ETFs you can buy and hold forever. There are more than 1,700 ETFs in the U.S. today, up from 157 in 2004. With so many choices, how can investors hope to find the best ETFs…
ETFs you can buy and hold forever.
There are more than 1,700 ETFs in the U.S. today, up from 157 in 2004. With so many choices, how can investors hope to find the best ETFs to buy? The answer depends on your time horizon and risk tolerance. But the truth is, most investors, regardless of age, should buy for the long term. Playing short-term market swings is liable to burn you. Each of these ETFs offer very low fees, broad diversification and exposure to a group of stocks that every long-term investor should own in some form or fashion. Here are seven of the best ETFs to buy now and hold with confidence.
If you’re a serious investor and you don’t already own an index fund or ETF that tracks the S&P 500 index, do yourself a favor and snap one up. More reflective of the United States economy than the Dow Jones industrial average, which tracks just 30 titans of American industry, and the Nasdaq composite, which is heavily skewed toward technology and biotech stocks, the market capitalization-weighted S&P 500 takes a better pulse of the U.S. economy. VOO’s rock-bottom expense ratio makes it one of the best ETFs to buy.
Expense ratio: 0.04 percent, or $4 annually for every $10,000 invested One-year return: 17.9 percent Dividend yield: 1.8 percent
Another one of the best ETFs to buy for the long term is VTWO, another Vanguard fund that tracks the Russell 2000. The Russell 2000 index is the most popular index of small-cap stocks in the U.S. Composed by exclusion, the Russell 2000 consists of the smallest two-thirds of the Russell 3000, which tracks the 3,000 largest public companies in the U.S. Small caps give investors a chance to participate in higher growth potential, while broad diversification reduces risk.
And now for something completely different: an ETF excluding U.S. equities entirely but owning just about every other stock in the world. VXUS owns 98 percent of the non-U.S. stocks on the planet, covering small caps and large caps, emerging markets and developed countries, and every sector you could dream of. If you live and work in the U.S., you’re unconsciously making an overly concentrated bet on the American economy. VXUS is one of the best ETFs to buy for long-term investors because it provides a natural hedge against a U.S. economic downturn, plus upside from global growth.
Warren Buffett made billions spotting great value stocks. He didn’t go after the hottest stocks of the day — which these days might include Amazon.com (AMZN), Netflix (NFLX) and a bevy of marijuana stocks — instead seeking good companies trading at prices well below their fair value. While the VTV won’t make you a billionaire, it automates the process of finding investment bargains by tracking the CRSP U.S. Large Cap Value index, which screens for cheap stocks of good companies by analyzing factors like price-book, dividend yield, price-sales and forward price-earnings compared to historical P/E.
Aside from college tuition, health care is the only other part of the economy that’s consistently seen prices rise far faster than inflation for decades. This is a troubling trend for all Americans, but as long as more of your hard-earned money is spent on health care, more of your portfolio should be invested in it. VHT is one of the best ETFs to buy as long as this trend continues. The benefits for VHT shareholders have been enormous: A $10,000 investment in September 2008 became $39,604.50 by September 2018, a 14.1 percent annualized return.
Another so-called “factor ETF” that tracks stocks showing certain qualities thought to collectively outperform the market, FQAL tracks the Fidelity U.S. Quality Factor IndexSM, which itself contains about 125 stocks that fit certain stringent criteria. The goal is to invest in companies with high, stable levels of profitability in the U.S., ideally reducing risk and volatility. Free cash flow margin, free cash flow stability and return on invested capital are each given equal weightings in constructing the index, and stocks are liable to be removed if these metrics fall.
Another low-fee Vanguard fund rounds out the list of the best ETFs to buy for patient investors. VYM’s benchmark, the FTSE High Dividend Yield Index, includes U.S. stocks with some of the highest dividend yields. Most of the 400-plus holdings are low-growth, steady Eddie-type businesses that focus more on returning money to shareholders than devoting excess capital to expansion. They tend to be larger corporations; over 80 percent of them are large-cap stocks. Strong dividends provide a buffer to market downturns, with blue chips like Johnson & Johnson (JNJ) and Intel Corp. (INTC) among the top 10 holdings.