DIY investing, what do I need to create my own index fund and passive manage? [Mexico]

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geshiro
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DIY investing, what do I need to create my own index fund and passive manage? [Mexico]

Post by geshiro »

I have been lately investing in `iShares Core Aggressive Allocation ETF` from the following link https://www.ishares.com/us/products/239 ... cation-etf , but I was thinking if I can cut down the fees and reinvest every penny I would have more money to invest from earnings , however I want to create my own DIY project to replicate the performance of the S&P 500 Index or others with more freedom. Well the first difference is I can not control how much US and foreign stock I have in my own portfolio. For example, if I want 70% total international and only 30% US large cap and which companies to invest based on my likes and industries.


what do I need to create and manage my own index fund beside research ( technical analysis , fundamentals analysis , balance sheets, etc) , and only once a year rebalancing?
Mike Scott
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by Mike Scott »

Why bother to create your own when the S&P etc indices can be bought at near zero cost from multiple brokers?
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geshiro
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

1) don't contains pretty specific sectors at my likes , industries
2) I don't have control over it
3) learning
WhatsIRR
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by WhatsIRR »

geshiro wrote: Sat Oct 16, 2021 1:14 pm 1) don't contains pretty specific sectors at my likes , industries
2) I don't have control over it
3) learning
If you have sectors you want to overweight versus the S&P500 you can set you asset allocation and either buy sector ETFs at the set percentages you want or individual stocks if you have some you like. You are going to need a large number and wide variety of individual stocks to start mimicking total market returns.

Its not the BH way but I am doing something similar with dividend stocks.
Last edited by WhatsIRR on Sat Oct 16, 2021 1:32 pm, edited 1 time in total.
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Beensabu
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by Beensabu »

DIY investing is not about creating your own index fund. There's a lot of work that goes into creating an index fund. There are a great many people (with access to tools and resources you do not have) engaged in the work of doing that. One person on their own is not going to be able to do it. Work smart: benefit from the work that others have already done. There's no need to reinvent the wheel.

There's no rule that you have to go with:

- an all-in-one fund
- only index funds
- only broad total market "categories"

But just because you decide you don't want to do the above, for whatever reason, that doesn't mean you do a 180 into selecting only individual stocks.

At the heart of it, that ishares fund you're in is 83/17 stocks/bonds, with a 60/40 split for US/Intl. It's slightly overweighted to US large cap vs US small/mid cap (but S&P 500 vs US total market is the same enough thing) and has about market weight emerging markets for the international allocation.

If you don't want to be 83/17 with a 60/40 US/Intl split, then you can have whatever allocations you want in your own portfolio by using existing mutual funds or ETFs for each allocation. If you want to have a specific allocation to a certain sector, then you can use a sector fund.

It comes down to determining what you want your personal asset allocation to be, and then selecting the most appropriate and lowest cost diversified options available to you in order to construct your portfolio. And then sticking to it.

Asset Allocation: https://www.bogleheads.org/wiki/Categor ... allocation

Portfolio Risk Management: https://www.bogleheads.org/wiki/Categor ... management
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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geshiro
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

what do you mean by There are a great many people (with access to tools and resources you do not have) engaged in the work of doing that? I can think about the first issue money , and it's obviously I cant invest 1M+ , but I can invest 1K+ , but creating my own index that tracks the same performance as S^P 500 or others with different sectors as I like can be a difference at my own money.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by fwellimort »

If this is in the US, there is a brokerage that lets you do this (probably the only one).

It's called M1 Finance.
You create your own "pie" and then it will invest accordingly for you.

Personally, creating your own index fund is far more inefficient than buying an index fund when index funds today have basically 0 fees.
I cannot think of a scenario in which replicating the index is 'cheaper' than just buying an index fund today. Bid/Ask spreads, rounding, inefficient taxes, etc. just all leads me to believe purchasing index funds/ETFs are far better deals. And there's already sector ETFs on top if one wants to specialize in certain sectors.

Or you can buy index funds/ETFs along with a few stocks that you want to 'focus' on more. That said, the Boglehead approach is a lazy approach. Sounds too much work for me.
Replicating an index fund with high degree of certainty is quite an impossible task for a retail investor. There are about 4,000 publicly traded (relatively liquid) stocks in just the US. Many of them are at the weighing of 0.00000001% and such by market cap. No way a DIY investor can replicate accurately. Fortunately, index funds are by market cap so most of those stocks won't affect the difference in returns long run (but you do miss the 'chance' of missing a great company in which if you want to replicate accurately, you need to track the index quite frequently).

If this is outside the US, I think as of today, it's pretty much impossible to replicate index funds because of the higher fees in trading.
If you mean actually creating your own 'index fund' (for the public), that's not really possible for retail investors. Securities market in the US is well regulated hence the barrier of entry is most probably in 7+ figures. Quite unfortunate.
Either that or you find some active fund that caters more towards your goals.

