These long-term ETFs span all major asset classes.
In 2022, many investors are disappointed with their performance. The S&P 500 is down about 12% since Jan. 1 as of April 26, and depending on your unique strategy, it’s possible that your personal returns are even worse. However, it’s dangerous to trade too much or make knee-jerk changes to your strategy based on short-term developments on Wall Street. Research shows that a hands-off, buy-and-hold approach in low-cost exchange-traded funds, or ETFs, can deliver in the long run — if you’re just patient enough to see things through. The following seven ETFs all offer diversified, cost-effective exposure to major investment themes for investors who want to simply “set it and forget it.”
SPDR Portfolio S&P 500 ETF (ticker: SPLG)
The more popular SPDR S&P 500 ETF Trust (SPY) tends to be the first large-cap fund that U.S. investors think of, as it was among the first listed ETFs, with a launch date back in 1993. However, sponsor State Street Global Advisors had to acknowledge that many funds out there are cheaper as measured by annual expenses — and smaller “retail” investors with a buy-and-hold approach may not care to pay a premium for the deep liquidity that exists in the massive $390 billion SPY fund. That’s where the smaller SPLG comes in — it commands “only” $14 billion in assets, but its fee structure is less than a third of SPY’s, at 0.03% annually, or a measly $3 per year on every $10,000 invested. So if you want to buy the S&P 500 via a cheap and accessible index fund, look to SPLG over its larger sister fund.
Invesco S&P 500 Equal Weight ETF (RSP)
Of course, it’s worth noting that the S&P 500 is very top-heavy at present, with some of the largest U.S. corporations carrying outsize weight in the index. For instance, Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Amazon.com Inc. (AMZN) collectively make up a nearly 17% weighting in the S&P 500 despite there being hundreds of other component companies. If you think this kind of focus is risky, consider this Invesco fund that regularly rebalances to spread the cash as evenly as possible around all components. With $33 billion in assets, this approach clearly has appeal with some investors who want to look beyond the standard S&P index fund.
Vanguard Mega Cap ETF (MGC)
The flip side of an equal-weight approach is to double down on the large names that are out there, rather than give the smaller components in the S&P 500 your attention. That’s what MGC offers, with a “megacap” approach that is focused on roughly 240 or so of the very largest U.S. stocks, to the exclusion of everything else. In addition to being more reliant on the individual megacap tech stocks at the top of the list, MGC is also, unsurprisingly, more biased toward this sector in general, with nearly 30% of total assets in information technology at present. If you’re a long-term investor most interested in this corner of the market, however, this emphasis may be attractive as a way to look beyond the usual suspects of large-cap index funds.
Schwab U.S. Small-Cap ETF (SCHA)
On the flip side, SCHA is a great option for investors who want to balance out their large-cap exposure with a dedicated small-cap offering, either for diversification or simply to gain more exposure to the growth potential of smaller companies. This flagship Schwab fund holds roughly 1,800 stocks, the vast majority of which are less than $10 billion in market value. And as it charges a meager 0.04% in expenses, it’s among the cheapest ETFs on Wall Street. Small companies can sometimes be more volatile, as they don’t have the deep pockets of megacap tech companies, but in the long run, these stocks tend to do very well as a group. And since you have 1,800 of them in this one fund, the winners have a chance to make up for any losers.
iShares Core S&P Mid-Cap ETF (IJH)
This “Goldilocks” iShares fund splits the difference between large and small stocks, with a portfolio of about 400 medium-size corporations that are not as tiny as the smallest small caps in SCHA but not as large as the megacaps that dominate the other funds. The result is a pretty eclectic mix of stocks, where no single holding represents more than about 0.7% of the total portfolio. Interestingly, midsize corporations tend to be more likely to be industrial companies, with about 19% of the total portfolio in this sector at present. But aside from this bias, you get a nicely diversified swath of midsize stocks in this iShares index fund to help provide stability and long-term returns.
Schwab U.S. Dividend Equity ETF (SCHD)
If you’re looking for long-term ETFs, it’s worth exploring income-oriented strategies such as dividend stocks. This Schwab fund is not only incredibly cost-effective at just 0.06% in annual expenses, or $6 on every $10,000 invested, but it also offers a dividend yield north of 3.1% at present. That’s significantly higher than the roughly 1.4% dividend paid by S&P 500 stocks on average. SCHD achieves this by a focused list of only about 100 top dividend stocks, but they’re entrenched and stable players like Coca-Cola Co. (KO), International Business Machines Corp. (IBM) and Merck & Co. Inc. (MRK). If you want long-term income potential, this fund may be worth a look.
iShares Core U.S. Aggregate Bond ETF (AGG)
While the current interest rate environment is admittedly volatile, with talk of tighter monetary policy amid inflationary pressures, long-term investors should not give up on bonds just because of the short-term uncertainty. And if you want to have a truly diversified approach to fixed income, AGG is the way to go. This top iShares bond fund aggregates major bond categories — corporates, agency mortgage debt, U.S. Treasuries and more — to build out a one-stop shop. Furthermore, these are all investment-grade bonds and not the riskier junk bonds that carry a higher risk of default. With a yield of about 2.8% at present, this is a good foundational investment for any long-term investor concerned with a steady stream of income.
7 of the best ETFs to buy for long-term investors:
— SPDR Portfolio S&P 500 ETF (SPLG)
— Invesco S&P 500 Equal Weight ETF (RSP)
— Vanguard Mega Cap ETF (MGC)
— Schwab U.S. Small-Cap ETF (SCHA)
— iShares Core S&P Mid-Cap ETF (IJH)
— Schwab U.S. Dividend Equity ETF (SCHD)
— iShares Core U.S. Aggregate Bond ETF (AGG)
More from U.S. News