I've been focusing on index funds in my retirement account, and here are three I've been buying this year.
I'm a big believer in the idea that investors with the time, knowledge, and desire to do so can beat the market over time with a portfolio of individual stocks. However, when I've added money to my retirement accounts recently, most of it has been used to buy shares of high-quality, low-cost index fund ETFs.
There are a few reasons I'm focusing more on index funds than individual stock investing in my retirement account this year.
- I've spent most of my 12 years covering the stock market building a portfolio of individual stocks that could be excellent retirement investments. Just to name a few, top holdings in my retirement account include Berkshire Hathaway (BRK.B 0.93%), Realty Income (O -0.11%), and Walt Disney (DIS -0.12%).
- There is nothing wrong with using ETFs to establish a "core" for a portfolio of individual stocks, and my portfolio's core isn't quite where it should be.
- I'm getting older. While I'm in my early 40s and still a couple of decades away from retirement, my risk tolerance is significantly lower than when I was 22 and opening my first brokerage account.
- There are some excellent opportunities for investing in entire indices because of short-term headwinds like higher interest rates. More on that in a bit.
I won't keep you in suspense. Here are the three ETFs I've been buying in 2024 when I deposit money into my retirement account.
Vanguard S&P 500 ETF
While the S&P 500 isn't particularly cheap right now at about 3% below its all-time high, a basic is still a great long-term addition to any retirement portfolio. The Vanguard S&P 500 ETF (VOO 0.15%) is one of the cheapest index funds in the market, with a 0.03% expense ratio, which means just $3 will go toward fees annually for every $10,000 in assets.
I'm adding this ETF not because I think it will outperform over the next year or two, but because I'm extremely confident that by the time I'm ready to retire my investment will be worth significantly more than I paid for it. After all, simply matching the market's performance over time isn't such a bad thing.
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Vanguard Small-Cap Value ETF
Two of my favorite opportunities in the stock market right now are small-cap stocks and value stocks, as both have significantly underperformed the S&P 500 recently and could be big winners as interest rates fall. The Vanguard Small-Cap Value ETF (VBR 0.06%) lets me invest in both.
The short version is that small caps haven't traded for such a low price-to-book valuation relative to their large-cap counterparts in 25 years. And while the S&P 500 is close to an all-time high, most of its recent performance has been driven by growth stocks like Nvidia (NVDA -1.99%), not by value stocks. To be clear, I'm buying this ETF to hold for the long haul, but now looks like a fantastic entry point.
Vanguard Real Estate ETF
Last but certainly not least is the Vanguard Real Estate ETF (VNQ -0.01%). Real estate has been one of the worst-performing areas of the stock market over the past couple of years, as real estate investment trusts, or REITs, are highly sensitive to rising interest rates.
Because REITs are built for predictable income, their yields tend to move in the same direction as rates from risk-free investments like Treasury bonds. Since yield and price have an inverse relationship, higher yields tend to pressure REIT prices. In addition, REITs tend to rely on borrowed money to finance their operations, similar to how most people use mortgages to buy properties, and rising rates make borrowing more expensive. As rates normalize, real estate has a high probability of outperforming.
What are the best ETFs for you?
To be perfectly clear, there are plenty of excellent ETFs you could add to your portfolio, and the right choices for you depend on your investment goals and risk tolerance. For example, someone who is a little closer to retirement than me might want to put more of their capital in income-based ETFs. But with that in mind, these are three excellent and low-cost choices that could be great ETFs to buy and hold for decades.
Matt Frankel has positions in Berkshire Hathaway, Realty Income, Vanguard S&P 500 ETF, Vanguard Small-Cap Value ETF, Vanguard Specialized Funds-Vanguard Real Estate ETF, and Walt Disney. The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia, Realty Income, Vanguard S&P 500 ETF, Vanguard Specialized Funds-Vanguard Real Estate ETF, and Walt Disney. The Motley Fool has a disclosure policy.
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The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia, Realty Income, Vanguard S&P 500 ETF, Vanguard Specialized Funds-Vanguard Real Estate ETF, and Walt Disney.
What are the best 3 ETF portfolios? ›
Example of a Solid Three-ETF Portfolio
One option for a solid three-ETF portfolio could be to include the Schwab U.S. Dividend Equity ETF (SCHD), the Vanguard S&P 500 ETF (VOO), and the Invesco QQQ Trust (QQQ).
Is 3 ETFs enough? ›
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification. But the number of ETFs is not what you should be looking at.
Which ETF has the best 10 year return? ›
1. VanEck Semiconductor ETF
- 10-year return: 24.37%
- Assets under management: $10.9B.