I'm not really familiar with AOA ETF so I would assume you are outside the US. Then most likely, you probably don't have much options. Trading fees are still common (outside US) so there's really not much ways around it for the average retail investor. You can always focus on a few single stocks but then you wouldn't be here in the first place.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
WhatsIRR
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by WhatsIRR »

I’m confused

What’s stopping you from buying the sector ETFs you like now at whatever percentage you want them if that’s what you’re trying to do?
Last edited by WhatsIRR on Sat Oct 16, 2021 2:10 pm, edited 1 time in total.
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willthrill81
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by willthrill81 »

geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
You can do that with existing ETFs.

You're not talking about an index fund at all. You're just trying to create your own very actively managed portfolio. Historically, your odds of beating the indices in this fashion are slim to none.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by sycamore »

geshiro wrote: Sat Oct 16, 2021 12:59 pm what do I need to create and manage my own index fund beside research ( technical analysis , fundamentals analysis , balance sheets, etc) , and only once a year rebalancing?
...

I want to create my own DIY project to replicate the performance of the S&P 500 Index or others with more freedom.
First thing you need is to come up with good terminology. I assume you're not literally going to create an index fund per se, where "fund" means you're subject to various regulations, e.g., Investment Company Act of 1904. On some level, it sounds like you want a set of rules for deciding what to buy or sell, and when. For some this is just what an Investment policy statement is for. I'm not trying to be nitpicky - I imagine coming up with an index and its necessary rules & reconstitution conditions is much more work more than coming up with an IPS. Then again, I've never construct a stock index so what do I know? :)

Another thing is to understand that however much you want to replicate the performance of a benchmark index, you'll never be able to do it perfectly. So the next thing you need is to decide how closely you want to follow the benchmark. E.g., within 0.5% per year. You decide.

And that raises another point: while the index you create may back test well, what will you do when its future performance suffers in comparison to the benchmark index? Will you stick with your index until the next reconstitution point and try again for another year, or go back to square 1 and consider if there's an underlying problem with your index? Example, maybe a key part of your index is the exclusion of the financial sector. At what point do you acknowledge your index can't keep up without that sector? You need a way to measure when your index has failed. Not to be pessimistic, but this is another way of saying you need an exit plan.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

SECTOR ETF would be an option and mixing pre-packaged ETF as per fits my goals , but what benefit would it be creating my own index instead of buying separately ?
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

willthrill81 wrote: Sat Oct 16, 2021 2:09 pm
geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
You can do that with existing ETFs.

You're not talking about an index fund at all. You're just trying to create your own very actively managed portfolio. Historically, your odds of beating the indices in this fashion are slim to none.
I don't want to beat the index , but I want to create my own managed portfolio at my likes
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by willthrill81 »

geshiro wrote: Sat Oct 16, 2021 2:13 pm
willthrill81 wrote: Sat Oct 16, 2021 2:09 pm
geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
You can do that with existing ETFs.

You're not talking about an index fund at all. You're just trying to create your own very actively managed portfolio. Historically, your odds of beating the indices in this fashion are slim to none.
I don't want to beat the index , but I want to create my own managed portfolio at my likes
To what end? Surely it isn't from learning, because there are literal volumes of data on this issue that you could learn far more from than your own sample size of 1.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

willthrill81 wrote: Sat Oct 16, 2021 2:16 pm
geshiro wrote: Sat Oct 16, 2021 2:13 pm
willthrill81 wrote: Sat Oct 16, 2021 2:09 pm
geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
You can do that with existing ETFs.

You're not talking about an index fund at all. You're just trying to create your own very actively managed portfolio. Historically, your odds of beating the indices in this fashion are slim to none.
I don't want to beat the index , but I want to create my own managed portfolio at my likes
To what end? Surely it isn't from learning, because there are literal volumes of data on this issue that you could learn far more from than your own sample size of 1.
it is just to picking my own favorites industries, companies , policy instead of relying s&p 500 industries, and I don't think 1 year rebalancing is very active
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by WhatsIRR »

geshiro wrote: Sat Oct 16, 2021 2:18 pm
willthrill81 wrote: Sat Oct 16, 2021 2:16 pm
geshiro wrote: Sat Oct 16, 2021 2:13 pm
willthrill81 wrote: Sat Oct 16, 2021 2:09 pm
geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
You can do that with existing ETFs.

