How To Keep & Grow Your Money #23

Invest Wisely with The Daily Upside

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In this letter, we analyze the Vanguard Small-Cap ETF (VB).

Ticker: VB | Price: $242.75 | Market Cap: $167.3B | Average 10-Year Annual Return: ~10.07% (as of December 2024)

What is it (short)?

The Vanguard Small-Cap ETF (VB) offers investors exposure to a broad range of small-sized U.S. companies, aiming for long-term growth by tracking the CRSP US Small Cap Index.

What is it (long)?

VB seeks to replicate the performance of the CRSP US Small Cap Index, which includes a diversified mix of small-cap U.S. companies across various sectors. This ETF employs a passive management strategy, utilizing full replication to ensure it closely mirrors the index's performance. With a low expense ratio, VB provides cost-effective access to the small-cap segment of the U.S. equity market.

Our thoughts:

VB is a solid choice for investors looking to diversify their portfolios with small-cap U.S. stocks. Its broad exposure and low fees make it an attractive option for those seeking potential growth opportunities in the small-cap space. However, investors should be aware of the higher volatility typically associated with small-cap investments and consider their individual risk tolerance and investment horizon.

Do your own research and if you would like to take our free course to learn how to invest into ETFs and Index Funds at Index Institution™ go here.

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Financial concept to learn in this edition: Derivatives

I also made a short introduction video to Derivatives here! Check it out!

What Are Derivatives and Why Do They Matter for Investing?

Definition: Derivatives are financial contracts whose value is linked to an underlying asset, such as stocks, bonds, commodities, or market indexes. They are agreements between parties that can be traded on exchanges or over-the-counter (OTC).

Types of Derivatives:

• Futures Contracts: Agreements to buy or sell an asset at a predetermined price on a specific future date.

• Options: Contracts that give the holder the right, but not the obligation, to buy or sell an asset at a set price within a certain timeframe.

• Swaps: Contracts in which two parties exchange cash flows or other financial instruments, often used to manage interest rate or currency risks.

Why Investors Care:

Derivatives are essential tools for investors because they can be used to hedge against potential losses, speculate on future price movements, and gain access to assets or markets that might be otherwise difficult to invest in. However, they are complex instruments that come with increased risks and rewards, often involving leverage.

Key Considerations for Investors:

1. Understand the Instrument: Before engaging in derivative transactions, it's crucial to fully understand how they work and the specific terms of the contract.

2. Assess Risk Tolerance: Derivatives can amplify both gains and losses. Ensure that your risk tolerance aligns with the potential outcomes of using these instruments.

3. Regulatory Environment: Be aware of the regulatory framework governing derivatives in your jurisdiction, as this can impact their use and the protections available to you.

Derivatives can be powerful tools in an investor's portfolio, offering opportunities for risk management and strategic positioning. However, due to their complexity and potential for significant risk, they should be used with caution and a thorough understanding of their mechanics.

To learn more about Derivatives read more on Investopedia here or learn more from our full FREE investing course & community here.