It’s a great time to get started.
It can be daunting for new investors to figure out the stock market even in the best of times. And after 2018, which marked the worst performance for the S&P 500 since the dark days of the financial crisis, it can be intimidating if you’re just getting started. But take heart, because it really is the best time to be an individual investor. Internet technologies make trading lightning fast and put many tools at your disposal, while low-cost exchange-traded funds make it cheap and easy to invest with diversification. If you’re looking to get started with stocks, here are seven key ETFs to consider as your first investments.
SPDR S&P 500 ETF (ticker: SPY)
One of the most popular ETFs, the SPY boasts a staggering $245 billion in assets under management. It’s not always wise to follow the crowd on Wall Street, but in this case the attention is warranted. The SPY debuted back in 1993 and in many ways began the ETF revolution for investors. The fund is benchmarked to the S&P 500, comprised of 500 stocks that make up the largest companies on Wall Street. That includes companies like Apple (AAPL), JP Morgan Chase & Co. (JPM) and Exxon Mobil Corp. (XOM). This ETF is a great starting point to get exposure to the biggest stocks out there.
iShares Core S&P Total U.S. Stock Market (ITOT)
The S&P 500 is limited to 500 large stocks. But there’s benefit to having mid-sized and smaller companies in your portfolio. While mega-corporations have more stability, smaller companies have much more room to grow. They also tend to be more domestically focused, which could be a plus since U.S. metrics remain strong as growth elsewhere slows. This iShares fund offers broad exposure to these trends with a massive portfolio of more than 3,000 stocks to represent about 90 percent of companies listed on U.S. exchanges. It has a rock-bottom fee structure, too — an expense ratio of just 0.03 percent, or $3 annually on every $10,000 invested.
Vanguard Small Cap ETF (VB)
If you like the flavor that smaller stocks can lend to a portfolio, you may want to stick with them solo or use a fund like VB to bias your holdings toward small-cap stocks. With more than 1,400 companies that share a median market capitalization of less than $4 billion, you will be focused on the smaller end of the stock market with this fund, including stocks like retailer Burlington Stores Inc. (BURL) and utility NRG Energy Inc. (NRG) Just keep in mind that many of these stocks are actually smaller banks, with financials making up over one quarter of the entire portfolio.
Schwab U.S. Large-Cap Growth ETF (SCHG)
While buying smaller stocks is one way to tap into profit potential, another strategy investors should consider is to bias their stock holdings toward growth stocks that exhibit faster revenue and profit expansion than their peers. Think stocks like Amazon.com (AMZN) and Facebook (FB). That’s what this Schwab growth-oriented fund offers. Just beware that this fund is about 37 percent allocated toward tech stocks like these, however, because that’s where a lot of the growth is. Less than 5 percent of the total portfolio is allocated to energy, utilities or materials stocks.
Fidelity Value Factor ETF (FVAL)
The other side of the coin from growth investing is a value strategy that seeks out investments that have favorable share prices based on tangible metrics like current assets or profits. In theory, this strategy is safer because it is not dependent on forecasts about growth coming to fruition but rather simply investors having confidence in what is already there. Think stocks like health care giant Johnson & Johnson (JNJ) or large-cap telecom company Comcast Corp. (CMCSA). Both are established companies, and even though they may not offer breakneck growth potential, they are very stable bets for new investors.
iShares Select Dividend (DVY)
A variation on value plays, where investors pursue tangible value in their stocks, is found in dividend investments that pay shareholders profit-sharing distributions. These investments are not a just a great way to get regular paychecks if you’re in retirement, but help see you through times of choppy share prices. Dividend stocks need reliable revenue streams from established businesses to support those payouts, so holdings of DVY are sleepier companies like pharmaceutical giant Merck & Co. (MRK) or regional utility Dominion Energy (D). However, the ETF yields just over 3 percent annually at current pricing, which is a nice stream of cash.
iShares MSCI ACWI ETF (ACWI)
There are several ways to slice U.S. stocks based on size and strategy, but it’s important to acknowledge that there’s a great big world full of stocks. There are many investments outside the U.S. worth exploring, from multinational giants in Europe you will recognize to smaller growth names in emerging markets like South America or Asia. With more than 1,300 holdings, this ETF offers great exposure to stocks regardless of geography. About half of the fund is in the U.S., but regions like Europe and Asia are also well represented, including Switzerland’s Nestle SA (SNRGY) and China tech giant Alibaba Holding Group (BABA).
Vanguard Total International Stock ETF (VXUS)
If you don’t want to just buy one global fund and prefer to make a more customized portfolio, VXUS offers international exposure excluding U.S. stocks. This is a simple way to provide investors with diversification to complement their existing domestic holdings, at whatever level they see fit. Well-known global names like Royal Dutch Shell (RDS.A) and Swiss drugmaker Roche Holding (RHHBY) are just a few of the more than 6,000 stocks in this portfolio. There are also emerging market names in Asia and Latin America representing about 20 percent of the portfolio.
iShares Barclays 20+ Year Treasury Bond ETF (TLT)
Investors should also remember a properly balanced portfolio includes bond investments. These are essentially loans, where you as an investor are the lender and are paid regular interest on the money you have shelled out. There are many forms of bonds, but the most solid are loans taken on by the U.S. government. The TLT ETF holds a massive portfolio of these long-term bonds, and currently the fund yields about 3 percent. That’s not going to make you a millionaire overnight, but is about a sure a thing as you can find as a long-term investment.
Vanguard Intermediate-Term Corporate Bond ETF (VCIT)
This ETF offers investors the reliability of bonds with a bit more return than Treasurys. VCIT holds major corporate bonds of intermediate duration, which means repayment of about five to 10 years. While these loans are riskier than those to the U.S. government, and thus pay more, they are also much lower risk than stocks. Top holdings currently are bonds issued by Bank of America Corp. (BAC) and CVS Health Corp (CVS) — two solid companies. And the VCIT fund tops Treasurys with an average yield of almost 4 percent.
These are great ETFs for beginning investors.
To recap, these are 10 great ETFs for beginning investors.
— SPDR S&P 500 ETF (ticker: SPY)
— iShares Core S&P Total U.S. Stock Market (ITOT)
— Vanguard Small Cap ETF (VB)
— Schwab U.S. Large-Cap Growth ETF (SCHG)
— Fidelity Value Factor ETF (FVAL)
— iShares Select Dividend (DVY)
— iShares MSCI ACWI ETF (ACWI)
— Vanguard Total International Stock ETF (VXUS)
— iShares Barclays 20+ Year Treasury Bond ETF (TLT)
— Vanguard Intermediate-Term Corporate Bond ETF (VCIT)
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10 Great ETFs for Beginning Investors originally appeared on usnews.com