You're not talking about an index fund at all. You're just trying to create your own very actively managed portfolio. Historically, your odds of beating the indices in this fashion are slim to none.
I don't want to beat the index , but I want to create my own managed portfolio at my likes
To what end? Surely it isn't from learning, because there are literal volumes of data on this issue that you could learn far more from than your own sample size of 1.
it is just to picking my own favorites industries, companies , policy instead of relying s&p 500 industries, and I don't think 1 year rebalancing is very active
That’s just your portfolio not an index as someone mentioned I think your terminology is getting twisted.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by willthrill81 »

WhatsIRR wrote: Sat Oct 16, 2021 2:21 pm
geshiro wrote: Sat Oct 16, 2021 2:18 pm
willthrill81 wrote: Sat Oct 16, 2021 2:16 pm
geshiro wrote: Sat Oct 16, 2021 2:13 pm
willthrill81 wrote: Sat Oct 16, 2021 2:09 pm

You can do that with existing ETFs.

You're not talking about an index fund at all. You're just trying to create your own very actively managed portfolio. Historically, your odds of beating the indices in this fashion are slim to none.
I don't want to beat the index , but I want to create my own managed portfolio at my likes
To what end? Surely it isn't from learning, because there are literal volumes of data on this issue that you could learn far more from than your own sample size of 1.
it is just to picking my own favorites industries, companies , policy instead of relying s&p 500 industries, and I don't think 1 year rebalancing is very active
That’s just your portfolio not an index as someone mentioned I think your terminology is getting twisted.
Precisely. It's not an index fund, nor is it even a fund. It's just an actively managed portfolio, and it isn't likely to be worthwhile for any productive purpose beyond perhaps being entertaining (but it could be quite maddening or worse).
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geshiro
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

okay .. let's call it portfolio allocation , but I want to create my own pretty targeted portfolio , and this can include sector ETF , indexes, global market equity , emerging markets, US stocks , large - mid cap , however what's the benefit of doing this vs buying the whole aggressive ETF from BlackRock?
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by UpperNwGuy »

geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
ETFs already exist for every single one of the items that you named. Why not just buy them? Why do you want to go to a lot of trouble to reinvent the wheel?
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by willthrill81 »

geshiro wrote: Sat Oct 16, 2021 2:25 pm okay .. let's call it portfolio allocation , but I want to create my own pretty targeted portfolio , and this can include sector ETF , indexes, global market equity , emerging markets, US stocks , large - mid cap , however what's the benefit of doing this vs buying the whole aggressive ETF from BlackRock?
This forum is largely built around owning index funds, so you aren't going to find many who advocate individual stock/sector picking. I'm not trying to be rude at all, but there are better forums for those interested in doing so.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by WhatsIRR »

geshiro wrote: Sat Oct 16, 2021 2:25 pm okay .. let's call it portfolio allocation , but I want to create my own pretty targeted portfolio , and this can include sector ETF , indexes, global market equity , emerging markets, US stocks , large - mid cap , however what's the benefit of doing this vs buying the whole aggressive ETF from BlackRock?
The only benefit is if there is something in the whole aggressive ETF that you don’t like or you think your allocations are better than theirs and will outperform. For example if you’re an ESG investor you might want an ESG fund instead of S&P500 to avoid owning non ESG friendly companies.
Last edited by WhatsIRR on Sat Oct 16, 2021 2:32 pm, edited 1 time in total.
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Beensabu
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by Beensabu »

You can invest in whatever you want. It's your money, and your portfolio.
geshiro wrote:okay .. let's call it portfolio allocation , but I want to create my own pretty targeted portfolio , and this can include sector ETF , indexes, global market equity , emerging markets, US stocks , large - mid cap , however what's the benefit of doing this vs doing the whole aggressive ETF from BlackRock?
As some have already said, there may be no benefit. You may underperform whatever you are tracking. Or not. We can't know.

Since we can't know, that's why many people choose to go with just accepting the return of total market index funds.

Be careful. In my opinion, total market index funds have a place in every portfolio (as at least the "core"), even if you want to tilt to various whatever with the rest.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by Artful Dodger »

geshiro wrote: Sat Oct 16, 2021 2:25 pm okay .. let's call it portfolio allocation , but I want to create my own pretty targeted portfolio , and this can include sector ETF , indexes, global market equity , emerging markets, US stocks , large - mid cap , however what's the benefit of doing this vs buying the whole aggressive ETF from BlackRock?
I assume the reason you would want to do this instead of just buying the Blackrock ETF is you hope your portfolio will outperform theirs. Will you? Maybe. How? Investing genius or dumb luck.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by Doctor Rhythm »

geshiro wrote: Sat Oct 16, 2021 2:11 pm SECTOR ETF would be an option and mixing pre-packaged ETF as per fits my goals , but what benefit would it be creating my own index instead of buying separately ?

You want to create a portfolio that tracks your personal index? How many companies comprise the index? Dozens? Hundreds?

