Choosing the right ETF – ETFs simplified | iShares – BlackRock (2024)

FAQs

How do I choose the right ETF to invest in? ›

Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.

The one time it's okay to choose a single investment

You wouldn't ever want to load up your portfolio with a single stock. But if you're buying S&P 500 ETFs, this is the one scenario where you might get away with only owning a single investment. That's because your investment gives you access to the broad stock market.

The majority of individual investors should, however, seek to hold 5 to 10 ETFs that are diverse in terms of asset classes, regions, and other factors. Investors can diversify their investment portfolio across several industries and asset classes while maintaining simplicity by buying 5 to 10 ETFs.

Over the long run, they do compound—those fee differences—and investors have been putting a lot more money into VOO versus SPY. That is the reason why we view VOO slightly better than SPY. And that is just the basic approach, which is the lower the investor can pay, the better the investment is.

Generally speaking, fewer than 10 ETFs are likely enough to diversify your portfolio, but this will vary depending on your financial goals, ranging from retirement savings to income generation.

Investing in the stock market is one of the most effective ways to generate long-term wealth, and you don't need to be an experienced investor to make a lot of money. In fact, it's possible to retire a millionaire with next to no effort through exchange-traded funds (ETFs).

This investment strategy seeks total return through exposure to a diversified portfolio of primarily equity, and to a lesser extent, fixed income asset classes with a target allocation of 70% equities and 30% fixed income. Target allocations can vary +/-5%.

The largest BlackRock ETF is the iShares Core S&P 500 ETF (IVV). Other popular ETFs such as the iShares Core MSCI EAFE ETF (IEFA) and iShares Core U.S. Aggregate Bond ETF (AGG) are under the iShares brand.

Which is better, Vanguard or BlackRock? ›

While Vanguard ranks No. 1 for ETF flows so far in 2024, the firm is still behind BlackRock in assets under management, said Aniket Ullal, head of ETF data and analytics at CFRA Research, in an email to MarketWatch.

The second highest performing fund in the list was the $395m BlackRock US Growth fund, managed by Phil Ruvinsky and Caroline Bottinelli. The strategy was up 52.68% last year, after a 40.57% loss in 2022. Over a five-year period ending 2023, the strategy was up 92.91% – lagging the S&P 500 index return of 107.21%.

The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.

Similarly, the index is made up of only stocks. When the stock market is experiencing a general downturn, there are no other asset classes (like bonds and REITs) to counterbalance that loss. This is why investing only in the S&P 500 does not help the investor minimize risk.

Disadvantages of ETFs. Although ETFs are generally cheaper than other lower-risk investment options (such as mutual funds) they are not free. ETFs are traded on the stock exchange like an individual stock, which means that investors may have to pay a real or virtual broker in order to facilitate the trade.

ETFs can be a great investment for long-term investors and those with shorter-term time horizons. They can be especially valuable to beginning investors. That's because they won't require the time, effort, and experience needed to research individual stocks.

Typically, it comes down to preferences related to management fees, shareholder transaction costs, taxation, and other qualitative differences. Despite the lower expense ratios and tax advantages of ETFs, many retail investors (non-professional, individual investors) prefer index mutual funds.

Diversification: A well-diversified portfolio should include ETFs that cover different asset classes (stocks, bonds, commodities, etc.), sectors, industries, and geographical regions. This spreads risk and reduces the impact of any single investment on the overall performance.