Money Rehab with Nicole Lapin - The VIP ETF You Should Know About

Episode Date: June 24, 2022

ETF, VTI, ABCDEFU…  Nicole and Guy Adami (CNBC’s Fast Money) decode some investing alphabet soup, and give you the 411 on an investment you should know about.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. When you venture into finance land, you're going to be eating a lot of alphabet soup.

ETF, VTI, VOO. As the great Gail once said, ABCDEFU. Trust me, I know what it's like to want to shut down from complete jargon overload. I know when a new financial acronym comes up, the impulse is to say, I don't know what that is. Time to walk away. But hiding behind these acronyms are actually really important investing vehicles that you should absolutely know about. So today we're going to be specifically talking about a handful of ETFs that you should consider adding to your portfolio. Now, first, WTF is an ETF. It's a really strange phenomenon,

but ETF is the acronym I see people goof more often than any other. For whatever reason, so many people say EFTs when they're talking about ETFs. This is really common in the finance world. People get acronyms wrong because they don't know what they stand for. And that is not a dig at you. That is a dig at the world of finance for being so damn inaccessible. So let's clear this up. ETF stands for exchange traded fund. You can borrow my mnemonic device if you'd like for ETFs. Remember ET? Yeah, the alien movie in the 80s. Remember ET's one line in the entire movie? ET phone home. When I'm struggling to remember the acronym, I think ETF funds your next home. It works for me. So I hope that stock talk sticks with you. Say that 10 times fast. While index funds are my jam,

there's a lot to be said for ETFs. ETFs are similar to index funds in that they're made up of slices of lots of different companies from one index or sector. For example, there are ETFs that track the S&P 500. There are ETFs that track commodities and so on. And like index funds, ETFs are less risky than buying and selling individual stocks because if one company fails within the fund, you have a lot of others to prop it up. In other words, there's built-in diversification. ETFs are different from index funds because they're traded like stocks all day, every day. Index funds, however, are bought at a set price at the end of each trading day so unlike index funds

you could buy an etf at noon and sell it at 2 p.m but you shouldn't that's a strategy day traders use to gamble on short-term rewards but that is not a strategy for sustained consistent growth that we want here on money rehab etfs also tend to have lower investment thresholds. Often you can buy shares for less than $100 or even less than that if you buy fractional shares through a robo-advisor. In contrast, there can be minimums of more than $1,000 to invest in index funds. Net-net, ETFs are a good investment choice for new investors, especially in topsy-turvy market times. And so if you're ready to start exploring ETF options, I have some recommendations. And in my recent conversation with Guy Adami from

CNBC's Fast Money, we talked through all of them. But the aim of this show is to always give you bite-sized tips and tricks. So rather than throw everything at you at once, I'm going to share a handful of those recommendations today and then cover the rest in a follow-up episode next week. So here's the first part of our conversation. You gave me a little bit of a homework assignment. So I did my homework because I always like to be a good student. There are a number of different ETFs. And we're not going to get granular with stocks, but we can talk about some ETFs that might

make sense. And the first one you talked about or asked me about was the VTI. That's the Vanguard Total Market ETF. That has a market cap of about $153 billion. That's a significant market cap. That peaked out around $244. As we're taping this today, it's trading about 186. That's down about 23%. Now, people will want to know what they own in the VTI. And effectively, they own 6% Apple, about 5% Microsoft. I think it's 2.5% Amazon. Tesla is close to 2%. And then Google sort of rounds it out at about 1.5%.

So you're owning some of the names that everybody knows. So ETFs are a good way to cover your bases with a lot of different stocks, but ETFs can track a bunch of different things, a bunch of different sectors, an index, or, you know, in the case of VTI, this is the entire market. So not just the S&P 500. So we're trying to say there are a lot of options out there where you don't have to sit in front of a computer and you can kind of get built in diversification. That's exactly right. And if you believe, for example, I mean, so along with the VTI, if you want another market exposure, the Vanguard 500, that's VOO, that's extraordinarily similar in terms of components. That's down 22%

from peak to trough. But you say to yourself, you know what, I find myself in an environment where maybe stocks with high dividends work. There's something called the VYM. That's the Vanguard High Dividend ETF. That's comprised of 443 stocks. And as some of these names have down precipitously, this made an all-time high of about 115. It's trading 102. So you can see that's actually held in rather well, given the market sell-off. And then there's something which I find really interesting. Professor, question.