The main benefits are spending huge amounts of time researching stocks, creating spreadsheets, dealing with hundreds of dividend checks, having to execute dozens to hundreds of trades whenever you have an extra $500 lying around that you’d like to invest, dealing with capital gains and losses from dozens-to-hundreds of transactions every time you sell or rebalance, reporting all this on your taxes, etc.
Last edited by Doctor Rhythm on Sat Oct 16, 2021 2:44 pm, edited 1 time in total.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by calwatch »

I do think there is a place for people who want to vote on each individual company decision, for whatever reason. Of course, your $1,000 in Exxon or Philip Morris is not moving the needle much, but for large sums it could be useful.

For sector-specific bets or overweight I would use M1 as stated above. Set your percentages the way you want and let the system do it for you. If one sector gets out of whack press the rebalance button and it will sell and buy to get you back to the original percentage. M1 will only let you do whole percentages, so there will be a rounding error.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by pkcrafter »

geshiro wrote: Sat Oct 16, 2021 12:59 pm I have been lately investing in `iShares Core Aggressive Allocation ETF` from the following link https://www.ishares.com/us/products/239 ... cation-etf , but I was thinking if I can cut down the fees and reinvest every penny I would have more money to invest from earnings

Do you mean invest the dividend, which is about 2%, or do you mean total earnings? The expense ratio is 0.25%, which isn't terrible, but higher than an index fund. I think if you follow your complicated plan, it will require a lot of time, higher expenses, and a lot of luck .


however, I want to create my own DIY project to replicate the performance of the S&P 500 Index or others with more freedom.

Well, you can't replicate the S&P500 and then change your holdings.

Well the first difference is I can not control how much US and foreign stock I have in my own portfolio.

Why not? Does this mean you have access to a limited list of funds?

For example, if I want 70% total international and only 30% US large cap and which companies to invest based on my likes and industries.

You can invest 70/30, but if you insist on a personal selection of stocks, it becomes tedious, more expensive, and probably overall lower returns.


what do I need to create and manage my own index fund beside research ( technical analysis , fundamentals analysis , balance sheets, etc) , and only once a year rebalancing?

If you create your own fund, but it won't be an index fund.

Here is information of AOA

https://www.morningstar.com/etfs/arcx/aoa/performance

Paul
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

UpperNwGuy wrote: Sat Oct 16, 2021 2:26 pm
geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
ETFs already exist for every single one of the items that you named. Why not just buy them? Why do you want to go to a lot of trouble to reinvent the wheel?
what about buying sector , emerging market , global equity ETF instead of buying individual stocks / indexes in order to replicate S&P 500 ?
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by txgolfer_19 »

geshiro wrote: Sat Oct 16, 2021 2:50 pm
UpperNwGuy wrote: Sat Oct 16, 2021 2:26 pm
geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
ETFs already exist for every single one of the items that you named. Why not just buy them? Why do you want to go to a lot of trouble to reinvent the wheel?
what about buying sector , emerging market , global equity ETF instead of buying individual stocks / indexes in order to replicate S&P 500 ?
That's literally what Paul just told you--you can do that.

You are not making any sense. You say you want to replicate the S&P. But then you say you want to buy your favorite industries and companies...you can't do both.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by WhatsIRR »

geshiro wrote: Sat Oct 16, 2021 2:50 pm
UpperNwGuy wrote: Sat Oct 16, 2021 2:26 pm
geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
ETFs already exist for every single one of the items that you named. Why not just buy them? Why do you want to go to a lot of trouble to reinvent the wheel?
what about buying sector , emerging market , global equity ETF instead of buying individual stocks / indexes in order to replicate S&P 500 ?
What are you trying to replicate with the S&P500? If you want S&P500 performance or companies buy a S&P500 index. The only reason to do an active managed account is to beat the index(S&P500). If you just want to learn about investing buy the S&P index and then open a play account (no real money) to try your managed portfolio.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by willthrill81 »

WhatsIRR wrote: Sat Oct 16, 2021 3:04 pm
geshiro wrote: Sat Oct 16, 2021 2:50 pm
UpperNwGuy wrote: Sat Oct 16, 2021 2:26 pm
geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
ETFs already exist for every single one of the items that you named. Why not just buy them? Why do you want to go to a lot of trouble to reinvent the wheel?
what about buying sector , emerging market , global equity ETF instead of buying individual stocks / indexes in order to replicate S&P 500 ?
What are you trying to replicate with the S&P500? If you want S&P500 performance or companies buy a S&P500 index.
Precisely. And if you deviate at all from the S&P 500, you're no longer replicating the S&P 500.

If you had to pay substantial expenses to buy an S&P 500 index fund, this might make sense. But you can buy a fund like VFIAX for only 4 basis points.
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

txgolfer_19 wrote: Sat Oct 16, 2021 2:59 pm
geshiro wrote: Sat Oct 16, 2021 2:50 pm
UpperNwGuy wrote: Sat Oct 16, 2021 2:26 pm
geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
ETFs already exist for every single one of the items that you named. Why not just buy them? Why do you want to go to a lot of trouble to reinvent the wheel?
what about buying sector , emerging market , global equity ETF instead of buying individual stocks / indexes in order to replicate S&P 500 ?
That's literally what Paul just told you--you can do that.

