Two years ago, I wrote about buying on the dip as an investment strategy for those in the FIRE movement. FIRE stands for Financial Independence, Retire Early, and involves a commitment to both cutting your daily expenses and an accelerated investment strategy. Today, FatFIRE is the “in” retirement concept.
FatFIRE takes things a step further. Devotees to this new movement want to be able to “retire with a fat stash” that allows them to live on around $100,000 a year. According to Fortune, FatFIRE split off from FIRE in 2016 when a Reddit user decided cutting his expenses to the bone wasn’t his idea of a good time.
And so the subreddit r/fatFIRE was born. Today, it has more than 330,000 members. The downside of FatFIRE is that it’s incredibly unrealistic. Very few people have the skillset to pull it off. Financial planner Dana Menard puts it at around a tenth of the population.
If you believe you’re in this cohort, though, here are seven investments to help you with your FatFIRE dreams.
|FDIS||Fidelity MSCI Consumer Discretionary Index ETF||$61.96|
|VHT||Vanguard Health Care ETF||$225.60|
|XNTK||SPDR NYSE Technology ETF||$96.48|
|JXI||iShares Global Utilities ETF||$59.49|
|DE||Deere & Co.||$331.67|
Fidelity MSCI Consumer Discretionary Index ETF (FDIS)
The Novel Investor has a 15-year chart that shows the annual performance of all 11 sectors in the S&P 500. The first thing I noticed is that the index’s consumer discretionary stocks were in the top three sectors based on annual returns on eight occasions. That’s the best showing of all 11 sectors.
So, if you don’t want to lose your shirt betting on consumer trends — Peloton Interactive (NASDAQ:PTON) and Wayfair (NYSE:W) come to mind — take the safer route and bet on the entire sector.
I selected Fidelity MSCI Consumer Discretionary Index ETF (NYSEARCA:FDIS) because it has a low expense ratio of 0.08%, 2 basis points less than Vanguard and State Street’s versions.
FDIS tracks the performance of the MSCI USA IMI Consumer Discretionary Index, a collection of companies that reflects the consumer discretionary sector in the U.S. The cap-weighted ETF has 330 holdings. The top 10 account for 63% of the $1.1 billion in total assets.
I’d own all 10. However, note that Amazon (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA) account for almost 40% of the ETF’s assets. I like both companies, but if you don’t, you may want to pass on putting this ETF in your FatFIRE portfolio.
Vanguard Health Care ETF (VHT)
After consumer discretionary, healthcare was the sector with the most years out of the past 15 as a top performer, according to Novel Investor. With the U.S. population getting older and life expectancy increasing, demand for healthcare will continue to rise. The need for healthcare is never going away. It’s that simple.
Vanguard Health Care ETF (NYSEARCA:VHT) tracks the performance of the MSCI U.S. Investable Market Health Care 25/50 Index, a collection of large and small healthcare stocks. The 25/50 means that a single stock can’t account for more than 25% of the index, and those companies with a weighting exceeding 5%, added together, can’t account for more than a 50% weighting.
The ETF has 405 stocks and $15.8 billion in total assets. It leans heavily on pharmaceuticals, which account for 26.6% of the portfolio, biotechnology (17.6%) and health care equipment (17.5%). The top 10 holdings account for 47% of the ETF.
As for the top three holdings, you’ve got UnitedHealth Group (NYSE:UNH) at 8.9%, Johnson & Johnson (NYSE:JNJ) at 7.8%, and Pfizer (NYSE:PFE) at 4.6%. Is it a coincidence that two of those names developed Covid-19 vaccines? I don’t think so.
Over the past 10 years, VHT has had an average annualized total return of 14.3%.
SPDR NYSE Technology ETF (XNTK)
The SPDR NYSE Technology ETF (NYSEARCA:XNTK) from State Street tracks the performance of the NYSE Technology Index, an equal-weighted index composed of 35 of the leading U.S.-listed technology-related companies.
I’m a big fan of equal-weighted ETFs because they don’t rely too much on one or two stocks like FDIS above does. A few bad years by both Tesla and Amazon and your hard-earned capital is dead money.
The weighted average market cap of the companies held by the ETF is $392 billion, so it’s very large-cap in nature. The top three industries are semiconductors (24%), internet and direct marketing retail (9.8%) and systems software (9.5%).
In business since September 2000, XNTK has total net assets of $365.4 million, so it’s not a massive fund. IBM (NYSE:IBM) is the top holding at 4.9%, followed by Tesla and Apple (NASDSQ:AAPL). But remember, the ETF is equal-weighted, so every three months, all 35 holdings are rebalanced to about 2.85%.
The ETF has an average annualized total return of 16.2% over the past 10 years.
iShares Global Utilities ETF (JXI)
I wanted to play a little defense for the last of my ETF picks for FatFIRE investments. The S&P 500 utilities sector was in the top three positions in five of the 15 years between 2007 and 2021. The sector’s average annual return was 8.6% during that period.
