A month ago I wrote about how I would be starting a portfolio for my future children. (Side note, I just got engaged and we aren't planning on having kids in the immediate future).

Tomorrow I will be making the first buy for the portfolio, putting $100 towards an investment that I expect to hold for approximately 20+ years.

What the heck do you invest in with a time horizon of 20 years, for a kid that hasn't even been born yet?

One way to think about this is extreme diversification. Since I don't know what will happen in the future, I can just buy a tiny piece of every company in the world, and the return will be the average they all grow over the next 20 years. To do that I could buy into Vanguard's Total World Stock ETF, ($VT) . With an expense ratio of .08% and a market price of $82.01, that seems like a great low cost way to invest a bit of cash.

But...

If the goal is diversification, you could always argue that even $VT is somewhat concentrated. Currently its top ten largest holdings make up 14% of the portfolio. That is a lot better than the S&P 500 where the top 5 companies make up 20%, but it is a far cry from something that is more equal weighted. Diversification and "the efficient frontier" is a hugely interesting topic I want to write more about in the future, but for now, I think the main goal isn't diversification, but growth.

Diversification is a good way to protect wealth, concentration is a good way to create wealth.

So what is the priority when investing for growth? What should you concentrate in?

My bet: Innovation.

When you invest, you are making a bet that the company you are investing in will be worth more in the future than it is today. If a company keeps doing what it has always done, it will keep being worth the same today as it was worth yesterday. In order for it to be an attractive investment, it has to grow, and grow sustainably. Whats the only way to grow sustainably? Innovation.

What really is innovation? Innovation is just an improvement. Could be an improvement in the product, the business model, efficiency, technology, execution, etc. But it comes down to the drive to do things a little better than they were done yesterday.

Thats the world I want to live in tomorrow, and thats the world I want to invest in.

So I'm going to pick $ARKK, an ETF focused on companies that are figuring out ways to do things a better way through innovation. In the coming days I'll be writing a lot more about why the Ark Innovation ETF is a good long term investment.

I'm investing in my future kid, and the future my kid will live in.