You are not making any sense. You say you want to replicate the S&P. But then you say you want to buy your favorite industries and companies...you can't do both.
I just want to do the following since I think it's getting some sort of confusion. I want to pick my favorite industries, companies, and countries through ETF mostly than picking single stocks , but I also will need to create some kind of portfolio tracker in google excel if M1 doesn't have it. how do I outperform my own asset allocation versus BlackRock aggressive ETF or keeping the same margin?
Shallowpockets
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by Shallowpockets »

willthrill81 wrote: Sat Oct 16, 2021 2:09 pm
geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
You can do that with existing ETFs.

You're not talking about an index fund at all. You're just trying to create your own very actively managed portfolio. Historically, your odds of beating the indices in this fashion are slim to none.
BINGO!
Northern Flicker
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by Northern Flicker »

You need to be prepared to pay more in overall cost than if you buy an ultra-low-cost index fund, and you probably won't be able to implement a low risk securities lending program to cover the admin cost of the fund the way index fund providers do.

A DIY index fund is probably not quite as bad of an idea as a DIY appendectomy, but it still is a bad idea.
sycamore
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by sycamore »

geshiro wrote: Sat Oct 16, 2021 3:10 pm ...how do I outperform my own asset allocation versus BlackRock aggressive ETF or keeping the same margin?
If I knew how to do that, I wouldn't tell you :-)

The best answer is no one can tell you how to do that because no one can really do it, certainly not consistently. That doesn't stop people from trying though.
MrJedi
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by MrJedi »

I am not sure what you are asking, but it does not sound like index investing.

If you want to index, pick index funds.

If you want to invest in sectors, pick sector ETFs.

If you want to pick individual companies, buy their stock directly and individually.

These are all broadly available options. Is there something more specific you are asking?
Doctor Rhythm
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by Doctor Rhythm »

geshiro wrote: Sat Oct 16, 2021 3:10 pm
txgolfer_19 wrote: Sat Oct 16, 2021 2:59 pm
geshiro wrote: Sat Oct 16, 2021 2:50 pm
UpperNwGuy wrote: Sat Oct 16, 2021 2:26 pm
geshiro wrote: Sat Oct 16, 2021 2:03 pm I was not meaning creating a index to cut down fees at their maximum , but allow me to pick sector ETF , industries , and whatever I want to invest in example: If I want cybersecurity, fintech technology , robotics , artificial intelligence, healthcare , pretty specific emerging countries , etc.
ETFs already exist for every single one of the items that you named. Why not just buy them? Why do you want to go to a lot of trouble to reinvent the wheel?
what about buying sector , emerging market , global equity ETF instead of buying individual stocks / indexes in order to replicate S&P 500 ?
That's literally what Paul just told you--you can do that.

You are not making any sense. You say you want to replicate the S&P. But then you say you want to buy your favorite industries and companies...you can't do both.
I just want to do the following since I think it's getting some sort of confusion. I want to pick my favorite industries, companies, and countries through ETF mostly than picking single stocks , but I also will need to create some kind of portfolio tracker in google excel if M1 doesn't have it. how do I outperform my own asset allocation versus BlackRock aggressive ETF or keeping the same margin?
That last sentence still confuses me (and I assume others). Apologies if this is due to a language barrier, but it’s unclear what you mean. Is the BlackRock ETF a specific fund (please give its ticker symbol) you’re trying to outperform? What do you mean by “same margin” — margin between what?
gtrplayer
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by gtrplayer »

Yes, M1 is basically setup to do exactly what you’re asking. I’m not sure that what you’re suggesting is necessarily a good idea but you can do it through M1.

I do use M1 for a small amount of my portfolio I put in the Hedgefundie plan because it makes rebalancing so simple.
fwellimort wrote: Sat Oct 16, 2021 1:49 pm If this is in the US, there is a brokerage that lets you do this (probably the only one).

It's called M1 Finance.
You create your own "pie" and then it will invest accordingly for you.

Personally, creating your own index fund is far more inefficient than buying an index fund when index funds today have basically 0 fees.
I cannot think of a scenario in which replicating the index is 'cheaper' than just buying an index fund today. Bid/Ask spreads, rounding, inefficient taxes, etc. just all leads me to believe purchasing index funds/ETFs are far better deals. And there's already sector ETFs on top if one wants to specialize in certain sectors.

Or you can buy index funds/ETFs along with a few stocks that you want to 'focus' on more. That said, the Boglehead approach is a lazy approach. Sounds too much work for me.
Replicating an index fund with high degree of certainty is quite an impossible task for a retail investor. There are about 4,000 publicly traded (relatively liquid) stocks in just the US. Many of them are at the weighing of 0.00000001% and such by market cap. No way a DIY investor can replicate accurately. Fortunately, index funds are by market cap so most of those stocks won't affect the difference in returns long run (but you do miss the 'chance' of missing a great company in which if you want to replicate accurately, you need to track the index quite frequently).

