sure that the USA will continue to perform well compared to the rest of the world, for example, you could invest in an ETF that tracks the S&P 500. This is an index of the top 500 stocks in the US.

The Advantage Over Ronald Read's Approach

Ronald Read, as a US citizen, was fortunate to invest in a booming US stock market. However, relying on a single market can be risky. The US may, or may not, perform as well over the coming decades.

Here's how World ETFs offer an advantage:

• Reduced Research and Decision-Making: You don't have to predict which region will outperform. The ETF automatically adjusts its weighting based on global market performance.

• Enhanced Diversification: World ETFs provide greater diversification with less decision-making compared to picking individual stocks like Ronald Read.

Remember:

While Ronald Read's story is inspiring, past performance doesn't guarantee future results. However, his core principles of living frugally, investing for the long term, and achieving diversification remain relevant today.

Next Week:

Join us next week for a deeper dive into passive World ETFs, exploring how they can simplify your investment journey.

Stay tuned and happy investing!

As always, please seek financial advice before making any investing decisions.

Phrase of the Day: Live with your Means

Live with your means - to live within your means is to spend less than you receive as income.

“She was very careful with how much she spent every month because she wanted to live within her means.”

Do you have any Business English questions?

Please email me and I will do my best to answer them in future newsletters.

Until Monday - have a great weekend!

Iain.

www.communicateenglish.com

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