Financial Well-being

By analyzing overall characteristics of top performing *growth* style etf, such as iShares Russell Top 200 Growth ETF (IWY), with top performing *momentum* style etf, such as Invesco S&P 500 Momentum ETF (SPMO), I have learnt one thing for sure. Growth style seems to have produced similar return as momentum style for long term (5, 10 years) horizon with comparatively much *lower risk*.  Growth fund (such as IWY) has mostly beaten broad market index every year since it's inception in 2009. However, momentum one (such as SPMO) keeps disappointing every other year by underperforming broad market.  So, for more aggressive investing strategy (say 20% of your stock portfolio), when it comes to choosing between growth and momentum, growth seems to be better option.

PGIM Ultra Short Bond ETF (PULS) is a good low expense (0.15%) ultra short-term total bond fund ETF. It invests into investment grade (AA rated) corporate and government bonds with effective duration of 3 months. It offers 0.50-1% better return than AAA rated ultra short treasury bond ETFs such as SGOV. I believe such extra return might be worth, in spite of little bit lower rating. It's going forward yield to maturity is currently 6.04% Updated on Jan 12, 2025: PULS has continued outperforming it's underlying index 4 years in a row. It returned 6.12% last year (we discussed about it last year in Feb) as compared to ultrashort index's 4.39%. Hope it continues it's outperformance this year too.  This AA rated ultrashort (currently less than 1 month duration) Total bond fund ETF seems to be much better option than most of short term bank CD or high yielding savings account or most of money market funds. As Fed has cut interest rate few times last year, it's going forw...

I believe *actively* managed Vanguard Core Bond ETF (VCRB) is better substitute to 2 decades old *passive* (market value weighted) Vanguard Total Bond Market ETF (BND). In fact, market value of a bond offering doesn't make any sense to be a criteria to allocate more weight (allocation of money) to that bond offering. That's one reason why actively managed bond funds have been outperforming passive bond funds. Normally actively managed bond funds have higher expense ratio, but VCRB is an exception with just 0.10% expense ratio. As such, above bond fund should be used only for long haul investing such as in IRA or 401(K). Since they tend to be interest rate sensitive, we should *avoid* them for short term savings such as emergency funds. Updated on Feb 15, 2025: It outperformed it's *intermediate term* bond index during last 1 year by 1% (5.31% vs 4.38). Going forward, it's expected to return 5.15% based on it's yield to maturity.  I am glad I switched all my intermed...

iShares iBoxx Investment Grade Corporate Bond ETF ( *LQD*) seems to offer 1% better return than Vanguard Total Corporate Bond ETF (VTC). Also it's bonds are better rated (A as compared to BBB) and it's expense ratio of 0.140% is comparable. Vanguard Interm-Term Corp Bd ETF (VCIT) has lower quality (BBB instead of A) and is less diversified. Accordingly, it should have produced better performance (than LQD) due to these added risks. But, it hasn't.

iShares® 0-3 Month Treasury Bond ETF (SGOV) is ultra short term treasury bill ETF. It's expense ratio is near zero (just 0.07%) and it's latest (last 30 days) yield is 5.28%. Since it primarily holds US government bonds, this ETF is state and local tax exempt. Unlike CDs, there is no early withdrawal penalty. For saving money for emergency fund and short term goal expenses, SGOV seems like a good option. Since it is ultra short term bond fund, principal preservation is as good as any other money market fund.

Index based etfs are in general highly tax efficient as compared to it's mutual fund counterpart. It's because ETFs rarely generate any capital gain , even when index's underlying appreciated security is being replaced by another security. For example, VTI has not distributed any capital gain for it's 20 year's history, even though it has produced above 10% annual return during above period. Even during 2019 March selloff, there was no realized capital gain. For taxable accounts, it's better to own etfs than mutual funds, as taxes on deferred capital gains are deferred in etfs. Also, unlike mutual funds, there is no huge realized capital gains from other investor's panic selling during sharp downturn. There is no real outflow in case of etfs. Sellers sell shares and buyers buy them. Underlying securities remain unchanged .