If this is outside the US, I think as of today, it's pretty much impossible to replicate index funds because of the higher fees in trading.
If you mean actually creating your own 'index fund' (for the public), that's not really possible for retail investors. Securities market in the US is well regulated hence the barrier of entry is most probably in 7+ figures. Quite unfortunate.
Either that or you find some active fund that caters more towards your goals.

I'm not really familiar with AOA ETF so I would assume you are outside the US. Then most likely, you probably don't have much options. Trading fees are still common (outside US) so there's really not much ways around it for the average retail investor. You can always focus on a few single stocks but then you wouldn't be here in the first place.
calwatch
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by calwatch »

geshiro wrote: Sat Oct 16, 2021 3:10 pm I just want to do the following since I think it's getting some sort of confusion. I want to pick my favorite industries, companies, and countries through ETF mostly than picking single stocks , but I also will need to create some kind of portfolio tracker in google excel if M1 doesn't have it. how do I outperform my own asset allocation versus BlackRock aggressive ETF or keeping the same margin?
There are tools where you could connect shares to prices on Google using a simple function, see https://support.google.com/docs/answer/3093281?hl=en
Say you wanted to equal weight the sectors in the S&P 500. To determine how many shares to buy in each ETF you could simply divide the amount you want to invest by the result of the GOOGLEFINANCE function. (Or, use a broker that allows you to purchase shares by the dollar.)
Of course, to rebalance you would have to manually determine the number of shares to buy or sell.

Any tinkering with the existing allocations of a broad market ETF can lead to underperformance as well as outperformance. I think that's what we're saying, if it wasn't clear.
pkcrafter
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Location: CA
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by pkcrafter »

Maybe this large cap fund will interest you.

https://investor.vanguard.com/mutual-fu ... file/VLCAX



Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
aristotelian
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by aristotelian »

Mike Scott wrote: Sat Oct 16, 2021 1:05 pm Why bother to create your own when the S&P etc indices can be bought at near zero cost from multiple brokers?
Actually these days you can find index funds that are truly zero cost (no "near" necessary).
Topic Author
geshiro
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

Doctor Rhythm wrote: Sat Oct 16, 2021 3:29 pm
geshiro wrote: Sat Oct 16, 2021 3:10 pm
txgolfer_19 wrote: Sat Oct 16, 2021 2:59 pm
geshiro wrote: Sat Oct 16, 2021 2:50 pm
UpperNwGuy wrote: Sat Oct 16, 2021 2:26 pm

ETFs already exist for every single one of the items that you named. Why not just buy them? Why do you want to go to a lot of trouble to reinvent the wheel?
what about buying sector , emerging market , global equity ETF instead of buying individual stocks / indexes in order to replicate S&P 500 ?
That's literally what Paul just told you--you can do that.

You are not making any sense. You say you want to replicate the S&P. But then you say you want to buy your favorite industries and companies...you can't do both.
I just want to do the following since I think it's getting some sort of confusion. I want to pick my favorite industries, companies, and countries through ETF mostly than picking single stocks , but I also will need to create some kind of portfolio tracker in google excel if M1 doesn't have it. how do I outperform my own asset allocation versus BlackRock aggressive ETF or keeping the same margin?
That last sentence still confuses me (and I assume others). Apologies if this is due to a language barrier, but it’s unclear what you mean. Is the BlackRock ETF a specific fund (please give its ticker symbol) you’re trying to outperform? What do you mean by “same margin” — margin between what?
ah sorry I pointed above , but it's the iShares Core Aggressive Allocation ETF AOA , but I want to outperform the ETF or keeping the same margin levels with other sectors
WhatsIRR
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by WhatsIRR »

geshiro wrote: Sat Oct 16, 2021 3:55 pm
Doctor Rhythm wrote: Sat Oct 16, 2021 3:29 pm
geshiro wrote: Sat Oct 16, 2021 3:10 pm
txgolfer_19 wrote: Sat Oct 16, 2021 2:59 pm
geshiro wrote: Sat Oct 16, 2021 2:50 pm

what about buying sector , emerging market , global equity ETF instead of buying individual stocks / indexes in order to replicate S&P 500 ?
That's literally what Paul just told you--you can do that.