When I’m writing about ETFs or stocks in a gallery, I like to spread the love around. So, I’ve chosen the iShares Global Utilities ETF (NYSEARCA:JXI). In addition, rather than going with another U.S.-focused fund, I’m going global.
JXI tracks the performance of the S&P Global 1200 Utilities (Sector) Capped Index. By the index’s name, you’re probably thinking it follows 1,200 utility companies. Nope. It’s constructed from the utilities stocks in the S&P Global 1200. The ETF has 65 total holdings, with almost 61% of its $173 million in assets under management made up of electric utilities.
The top holding is NextEra Energy (NYSE:NEE) at 9.7%. NEE is by far my favorite utility stock. I recently recommended it as a stock to buy for safety in this volatile market.
One key tenet of investing is to always protect your capital. Never lose money if you can help it. Utilities tend to lose less when all hell breaks loose. They can’t all be moonshots, even for FatFIRE folks.
Indian billionaire Gautam Adani recently passed Bernard Arnault, LVMH (OTCMKTS:LVMUY) co-founder and CEO, as the world’s third-richest person. Arnault has dropped to fourth sport, worth an estimated $133 billion. The 22% drop in LVMH stock over the past year certainly contributed to his fall in the ranking.
But Arnault won’t be down for long and neither will LVMH shares. LVMH is one of the world’s finest businesses with stable luxury brands that can’t be equaled.
If you think running a business full of luxury brands is easy, think again. Qiu Yafu, the chairman of China’s Shandong Ruyi Group, spent more than $3 billion over the past six years buying up European fashion brands and other assets. He was the talk of the country for a while. But now, the former factory worker is struggling to hang on to his assets, only four years removed from stating publicly that he wanted to turn Shandong into China’s LVMH. He’s learned the hard way that there’s only one LVMH.
In 2021, the company’s 75 brands generated 64.2 billion euros ($62.2 billion) in revenue and 12 billion euros ($11.6 billion) in net profits from more than 5,500 stores worldwide.
Articles continue to be written that macro forces such as inflation, recession, Covid-19, the war in Ukraine, etc., will slow purveyors of luxury goods. That reality is evident, the critics say, by the correction in LVMH’s stock over the past year. But I say this is a stock you’ll want to own heading into the next bull market.
Berkshire Hathaway (BRK-B)
Like the utility ETF, Berkshire Hathaway (NYSE:BRK-B) is a bit of a defensive play. Its diversification provides investors with some downside protection. You’ll notice I said “some.” Its shares are down almost 11% in 2022.
Berkshire Hathaway has become best known for its large stake in Apple. The company owns 5.6% of the stock. When Apple has a bad day — it lost $154 billion in market value on Sept. 20 — BRK.B stock feels the pain because AAPL accounts for approximately 40% of its equities portfolio.
Of course, Berkshire is much more than just the third-largest shareholder of Apple stock. It’s a mutual fund without fees. It generated significant revenue and pre-tax profits in 2021 — $276.1 billion and $110.7 billion, respectively — while continuing to find lucrative places to invest its excess cash.
For instance, Warren Buffett continues to accumulate Occidental Petroleum (NYSE:OXY) stock. Berkshire now owns 20.2% of the oil and gas company run by CEO Vicki Hollub, making OXY Berkshire’s sixth-largest holding. Recently, Berkshire got approval from the Federal Energy Regulatory Commission to buy up to 50% of OXY’s stock.
Twenty-four months ago, Buffett’s bet wasn’t looking too good. But by playing the long game, he continues to zig when others zag. He’s the best for a reason.
Deere & Co (DE)
Here’s a statistic about Deere & Co. (NYSE:DE) that I bet you didn’t know. The company will generate 10% of its revenue from software subscriptions by 2030. That’s right, the maker of the big green tractor and combine is selling farmers software to run smart tractors and combines.
Not everyone is happy about the company’s sales and service practices. A group of concerned farmers and trade associations filed a complaint with the U.S. Federal Trade Commission in March, alleging that the company has refused to provide access to the diagnostic software so farmers can fix their machines.
Deere contends that it provides all the guides, tools, etc. needed to get the job done. The two sides remain at a standstill. It is something investors should continue to monitor.
At the end of the day, though, Deere controls more than 50% of the $68 billion U.S. agricultural equipment market. It’s got a lot of existing and new customers that it can move to monthly software subscriptions. Not all farmers may like it, but it’s good business.
Seventeen of the 26 analysts who cover the stock rate it “overweight” or “buy,” with eight “holds” and just one “underweight” ratings. The average target price of $406.91 is 23% higher than the current share price.
In the long run, you don’t want to bet against agriculture.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.