7 Best ETFs for Long-Term Investors
Updated: Feb 24
What you will learn:
What is an ETF?
What is an ETF? An ETF is an exchange-traded fund. It is a basket of securities (like stocks or bonds) that trades on a stock exchange. They differ from mutual funds, which are not traded on an exchange and whose prices only change once a day after the market close. You can think of an ETF as a pool of stocks (or other securities) that trades exactly as a stock does. You can buy an ETF anytime during market hours through your brokerage of choice.
There are various types of ETFs, such as passive, active, stocks, bonds, commodities, industry, currency, inverse, and leveraged. If you want to learn specifics on these types of ETFs, check out Investopedia’s site here.
ETFs are great because they can offer a diversified pool of investments all in one fund and tend to be the most attractive option for most investors to grow their wealth over time. In this article, we will focus on mostly index ETFs. These funds will track an index such as the S & P 500 as these provide a diversified pool of stocks and generally have consistent returns over the long run.
7 ETFs for your Portfolio:
Note: Performance is as of market close on 1/27/2023.
Here are our picks for some of the top seven best ETFs for long-term investing, along with their 5-year and 10-year returns and expense ratios:
1. IUSG: iShares Core S&P U.S. Growth ETF - This ETF provides exposure to the U.S. stock market, focusing on growth companies. Over the past 5 years, it has returned an annualized 12.83%, and over the past 10 years, it has returned an annualized 13.21%. Its expense ratio is 0.04%.
Who is this for: This is an excellent fund for anyone looking for exposure to high-growth companies in the USA. Its largest holdings include high exposure to Apple, Microsoft, Amazon, Tesla, and Facebook.
It is a good investment with consistent returns over time but has high exposure to tech. Full disclosure, this is my largest single holding.
2. VTTSX: Vanguard 2060 Target Date Fund* (*Or any Vanguard Target Date Fund) - This ETF provides a diversified portfolio that adjusts over time as you get closer to the retirement date. Over the past 5 years, it has returned an annualized 11.56%, and over the past 10 years, it has returned an annualized 10.24%. Its expense ratio is 0.08%.
Who is this for: Anyone looking for a Target Date Fund due to their flexibility to adjust their portfolio automatically as they get closer to retirement. The holdings will change periodically. This fund has solid returns, and Vanguard is always a great option.
3. SPY/VOO: SPDR S&P 500 ETF / Vanguard 500 Index- These ETFs provides exposure to the S&P 500, a benchmark index for the U.S. stock market. Over the past 5 years, they have returned an annualized 11.81%, and over the past 10 years, they have returned an annualized 12.44%. Its expense ratio is 0.0945%.
Who is this for: Anyone looking to invest in the S & P 500. Honestly, this is your best bet if you want to invest and forget, as the S & P 500 has never lost money over a 20-year period. The largest holdings are similar to IUSG above but with significantly less exposure to Apple, Microsoft, Amazon, Facebook, and Berkshire Hathaway. This is another one of my personal holdings.
4. VXUS: Vanguard Total Intl Stock Idx Fund - This ETF provides exposure to the international markets and can provide some diversification if you want to hedge against the US stock market. Over the past 5 years, it has returned an annualized 5.87%, and over the past 10 years, it has returned an annualized 4.65%. Its expense ratio is 0.07%.
Who is this for: Anyone looking to invest in the international markets. Note the performance is a lot weaker than U.S. funds, but it can provide good diversification if you don’t want to hold only U.S. stocks. Largest holdings include TSMC, Nestle, Tencent, Samsung, and Shell.
5. VT: Vanguard Total World Stock ETF - This ETF provides exposure to the global stock market with a diversified portfolio of companies worldwide. Over the past 5 years, it has returned an annualized 8.88%, and over the past 10 years, it has returned an annualized 8.46%. Its expense ratio is 0.07%.
Who is this for: This fund will hold the biggest companies in the world, not just the U.S., but it still holds a lot of U.S. stocks. It is good for anyone looking for one fund with exposure to U.S. companies like Apple, Microsoft, J & J, and UnitedHealth Group. It also gives some exposure to international stocks.
6. VIG: Vanguard Dividend Appreciation ETF - This ETF provides exposure to U.S. companies with a history of increasing dividends. Over the past 5 years, it has returned an annualized 12.27%, and over the past 10 years, it has returned an annualized 11.61%. Its expense ratio is 0.06%.
Who is this for: Anyone looking for income through dividends is the cream of the crop. Keep in mind this can impact taxes in a negative way. However, this is an excellent fund for a retirement account like an IRA or people explicitly looking for Income. The largest holdings are Microsoft, JP Morgan, Walmart, Home Depot, and Comcast.
7. VNQ: Vanguard Real Estate ETF - This ETF provides exposure to the real estate market with a diversified portfolio of real estate investment trusts (REITs). Over the past 5 years, it has returned an annualized 4.78%, and over the past 10 years, it has returned an annualized 6.71%. Its expense ratio is 0.12%.
Who is this for: Anyone looking for exposure to real estate. This can be great for getting some money into the real estate market without actually buying real estate. Keep in mind, if you own a home already, that might provide good enough exposure of your net worth to real estate. Largest holdings include Public Storage, Simon Property Group, and Vanguard Real Estate II Index.
Conclusion and Final Thoughts:
In conclusion, these 7 ETFs are among the best options for an IRA, 401(k), or individual brokerage. Each one provides decent diversification for long-term investors and has solid returns compared to their peers. With low expense ratios and solid historical returns, they are worth considering as part of a well-rounded investment strategy.
IUSG, VTTSX, and SPY are great options for investors looking to gain exposure to the U.S. stock market, with a focus on growth companies or a broad-based index. VTI and VT provide broader exposure to the global and international stock markets. VIG is an attractive choice for investors focusing on dividend-paying stocks. Finally, VNQ provides exposure to the real estate market, which can significantly diversify a portfolio.
It's worth noting that even though these ETFs have had solid historical returns, it's important to remember that the stock market can be volatile. It's always a good idea to have a well-diversified portfolio. Additionally, it's always wise to consult with a financial advisor to ensure that these ETFs align with your investment goals and risk tolerance.
Note: It's important to mention that past performance does not guarantee future results and that investors should conduct their research and consult a financial advisor before making investment decisions.
All Fund information was gathered from Finance.Yahoo.com.