You are not making any sense. You say you want to replicate the S&P. But then you say you want to buy your favorite industries and companies...you can't do both.
I just want to do the following since I think it's getting some sort of confusion. I want to pick my favorite industries, companies, and countries through ETF mostly than picking single stocks , but I also will need to create some kind of portfolio tracker in google excel if M1 doesn't have it. how do I outperform my own asset allocation versus BlackRock aggressive ETF or keeping the same margin?
That last sentence still confuses me (and I assume others). Apologies if this is due to a language barrier, but it’s unclear what you mean. Is the BlackRock ETF a specific fund (please give its ticker symbol) you’re trying to outperform? What do you mean by “same margin” — margin between what?
ah sorry I pointed above , but it's the iShares Core Aggressive Allocation ETF AOA , but I want to outperform the ETF or keeping the same margin levels with other sectors
No one can tell you how to do this. Your active managed portfolio may outperform it or it may under perform it. You won’t know until after it happens. The only way to guarantee index results is to buy the index. Depending on how much confidence you have in your ETF picking will guid you rather you should manage your own funds or just buy the index.
Topic Author
geshiro
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

calwatch wrote: Sat Oct 16, 2021 3:33 pm
geshiro wrote: Sat Oct 16, 2021 3:10 pm I just want to do the following since I think it's getting some sort of confusion. I want to pick my favorite industries, companies, and countries through ETF mostly than picking single stocks , but I also will need to create some kind of portfolio tracker in google excel if M1 doesn't have it. how do I outperform my own asset allocation versus BlackRock aggressive ETF or keeping the same margin?
There are tools where you could connect shares to prices on Google using a simple function, see https://support.google.com/docs/answer/3093281?hl=en
Say you wanted to equal weight the sectors in the S&P 500. To determine how many shares to buy in each ETF you could simply divide the amount you want to invest by the result of the GOOGLEFINANCE function. (Or, use a broker that allows you to purchase shares by the dollar.)
Of course, to rebalance you would have to manually determine the number of shares to buy or sell.

Any tinkering with the existing allocations of a broad market ETF can lead to underperformance as well as outperformance. I think that's what we're saying, if it wasn't clear.
at some point . lets say I have 2k monthly where it's 12k yearly , so I have 12k to buy global equity , specific sector / industry ETF , fixed-income as a shield ( bonds , and others) , large - mid cap based on country , sector , and only 3% to support projects ( startups companies at earlier stages ) , but just replicating the weights in the S&P 500 and others based on my targeted industry.
calwatch
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by calwatch »

geshiro wrote: Sat Oct 16, 2021 4:11 pm at some point . lets say I have 2k monthly where it's 12k yearly , so I have 12k to buy global equity , specific sector / industry ETF , fixed-income as a shield ( bonds , and others) , large - mid cap based on country , sector , and only 3% to support projects ( startups companies at earlier stages ) , but just replicating the weights in the S&P 500 and others based on my targeted industry.
There are 11 sectors in the S&P 500: https://www.sectorspdr.com/
Although the pie chart at the top shows an equal distribution, mouse over each slice and you will see that, for instance, technology (XLK) has a share of 27% while utilities (XLU) has a share of 2%.
If you wanted to bet on a different ratio than the market's current distribution then buy each of the 11 ETFs in a proportion that you like.

To slice and dice that finely with mid cap, bonds, etc. there are many low cost ETFs that only cover that category. I still think should you consider M1 if you want to do this somewhat complicated investing methodology and make it not more complicated than needed. You can test drive the account and interface before putting in money if you want.
GreendaleCC
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by GreendaleCC »

geshiro wrote: Sat Oct 16, 2021 2:50 pm what about buying sector , emerging market , global equity ETF instead of buying individual stocks / indexes in order to replicate S&P 500 ?
One consideration is that the S&P 500 doesn’t include emerging market or “global” (non-US?) equity stocks :confused
Topic Author
geshiro
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

calwatch wrote: Sat Oct 16, 2021 4:18 pm
geshiro wrote: Sat Oct 16, 2021 4:11 pm at some point . lets say I have 2k monthly where it's 12k yearly , so I have 12k to buy global equity , specific sector / industry ETF , fixed-income as a shield ( bonds , and others) , large - mid cap based on country , sector , and only 3% to support projects ( startups companies at earlier stages ) , but just replicating the weights in the S&P 500 and others based on my targeted industry.
There are 11 sectors in the S&P 500: https://www.sectorspdr.com/
Although the pie chart at the top shows an equal distribution, mouse over each slice and you will see that, for instance, technology (XLK) has a share of 27% while utilities (XLU) has a share of 2%.
If you wanted to bet on a different ratio than the market's current distribution then buy each of the 11 ETFs in a proportion that you like.

