ETFs make it easier to invest in the market. Investing in the stock market can be intimidating, but thanks to exchange-traded funds, it is now much less daunting. An ETF is an investment fund with…
ETFs make it easier to invest in the market.
Investing in the stock market can be intimidating, but thanks to exchange-traded funds, it is now much less daunting. An ETF is an investment fund with a group of stocks, sometimes containing thousands of individual companies. That allows even newer investors to develop a diversified portfolio with just one or two holdings. These funds come in many varieties. Whether you want to focus on growing companies, international companies or companies that are the lowest risk, there is an ETF to do it. If you’re just getting started and curious about how to get into the stock market, here are nine accessible ETFs that are great places to start.
This ETF offers a simple way to play the biggest publicly traded stocks in the world. A little over 800 companies make up this low-cost fund, and you’ll recognize most of the names. It’s worth noting that North America represents just over half of the total portfolio and U.S. mega-caps like Apple (AAPL) and JPMorgan Chase & Co. (JPM) represent outsized weight compared with smaller, international stocks. Still, there is a global flavor for investors who want to play the world stock market. And, with a rock-bottom expense ratio of 0.10 percent, you’ll pay just $1 annually in operating expenses for every $1,000 invested.
iShares Core S&P Total U.S. Stock Market ETF (ITOT)
The ITOT fund is a more localized fund for the entire U.S. stock market. Unlike other targeted index funds, this iShares offering is benchmarked to the S&P 1500 composite index that combines the large-cap S&P 500, the S&P 400 mid-cap index and the S&P 600 small-cap index. That means it includes huge stocks, middle-market companies and smaller stocks to offer the broadest possible exposure to the U.S. stock market. This broad approach is incredibly inexpensive, too, at an expense ratio of just 0.03 percent or 30 cents annually on every $1,000 invested.
What if you are interested in a global approach that excludes American companies? There is an easy way to do that via this Vanguard fund that excludes domestic equities. This does, however, bias you toward emerging markets. While top holdings are multinationals like Royal Dutch Shell (RDS.A) and Swiss consumer giant Nestle, roughly 20 percent of the fund is invested in emerging markets holding stocks like China’s Alibaba Group Holding (BABA). Still, a focus on only the largest companies keeps out some of the more volatile plays and make this a great way to explore stocks beyond America’s borders in a single holding.
This fund is focused solely on emerging markets. These nations that offer a bit more risk but also a bit more growth potential. This may sound like a sophisticated strategy, since it’s hard to know the big players in far-flung regions. But this fund has 800 holdings across many regions, giving your investment strategy a broad play on this trend in just a single piece of your portfolio that doesn’t require much upkeep. The EEM fund’s top regions include China at about 30 percent of the portfolio, followed by Korea at 14 percent, Taiwan at 12 percent and India at 9 percent.
One of the most closely-watched ETFs, SPY boasts a staggering $270 billion in assets under management. Benchmarked to the popular S&P 500 index of the largest U.S. listed corporations, most investors likely have exposure to members of this group. Of course, popularity doesn’t mean superiority. The S&P 500 isn’t just a more focused list but also an index that’s roughly 26 percent allocated toward tech and reliant on big names like Apple, Microsoft Corp. (MSFT) and Amazon.com (AMZN) because of their massive valuations. Nevertheless, it is undeniable that many investors consider the S&P 500 as synonymous with the stock market at large.
It doesn’t take long for novice investors to sense what general strategies feel right. Some are definitely in it for relatively fast profits, and others are content with a slow-and-steady approach by limiting risk. If you’re in the former camp, then this growth fund is a tactical bet on the largest growth-oriented companies in a simple way that maintains diversification and avoids the hassle of portfolio management. Benchmarked to the Dow Jones U.S. large-cap growth total stock market index, the fund includes the largest 750 companies that meet growth characteristics in both their revenue and profitability. That simple screening process can dramatically change the shape of your portfolio.
For investors who want to play the stock market in a more conservative way, this fund tied to the Russell 2500 value index offers the opposite approach. Rather than screen for metrics that hint at growth in sales and profits, IUSV focuses on domestic stocks that meet value characteristics, including how they are priced compared with their actual assets and whether management is a good steward of capital. That ensures there is a store of value shareholders can rely on. This lower-risk approach is accessible and cheap at a mere 40 cents annually in operating costs for every $1,000 invested.
There are different approaches than just growth and value, however. Another strategy is to prioritize dividends — either for the steady income stream provided by this corporate profit-sharing or because the regular paydays offer both a hedge against declines and a bit of extra profits when things go well. The SCHD fund is indexed to the Dow Jones U.S. dividend 100 index, which includes 100 large companies with a strong history of paying dividends and increasing the payouts, too.
Another interesting twist is to focus on smaller companies. After all, even behemoths like Facebook (FB) had to get their start somewhere. There is a bit more risk, since smaller companies often don’t have the capital cushion or scale yet to weather tough times. But there is also more potential upside as these small companies of today become the leaders of tomorrow. The SLY allows novice investors to easily tap into this strategy by ranking by size the top 1,500 U.S. corporations and omitting the largest 900. That ensures the big stocks you hear about most often aren’t part of the equation.