I like this professor. That's the first person, I'm sure the last. So when you have a dividend-paying stock, What does that mean? And if you're invested in an ETF that is all about dividend paying stocks, do you get a dividend? That's correct. That is exact. Well, I mean, it's interesting in terms of the ownership of the ETF. Are you get a dividend? I don't think there's a disbursement for the people that own the ETFs, but it formulates and it comes through in the form of appreciation and the underlying ETF, if that makes sense. So the dividend is built into the ETF. I'll say this in terms of why that is doing better relative to the broader market. There's sort of a

speed bump that the dividend provides, the yield provides. For some of these companies, you have a dividend yield of anywhere from three to seven and a half or 8%. So you have sort of embedded protection in the form of the dividend. Now, it doesn't mean the stocks can't go lower, but to the extent that the stocks go lower, it's somewhat buffered by the dividend yield,

the dividend payout, if that makes sense. And if you're buying a dividend paying stock on its own, which for beginning investors, we're not necessarily advising to buy individual stocks, but the dividend you get is basically a present, like a little check. That's the cherry on top, as they say. And every quarter, well, at least I would. Times have changed where things are done electronically. But you would literally get a check

in the mail with a dividend payout. And depending on how many shares you own, that's the subsequent amount you can get back. Now, if you want to go sort of upper level stuff here, what a lot of people will do is they'll reinvest the dividend into the stock. So they basically take that payout and they buy more stock with it. That's probably for a different show,

but that's an option as well. Yeah. If you go on whatever brokerage app you have, when you're buying any of these ETFs and you put in your order, we'll ask you to just toggle over a question. Do you want to reinvest dividends? Yes or no? So we'll put a pin in that, toggle over a question. Do you want to reinvest dividends? Yes or no? So we'll put a pin in that, Professor, for another show. I like that. Okay. That's like, speaking of pins, by the way, not that anybody cares particularly. I'm sure you'll cut this out in post-pro, but I do have a Pinterest page. I was an early adapter to Pinterest, and it's fabulous. I don't know if you want to put it up on your web. I'm telling you.

What's on your Pinterest page? Well, that's, see, inquiring minds want to know. You should check it out. That's what they call a tease in the business. Oh my God. It's staying in. We just got late breaking news from our producer, Mike Coscarelli. He's leaving it in. He's leaving a tease over to your Pinterest page.

I'm really curious. I'm assuming it has nothing to do with stocks, but I wonder if you're like a DIY enthusiast. You're going to have to sort of check it out and find out. I will tell you, it runs the gamut from Audrey Hepburn to Leonard Skinner and everything in between. You're a fascinating man. You have to do something else. I guess when you're looking at stocks all day long, your brain probably is, I mean, it's a scary place, no doubt, when you're looking at stocks all day long, your brain probably is, I mean, it's a scary place, no doubt. But you have to do something to balance that out, I'm sure. And what would that be is the question. And I will tell you, well, recently, I've been sort of

embroiled in the NHL playoffs. Growing up in the New York area, I made lifelong New York Ranger fan and the magical run that they've been on have provided me with hours of entertainment. Now, obviously, they lost in game six to the two-time defending Stanley Cup champion Tampa Bay Lightning, but they acquitted themselves extraordinarily well. So now I make the pivot from hockey right to my beloved New York Yankees, who at the time of this taping, set a top Major League Baseball with a 44 and 16 record. I mean, that was a seamless transition by me, by the way. For today's tip, you can take straight to the bank. If this episode got you stoked on ETFs, check out our recent episode 323, the seven best investing apps to choose which platform you want to use to get started.

to choose which platform you want to use to get started. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team, Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself

so that you can get it together and get it all.