- Expense ratio: 0.35%
- As of date: November 30, 2023.
Disadvantages of ETFs
- Trading fees. Although ETFs are generally cheaper than other lower-risk investment options (such as mutual funds) they are not free. ...
- Operating expenses. ...
- Low trading volume. ...
- Tracking errors. ...
- The possibility of less diversification. ...
- Hidden risks. ...
- Lack of liquidity. ...
- Capital gains distributions.
3 Top ETFs for a Diversified Stock Portfolio
- SPDR S&P 500 ETF Trust. The SPDR S&P 500 ETF Trust (SPY 0.11%) mirrors the S&P 500 Index, encompassing 500 of the largest U.S. corporations. ...
- Invesco QQQ Trust. ...
- iShares Russell 2000 ETF.
5 Best ETFs by 5-year return as of May 2024
| Ticker | Fund name | 5-year return |
|---|
| SMH | VanEck Semiconductor ETF | 31.19% |
| SOXX | iShares Semiconductor ETF | 26.35% |
| XLK | Technology Select Sector SPDR Fund | 21.30% |
| IYW | iShares U.S. Technology ETF | 20.70% |
1 more rowThree-fund lazy portfolios
These usually consist of three equal parts of bonds (total bond market or TIPS), total US market and total international market. While the "% allocation" is different from those listed below, these funds typically make up the core of Vanguard's Target Retirement and Lifestrategy funds.
How many S&P 500 ETFs should I own? ›
You only need one S&P 500 ETF
For others, it's all minutia. All three of the ETFs listed here have lower-than-average expense ratios and offer an easy way to buy a slice of the U.S. stock market. You could be tempted to buy all three ETFs, but just one will do the trick.
Is it better to invest in multiple ETFs or one? ›
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.
Performance of ETFs
| Schemes | Latest Price | Returns in % (as on May 22, 2024) |
|---|
| CPSE Exchange Traded Fund | 92.16 | 117.65 |
| Kotak PSU Bank ETF | 719.00 | 82.34 |
| Nippon ETF PSU Bank BeES | 80.18 | 82.23 |
| SBI - ETF Nifty Next 50 | | 68.38 |
33 more rowsCompare the best growth ETFs
| FUND(TICKER) | EXPENSE RATIO | 10-YEAR RETURN AS OF MAY 1 |
|---|
| Vanguard Growth ETF (VUG) | 0.04% | 15.07% |
| iShares Russell 1000 Growth ETF (IWF) | 0.19% | 15.78% |
| iShares S&P 500 Growth ETF (IVW) | 0.18% | 14.34% |
| Schwab U.S. Large-Cap Growth ETF (SCHG) | 0.04% | 15.95% |
3 more rowsTop 100 Highest Dividend Yield ETFs
| Symbol | Name | Dividend Yield |
|---|
| TSL | GraniteShares 1.25x Long Tesla Daily ETF | 98.33% |
| NVD | GraniteShares 2x Short NVDA Daily ETF | 72.06% |
| CONY | YieldMax COIN Option Income Strategy ETF | 70.48% |
| TSLY | YieldMax TSLA Option Income Strategy ETF | 57.50% |
93 more rowsETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.
Do you pay taxes on ETFs if you don't sell? ›
At least once a year, funds must pass on any net gains they've realized. As a fund shareholder, you could be on the hook for taxes on gains even if you haven't sold any of your shares.
Is it better to hold mutual funds or ETFs? ›
ETFs and index mutual funds tend to be generally more tax efficient than actively managed funds. And, in general, ETFs tend to be more tax efficient than index mutual funds. You want niche exposure. Specific ETFs focused on particular industries or commodities can give you exposure to market niches.
What are the best 3 ETFs for diversification? ›
These three ETFs--SPY, QQQ, and IWM--provide investors with a diversified approach to the stock market, covering the spectrum from large-cap stability to tech innovation to small-cap growth. They cater to investors aiming for a balanced investment portfolio that taps into various market segments.
What is a typical 3 fund portfolio? ›
A three-fund portfolio is a portfolio which uses only basic asset classes — usually a domestic stock "total market" index fund, an international stock "total market" index fund and a bond "total market" index fund.
Is QQQ better than voo? ›
Average Return
In the past year, QQQ returned a total of 35.90%, which is significantly higher than VOO's 28.88% return. Over the past 10 years, QQQ has had annualized average returns of 18.75% , compared to 12.96% for VOO. These numbers are adjusted for stock splits and include dividends.
What are the big three investment funds? ›
Within the world of corporate governance, there has hardly been a more important recent development than the rise of the 'Big Three' asset managers—Vanguard, State Street Global Advisors, and BlackRock.
