Look beyond short-term volatility to your long-term investing goals.
The stock market has been throwing investors for a loop all year, thanks to a steady drumbeat of bad news about inflation, interest rates and economic growth. But anyone who has hung around Wall Street long enough knows that the markets always move in cycles and that no investment portfolio moves steadily higher in a straight line. It can be hard to stomach short-term volatility, true, but that doesn’t mean you should panic and abandon your long-term strategy on a whim. The following buy-and-hold exchange-traded funds, or ETFs, are good examples of the kind of holdings that have a lot to offer investors over the years ahead — regardless of the short-term challenges brought by 2022.
SPDR Portfolio S&P 500 ETF (ticker: SPLG)
Many investors are more familiar with this fund’s older sister, the SPDR S&P 500 ETF Trust (SPY) that was born back in 1993 and commands a mammoth $330 billion in assets under management. But that flagship fund also carries annual expenses of 0.095% — which may not sound like a lot, but is still three times the amount charged by the smaller SPLG fund. They are nearly identical index funds, benchmarked to the popular S&P 500 index of large-cap U.S. stocks. The more established SPY fund charges a bit more for investors looking to access the deep pool of liquidity there — but if you’re a long-term, buy-and-hold investor who isn’t concerned with getting the ultimate precision in pricing every second of every trading day, then SPLG will work just fine and charge you a bit less to access the same blue-chip stocks.
iShares Core S&P Small-Cap ETF (IJR)
Many folks with a long-term investing horizon gravitate toward smaller companies because of their upside potential. They can admittedly be a bit more volatile in the short term, but ultimately they have the potential to grow significantly larger — unlike trillion-dollar tech stocks that have already saturated their respective markets. This roughly $60 billion iShares fund offers that exposure to smaller companies that make up the S&P SmallCap 600 Index. This is the third tranche of stocks in the S&P index universe, coming after both the 500 largest names in the popular S&P 500 large-cap family and the next 400 stocks that make up the S&P 400 mid-cap index. The 600 components are all under about $8 billion in size, meaning you’ll exclude the household names that make up the typical index fund and get exposure to more potential upside in smaller startups.
Vanguard Information Technology ETF (VGT)
By any measure, 2022 has been miserable for tech stocks. As a result, this leading tech sector ETF has taken it on the chin, too, with declines of about 34% since Jan. 1. But in the long run, it seems foolish to bet against dominant Big Tech stocks like Amazon.com Inc. (AMZN), Apple Inc. (AAPL) and Microsoft Corp. (MSFT). So if you’re interested in looking beyond short-term volatility in the information technology sector and want to bet on a recovery and continued success in the years and decades to come, consider this dominant $60 billion fund. After all, we may look back on these depressed levels in a few years and consider this a tremendous buying opportunity.
iShares Core Dividend Growth ETF (DGRO)
The flip side of investing in more dynamic small-cap stocks or the tech sector is a slow-and-steady approach with low-risk dividend stocks. This $25 billion iShares fund is a great example of that, with a portfolio of more than 400 stocks that includes some of the most stable and established brands on the planet. Furthermore, its focus on dividend growth means that these companies are likely to pay shareholders even more in the years ahead than they do today. For instance, top holdings in DGRO include soft drink icon Coca-Cola Co. (KO), which just recorded its 60th consecutive annual dividend increase back in February. If you’re willing to buy and hold stocks like these, you’ll get upside in shares along with a generous stream of income from growing dividends. Right now, DGRO yields 2.6%.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
If you want to get even more involved in the long-term potential of stable dividend stocks, then consider this Invesco fund that offers significantly higher dividends and aims to deliver lower share price volatility over time. Admittedly, this results in a rather sleepy portfolio of stocks like tobacco giant Altria Group Inc. (MO) and telecom AT&T Inc. (T), which may not have the upside potential that tech stocks or small caps do when times are good. But they also are much more stable than more volatile corners of the market, and will hang tough in a downturn. Besides, the very reliable operations of these kinds of companies support significantly higher dividends than you’ll find in the typical index fund. SPHD boasts a 30-day SEC yield of 5% at present.
Vanguard Total International Stock ETF (VXUS)
The prior funds have all focused on domestic stocks, but geographic diversification is a crucial part of any long-term investing strategy. That’s where this “ex-U.S.” fund from Vanguard comes in, with a portfolio of 7,700 stocks that are all headquartered outside of the States. Many of these firms are very familiar to U.S. consumers, including Japan’s Toyota Motor Corp. (TM), Korean electronics giant Samsung Electronics Co. Ltd. (SSNLF) or Switzerland’s Nestle SA (NSRGY). However, U.S. investors who only focus on domestic stocks will miss out on these multinationals unless they look to a fund like VXUS. This added layer of diversification could help smooth out any bumps in your portfolio over the long term, and provide access to additional upside in overseas markets.
Vanguard Short-Term Corporate Bond ETF (VCSH)
It may seem counterintuitive to invest in a short-term bond fund in a long-term portfolio. However, the longer bonds take to mature, the bigger the risk of volatility thanks to changes in interest rates. Consider that since Jan. 1, the iShares 20+ Year Treasury Bond ETF (TLT), which comprises of very long-term government bonds, is down more than 30% as the Federal Reserve has continued to tighten its monetary policy and raise rates. On the other hand, VCSH is down just 9% on the year. And with a 30-day SEC yield of about 5% right now, this short-term bond fund is actually providing a bigger income stream than some dividend stock funds right now. If you want bond exposure to help with income and capital preservation in the long term, then a rock-solid fund like VCSH is worth a look.
7 best long-term ETFs to buy and hold:
— SPDR Portfolio S&P 500 ETF (SPLG)
— iShares Core S&P Small-Cap ETF (IJR)
— Vanguard Information Technology ETF (VGT)
— iShares Core Dividend Growth ETF (DGRO)
— Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
— Vanguard Total International Stock ETF (VXUS)
— Vanguard Short-Term Corporate Bond ETF (VCSH)
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7 Best Long-Term ETFs to Buy and Hold originally appeared on usnews.com
Update 10/13/22: This story was published at an earlier date and has been updated with new information.
