Holding Stocks vs Index Funds — 2


Last year I did an analysis of stocks vs index fund portfolio. Read here. There are 2 portfolios that I maintain. An active and a passive portfolio. Active portfolio is a group of stocks and broad market indices ETFs. Passive one is 401(k) that silently buys equal amounts of S&P 500 (VINIX) every 2 weeks since February 2020.

My current active portfolio is as follows:

Actively managed portfolio

My highest conviction stock is GOOGL followed by META, MSFT, INTC and AMZN. Earlier I had bought AAPL and NVDA. But sold out on some gains. Also, at one time I had been buying BABA. At the time it was cheaper and market had an incredible rally for other stocks. Also, at one time I had high hopes for ARKK. But my conviction had dropped drastically understanding the various smaller positions that may be disastrous because of liquidity crunch introduced by Ark Invest’s buying. All of these are approximately 70% of my active portfolio. To add to the stock portfolio, I like to buy QQQ. It is passive and contains high quality stocks that I mostly understand and use everyday. However, now I buy QQQM which is QQQ with lower expense ratio. Two more ETFs that I keep in my portfolio are SCHD and SCHY. They are both dividend ETFs based on same principles. One invests in USA markets and the other in international markets (notably excluding India and China). They provide relative protection from downside when market downfalls as it happened in 2022.

I have been continuously adding and rebalancing my active stock portfolio since October 2020. At this time, I am down 20%. I have also realized some gains. Including the realized gains, I am barely breaking even since I started tracking my active portfolio.

Active portfolio approximate returns since inception.

On the other hand, as I mentioned earlier, every 2 weeks I put in a fixed amount (10% of paycheck pre-tax income) to my 401(K) portfolio. This account invests in S&P 500 (VINIX). Would you like to guess what is my return today? It is positive 5%. 5% in this crashing market, doing nothing but lazily buying America’s biggest companies paying only a minuscule fees. I say, that’s amazing! Dollar Cost Averaging + Passive Index Fund is a wonderful combination!

So what is better?

Managing an active portfolio consumes most of my free time. I am invested in 6 stocks. However, I have a watchlist of 8 more stocks. Just keeping in touch with the latest news, financials, earnings, etc takes most of my free time. I love doing the research. Hence, that’s not a problem. However, compared to the passive portfolio and its returns, it seems most investors like me will be better off with systematically investing a portion of the income in a passive broad market based index fund.

Only time will tell which one is a better strategy. Given my interest in financial markets and the experience thus far, I am going for a blend of active and passive portfolio. At this time I am 80% active and 20% passive. However, when I factor in QQQM, QQQ, SCHD and SCHY from active portfolio (as they are passive broad market based index funds), overall I am 55% active and 45% passive.

I am also around 16% in cash to continue take advantage of the current market and add to my active portfolio. I will keep the passive portfolio at the same cadence — 10% of paycheck pre-tax dollars. Here is my current wealth distribution.

Wealth distribution — BTC is Bitcoin || Savings (emergency fund) is USD savings account || Schwab Inv is active portfolio || liquid (cash) is USD checking accounts || 401(K) is 401(K) tax advantage account

So, there it is. Active vs passive portfolio management for 2022. My portfolios have seen the crash of early 2020, an incredible rally of late 2020 and 2021 and absolute demolition of 2022. We will see what’s in store when I analyze this again next year.

Read here for knowing some ETFs for passive investments.