The ETF Toolkit: Building Your Investment Portfolio

A Look at the Markets: Contrasting Fortunes - Tesla & Uber

Tesla unveiled its long-awaited driverless robotaxi last week. How did the markets react?

The initial reaction was negative for Tesla and, therefore, positive for Uber. Any positive sentiment for the robotaxi is likely to be negative for its main competitors such as ride-hailing companies Uber and Lyft.

We can see how Tesla broke support and stayed below it for the week. Perhaps investors do not think that the Robotaxi will be operational soon?

The chart below shows a different story with Uber breaking resistance and remaining above it for the following few days.

Would I Buy One?

I love the idea of my car working for me while I am not using it.

However:

• A 30,000$ price tag in the USA seems reasonable but I do not expect them to be near that price in Europe

• I think it will be a long time before Italy has the infrastructure to allow driverless cars to operate

Would you buy one?

The ETF Toolkit: Building Your Investment Portfolio

The ETF Supermarket

ETFs come in more flavours than ice cream.

Just as a supermarket offers everything from fruits to frozen dinners, the ETF market provides options for nearly every type of investment. You can find ETFs tracking stocks, bonds, real estate, commodities, and even cryptocurrencies. This variety allows investors to build diverse portfolios tailored to their unique goals and risk tolerance.

ETFs allow investors to easily create a diversified investment portfolio.

Stocks vs. Bonds: The Classic Duo

Stock and bond ETFs form the backbone of many portfolios.

Stock ETFs offer a slice of ownership in companies, potentially providing higher returns but with more ups and downs. Bond ETFs, on the other hand, represent loans to governments or companies, typically offering steadier but lower returns. As investors age, they often shift more of their money from stock ETFs to bond ETFs, seeking a smoother ride as retirement approaches.

Your investment split should evolve as you do.

Active vs. Passive: The Management Debate

Not all ETFs are created equal.

Passive ETFs are like robots, automatically following a market index without human interference. Active ETFs have a human captain at the helm, trying to outsmart the market. While active management sounds appealing, passive ETFs often win in the long run due to their lower fees and consistency over time. Remember, in investing, what you don't pay in fees, you keep as returns.

Sometimes, a simple set-and-forget strategy may be the best.

The Dividend Decision

Your ETF can be a money tree or a reinvestment machine.

Some ETFs pay out dividends regularly, providing a steady income stream. Others automatically reinvest these dividends, helping your investment grow faster over time. Your choice between distributing and accumulating ETFs depends on your need for regular income and the tax rules in your country.

Choose wisely: income now or growth for later?

The Fee Factor

In the ETF world, every penny counts.

Fees are like a small leak in your investment bucket. Over time, even tiny fees can drain a significant amount from your returns. That's why it's crucial to compare the "expense ratio" of different ETFs. This annual fee covers the ETF's operating costs, and lower is generally better for your wallet.

Don't let high fees eat away your hard-earned returns.

My Personal ETF Strategy

Simplicity can be surprisingly powerful.

For the majority of my portfolio, I've chosen a World stock ETF. This single investment gives me exposure to companies across the globe, from established markets to emerging economies. By doing so, I avoid the need to predict which specific regions or sectors will outperform over the next few decades. As the global economy evolves, my ETF automatically adjusts to reflect these changes.

It is possible to base your entire portfolio on only one ETF, though I have other investments such as individual stocks, bonds, fine wine and cryptocurrencies.

Tailoring Your Approach

Your perfect ETF recipe may differ from mine.

When selecting an ETF, consider factors beyond just global exposure. I prefer a passive, accumulating ETF with low fees, partly due to the tax benefits in my situation. However, your ideal choice may vary based on your age, financial goals, risk tolerance, and local tax laws. Remember, what works for one investor might not be the best fit for another.

Always seek professional advice for your unique financial journey.

Only in Italy! 42% Capital Gains Tax on Bitcoin

The Italian government's proposal to raise capital gains tax on cryptocurrencies from 26% to 42% offers a reminder of how tax policy can often have unintended consequences.

Learning from Property Markets

My first commercial property investment in a small UK village provided valuable insights into market dynamics. Properties rarely changed hands - not due to lack of demand, but because owners preferred holding onto their investments rather than paying substantial capital gains tax. This created a stagnant market that favoured existing investors while forcing business owners into perpetual rental arrangements.

The Cryptocurrency Challenge

Italy's proposed cryptocurrency tax hike risks creating similar market distortions, but with even greater consequences:

• The dramatic jump to 42% would make Italy an outlier in European crypto taxation

• Higher rates typically encourage investors to hold positions longer, reducing market liquidity

• Unlike property, cryptocurrency investments can easily move across borders

• Transaction volumes may shift to more tax-friendly jurisdictions, reducing rather than increasing tax revenue

• The policy could hamper Italy's competitiveness in the emerging digital finance sector

• As demonstrated by the current U.S. election cycle, cryptocurrency policy has become a significant political issue. This tax increase could potentially catalyse the emergence of crypto-friendly political movements in future Italian elections

A Critical Crossroads

As the digital economy reshapes global finance, Italy's approach to cryptocurrency taxation may determine its future role in this transformation. The lesson from property markets is clear: excessive capital gains tax doesn't just redistribute wealth - it can freeze markets and drive away innovation precisely when it's needed most. With cryptocurrency increasingly becoming a political touchstone globally, this policy decision could have implications far beyond the financial markets.

One thing is certain: Italy will not be able to ban Bitcoin - nor tax it out of existence!

Word of the Day: Dividend

Dividend - noun - countable - a payment by a company of a part of its profit to people who hold shares in the company (shareholders).