To slice and dice that finely with mid cap, bonds, etc. there are many low cost ETFs that only cover that category. I still think should you consider M1 if you want to do this somewhat complicated investing methodology and make it not more complicated than needed. You can test drive the account and interface before putting in money if you want.
yeah , but the another is this a good strategy beside managing my own portfolio?
Topic Author
geshiro
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by geshiro »

GreendaleCC wrote: Sat Oct 16, 2021 4:20 pm
geshiro wrote: Sat Oct 16, 2021 2:50 pm what about buying sector , emerging market , global equity ETF instead of buying individual stocks / indexes in order to replicate S&P 500 ?
One consideration is that the S&P 500 doesn’t include emerging market or “global” (non-US?) equity stocks :confused
I have only seen U.S equities , and 0.1% non-US , but mostly US
calwatch
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by calwatch »

geshiro wrote: Sat Oct 16, 2021 4:21 pm
calwatch wrote: Sat Oct 16, 2021 4:18 pm
geshiro wrote: Sat Oct 16, 2021 4:11 pm at some point . lets say I have 2k monthly where it's 12k yearly , so I have 12k to buy global equity , specific sector / industry ETF , fixed-income as a shield ( bonds , and others) , large - mid cap based on country , sector , and only 3% to support projects ( startups companies at earlier stages ) , but just replicating the weights in the S&P 500 and others based on my targeted industry.
There are 11 sectors in the S&P 500: https://www.sectorspdr.com/
Although the pie chart at the top shows an equal distribution, mouse over each slice and you will see that, for instance, technology (XLK) has a share of 27% while utilities (XLU) has a share of 2%.
If you wanted to bet on a different ratio than the market's current distribution then buy each of the 11 ETFs in a proportion that you like.

To slice and dice that finely with mid cap, bonds, etc. there are many low cost ETFs that only cover that category. I still think should you consider M1 if you want to do this somewhat complicated investing methodology and make it not more complicated than needed. You can test drive the account and interface before putting in money if you want.
yeah , but the another is this a good strategy beside managing my own portfolio?
Based on the questions you are asking, it seems like you might not be ready to manage your own portfolio in the sense of picking individual ETFs much less stocks, in which case the AOA ETF, or any balanced mutual fund, would work better even if there is a small fee involved. Short of turning over your money to a money manager like an Edward Jones or one of the automated investment firms like Betterment or Wealthfront, everyone here "manages their own portfolio". You can choose just three funds (the total stock, bond, and international funds), one fund (an allocation ETF like AOA or a mutual fund like Vanguard Wellington), many funds (a "slice or dice" option like I suggest with the sector ETFs, or what I personally do by overweighting international and mid/small cap stocks), or the whole universe (by actively picking companies you like).

It does seem there is a language gap involved so maybe we're misunderstanding.
Doctor Rhythm
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by Doctor Rhythm »

geshiro wrote: Sat Oct 16, 2021 3:55 pm
Doctor Rhythm wrote: Sat Oct 16, 2021 3:29 pm That last sentence still confuses me (and I assume others). Apologies if this is due to a language barrier, but it’s unclear what you mean. Is the BlackRock ETF a specific fund (please give its ticker symbol) you’re trying to outperform? What do you mean by “same margin” — margin between what?
ah sorry I pointed above , but it's the iShares Core Aggressive Allocation ETF AOA , but I want to outperform the ETF or keeping the same margin levels with other sectors
Okay - that’s looks like a balanced fund (a fund of funds that are rebalanced regularly) that’s heavy on stocks (80%) and light on bonds/cash (20%). The underlying funds are index funds. Expenses are okay, nothing to brag about but not terrible for this kind of thing. Most portfolios of stocks will outperform this ETF because the fund also includes bonds, which reduce anticipated returns in exchange for less volatility and downside risk.

If you want to beat the ETF without taking on more risk, you can buy its underlying funds or equivalent ones. This saves some of 0.25% ER (you’ll still have the ERs of the underlying funds). Do this reliably, and you hypothetically could outperform by ~$200 per $100,000 invested per year. In reality though, it’s hard to predict the outcome because you can’t execute all the daily rebalancing trades as efficiently as they can.

Is an 80/20 portfolio even what you’re looking for?
BogleFan510
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Re: DIY investing, what do I need to create my own index fund and passive manage?

Post by BogleFan510 »

I would strongly suggest a program to educate yourself about investing tools, resources and relative efficiencies of financial asset types before any effort to design and manage a complex portfolio like the one you describe.

You are posting the effective equivalent of:

'I want a car, but I want higher performance than the pre made cars I see sold at dealers. How do I build a car or buy and assemble car parts that will allow me to have the features and performance I want, but not cost any more?

It is not possible. You dont understand how to manufacture car parts, and you will never replicate the efficiency of the global auto parts supply chain by yourself. Maybe, if you study auto mechanics and practice for yourself for years, you might be able to custom pimp a car to be closer to what you want, within limits.

This is the type of advice you are being given, but applied to investing. Perhaps you will found the next Tessla, but it is much more likely that you will muck around and have a sub par vehicle.

You are very unlikely to get any advice here that will allow you to achieve your stock and sector picking goals for an easily managed tailored, efficent, passively managed portfolio.
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