Many investors think the key to success is outsmarting the rest of Wall Street. But the brutal reality is that outperformance is incredibly hard to come by — even for expert money managers with years of experience.
Consider that in a very challenging 2022, more than half of the managers of large U.S. stock funds underperformed the vanilla S&P 500 index on the year — marking the 13th consecutive year that the “smart money” couldn’t create more profits than a fixed list of the largest 500 corporations.
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That’s for two reasons. First, the fees layered on by active managers often offset any potential gains. Second, it’s incredibly hard to time the market correctly. People often buy when they shouldn’t and sell when they shouldn’t, rather than just riding things out.
If you are still convinced you can beat Wall Street at its own game, then stop reading this and resume day trading. But for those of us who are tired of the stress that comes from actively managing our investments day to day, the following seven long-term exchange-traded funds, or ETFs, offer peace of mind and the potential for significant profits … if you’re patient.
— Vanguard S&P 500 ETF (ticker: VOO)
— Vanguard Total Bond Market ETF (BND)
— iShares ESG Aware MSCI USA ETF (ESGU)
— Vanguard High Dividend Yield ETF (VYM)
— Vanguard Growth ETF (VUG)
— Invesco S&P 500 Equal Weight ETF (RSP)
— iShares iBoxx $ High Yield Corp Bond ETF (HYG)
Best Long-Term Stocks ETF — Vanguard S&P 500 ETF (VOO)
Total assets: $274 billion as of Feb. 28, according to Vanguard data
Expense ratio: 0.03%, or $3 annually on every $10,000 invested
Biggest isn’t always better, but it’s hard to not like what asset management giant Vanguard has to offer. In March, the firm crossed $2 trillion in assets under management for its U.S.-listed ETFs — yes, that’s trillion with a T — and VOO is almost 14% of that total all by itself.
There’s good reason for this, too, as it’s incredibly cheap and incredibly simple. Benchmarked to the popular S&P 500 index of the largest U.S. stocks, you get a liquid and affordable ETF that allows you to generally buy into the stock market without fuss. That makes it the perfect long-term holding for many hands-off investors.
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Best Long-Term Bond ETF — Vanguard Total Bond Market ETF (BND)
Total assets: $88 billion as of Feb. 28, according to Vanguard data
Expense ratio: 0.03%, or $3 annually on every $10,000 invested
This popular Vanguard fund is focused on bonds instead of stocks. BND holds more than 10,000 individual bonds in its portfolio, including roughly 46% in Treasury and agency bonds, 20% in government-backed mortgage securities and the rest among issuers in the industrial, finance and utility sectors, among others. The yield isn’t crazy, at about 4% at present, but that’s in large part because of this fund’s focus on the highest quality debt offerings on Wall Street.
While a rising interest rate environment has admittedly created short-term headwinds in fixed-income markets, the bottom line for many long-term investors is that diversification and capital preservation matters. In the long run, bonds should probably be a part of anyone’s portfolio unless you’re early on in your investing lifecycle.
Other Long-Term ETFs
Generally speaking, long-term investing does not involve timing the market or taking risky tactical bets meant to pay off in a hurry. Instead, it is often much easier — and better for your account balance — to buy and hold. That said, there is a wide variety of other long-term ETF options out there if you want to lean your portfolio toward different big-picture goals.
iShares ESG Aware MSCI USA ETF (ESGU)
This $14 billion ETF is a play on ESG investing, which involves stocks with environmental, social and governance qualities that are better than their peers. The list of over 300 companies includes many familiar blue chips, from tech firm Apple Inc. (AAPL) to insurance giant UnitedHealth Group (UNH). It is still a diversified way to play the U.S. stock market, but one with a bit more focus on social responsibility.
Vanguard High Dividend Yield ETF (VYM)
This dividend-focused offering has about $49 billion in assets and a yield of 3.1%, which is nearly two times that of the S&P 500 index on average at present. That’s because it focuses only on stocks with above-average dividends, with top positions being Big Oil mainstay Exxon Mobil Corp. (XOM) and banking giant JPMorgan Chase & Co. (JPM) instead of the typical megacap technology companies.
Vanguard Growth ETF (VUG)
Dividend stocks tend to be more stable, as they must have significant and regular profits to share with stockholders. But instead of the predictability offered by dividend stocks, some investors prefer the long-term potential of growth stocks. They can be a bit more volatile in the short-term, but generally have good long-term records of expansion that make them attractive. VUG is the largest such growth-oriented fund on Wall Street, with more than $75 billion in assets.
Invesco S&P 500 Equal Weight ETF (RSP)
It’s worth pointing out that while the S&P 500 is perhaps the most popular stock market index, it isn’t equally distributed across all 500 companies. In fact, it’s weighted by market value, so trillion-dollar tech giants Microsoft Corp. (MSFT) and Apple represent about 11% of the entire index on their own. An alternative for investors looking for equal distribution is RSP, which rebalances regularly to ensure each position is roughly equal. This is a much more diversified approach, even if it means less exposure to the big tech companies out there.
iShares iBoxx $ High Yield Corp Bond ETF (HYG)
For those looking for the income potential of bonds and the generally higher returns that riskier assets like stocks offer, HYG is an interesting long-term option. This is the largest “junk” bond fund out there, focused not on high-quality borrowers but instead on distressed enterprises that have to pay much higher interest rates. The result is a yield of about 8% at present. There is volatility in junk bonds, to be sure, but the fund is diversified across roughly 1,200 positions and, in the long-term, that high yield could make it worthwhile to ride out any short-term volatility.
[READ: 10 ETFs to Build a Diversified Portfolio.]
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7 Best Long-Term ETFs to Buy and Hold originally appeared on usnews.com
Update 04/14/23: This story was published at an earlier date and has been updated with new information.
