Here’s how to skip the analysis and high fees.
If you’re just starting your portfolio, it can be difficult to decide what to buy first. It’s important to know you don’t have to dive into the analysis of a single company to get ahead. Consider that last year, the Standard & Poor’s 500 index jumped an impressive 21 percent. By investing in this benchmark, you could have turned $10,000 into $12,000. Sure, some stocks may have done better. But others did worse. And it’s important to limit losses on Wall Street. If you’re a young investor looking to play the market in a broad way via an exchange-traded fund, which one is right for you? Here are seven ideas to consider.
SPDR S&P 500 ETF (ticker: VOO)
There’s a lot of talk about the importance of index funds in a long-term portfolio, including Warren Buffett advising most people to simply put their money in a low-cost fund benchmarked to the S&P 500. Well, your best way to do that is this SPDR fund. You get exposure to the 500 largest U.S.-based stocks, and only have to pay management fees of less than $1 annually on every $1,000 you invest. The long-term history of the stock market shows consistent gains for patient investors, and this is a cheap and easy way to tap into that trend.
iShares Core S&P U.S. Growth ETF (IUSG)
A bit more aggressive is this iShares fund that focuses on fast-growing companies like Apple (Nasdaq: AAPL) and overlooks the slow-and-steady kind of investments like consumer products giant Procter & Gamble Co. (PG). It’s still a low-cost index fund, however, benchmarked to the S&P 900 Growth Index, and charging just 50 cents annually on every $1,000 invested. You may not share in some of the stability of low-growth companies like P&G when times are tough, but you’ll tap into much higher growth potential if you’re willing to take on a bit more risk for a bit more reward.
WisdomTree U.S. Total Dividend Fund (DTD)
More risk isn’t for everyone, however, and many young investors who are unnerved by the notion of a wild ride in the stock market can take comfort in this WisdomTree dividend fund. Focused on U.S. stocks that pay a higher than average dividend, you’ll see a steady stream of income plus the potential for share appreciation. Right now, the fund yields almost 2.7 percent — better than the roughly 2 percent for the S&P 500 at large — and only charges $2.80 in annual fees on every $1,000 invested for that focus on dividends. It may not provide the same growth as other funds, but will certainly provide much more stability.
First Trust Dorsey Wright Focus 5 ETF (FV)
Of course, if you’re looking to broaden your exposure across more corners of the market instead of narrowing it to just growth stocks or dividend stocks, the FV fund is a great alternative to a conventional S&P 500 fund. This ETF is a “fund of funds” that contains roughly 20 percent weighting each in five very different ETFs such as a bank sector fund and a broad-based Nasdaq 100 among others. The expenses are a little higher at $3 annually on every $1,000 invested, but you get a much wider group of holdings this way than in most individual index funds alone.
Vanguard Total World Stock ETF (VT)
If that’s still not wide enough for you, then consider this Vanguard fund that stretches beyond just the United States to include all markets including Europe and Asia. Top holdings of VT include familiar names like Apple and Microsoft Corp. (MSFT) but China tech giant Tencent Holdings also makes it into the top 10. True diversification isn’t just limited to many sectors but also many geographies. After all, one nation can have hard times while others manage to muddle through just fine. A global investment strategy helps you tap into the strength of the entire world economy and not just rely on U.S. stocks.
iShares MSCI KLD 400 Social ETF (DSI)
Of course, holding every company and chasing diversification is all well and good. But what if you want to put your money only behind companies that share your beliefs, and not fund corporations that fail to promote women or fall short of industry standards on social responsibility? Thankfully, the DSI ETF is there for younger investors who want to focus on their values. This broad-based fund tracks 400 U.S.-based companies that, according to iShares, “have been screened for positive environmental, social and governance characteristics.” One prime example is that the fund excludes corporations involved in weapons, tobacco and alcohol.
Schwab U.S. Aggregate Bond ETF (SCHZ)
While stocks tend to go up in the long term, there are many investors who would prefer to not stomach the risk of volatility or short-term declines. So if you’re a conservative investor, there’s nothing wrong with allocating some of your money into low-risk bond investments instead of going all-in on stocks. This Schwab fund is a great one-stop shop for new investors, because it includes all forms of investment-grade bonds with both corporate and U.S. government debt. And with an average maturity of about eight years, it also mixes shorter-term bonds and longer-dated maturity bonds. It’s as diversified a portfolio of bonds as many of these ETFs are for stocks.
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7 Great ETFs for Millennial Investors originally appeared on usnews.com
