One of the hardest lessons for many investors to learn is that they are not good at picking stocks. There’s no shame in this, though. After all, some of the most prominent investors on Wall Street can be bad at it, too!
Consider that 2022 was yet another year that so-called active managers underperformed the passive stock market indexes like the S&P 500 or the Russell 2000. It was the 14th consecutive year that has happened, and chances are 2023 could be another year that passive index funds come out ahead.
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It doesn’t matter how many articles you read about Warren Buffett or other iconic investors if your portfolio lags everyone else. That means thinking about the best long-term ETFs to buy and hold is better than chasing the latest meme stocks or cryptocurrency fads.
They may not be glamorous, but the following seven ETFs are all good long-term investments you can have confidence in this year, next year and beyond:
| ETF | Assets | Expense ratio |
| Vanguard S&P 500 ETF (ticker: VOO) | $330 billion | 0.03% |
| Vanguard High Dividend Yield ETF (VYM) | $50 billion | 0.06% |
| iShares Core S&P Small-Cap ETF (IJR) | $72 billion | 0.06% |
| iShares MSCI KLD 400 Social ETF (DSI) | $4 billion | 0.25% |
| Vanguard Total Bond Market ETF (BND) | $94 billion | 0.03% |
| iShares iBoxx $ High Yield Corp Bond ETF (HYG) | $14 billion | 0.49% |
| Vanguard Short-Term Corporate Bond ETF (VCSH) | $36 billion | 0.04% |
Vanguard S&P 500 ETF (VOO)
Though the SPDR S&P 500 ETF Trust (SPY) is the oldest and most popular S&P 500 index fund out there, the VOO remains a more attractive option for most long-term investors thanks to a lower cost structure. Specifically, SPY charges 0.095% annually versus just 0.03% for VOO. And right now, as one of the five largest ETFs on the planet by assets, it can hardly be called an also-ran even if that’s behind the flagship SPY’s tally. This long-term ETF is elegantly simple, tracking the S&P 500 index of the largest U.S. companies such as Apple Inc. (AAPL) and Microsoft Corp. (MSFT). If you want to play the U.S. stock market over the years to come, this is your go-to way to do so.
Assets: $330 billion Expense ratio: 0.03%, or $3 annually on every $10,000 invested
Vanguard High Dividend Yield ETF (VYM)
This income-focused offering from Vanguard slices the list of large U.S. stocks a bit differently to prioritize dividend-paying companies. You leave a bit of growth potential on the table and veer into more midsize companies, but at present VYM yields about 3.1% to deliver nearly double the dividends of the S&P 500 index. That’s because it focuses only on stocks with above-average dividends, like health care giant Johnson & Johnson (JNJ), Big Oil icon Exxon Mobil Corp. (XOM) and banking leader JPMorgan Chase & Co. (JPM) instead of the typical mega-cap technology companies that pay comparatively meager dividends. Dividends are a big driver of long-term total returns, so what this fund loses in potential share appreciation is made up for in many ways by the yield.
Assets: $50 billion Expense ratio: 0.06%, or $6 annually on every $10,000 invested
iShares Core S&P Small-Cap ETF (IJR)
If you want to lean a bit more toward startups or you want to complement a core holding of VOO with a more growth-oriented option, this iShares small-cap stock fund is the leading way to play the companies that don’t quite make the cut in larger indexes. In fact, it’s benchmarked to the S&P 600 — the 600 companies that come after the first 500 names in the large-cap index — and then the next 400 midsize companies that make up the S&P Midcap 400. Skipping over the largest 900 or so names on Wall Street gives you a higher risk profile, but also exposure to companies with bigger upside potential if you’re buying and holding for the long term.
Assets: $72 billion Expense ratio: 0.06%, or $6 annually on every $10,000 invested
iShares MSCI KLD 400 Social ETF (DSI)
For many investors, it’s important to look at stocks with an eye toward their environmental, social and corporate governance qualities, or ESG criteria for short. We all want to make money in the stock market, but it’s increasingly hard for many folks to stomach the financing of companies that create weapons of war or fossil fuel products that contribute to global warming.
The DSI ETF is an “exclusionary” fund, meaning it’s more focused on kicking out the worst actors than picking a short list of the most responsible companies on the planet. But if you want to invest with your conscience in mind, DSI is a good place to start. The 400 companies include many leaders that you will find in other large-stock ETFs, like Microsoft, Visa Inc. (V) and Procter & Gamble Co. (PG), so DSI is a diversified way to play the U.S. stock market with a bit more focus on social responsibility.
Assets: $4 billion Expense ratio: 0.25%, or $25 annually on every $10,000 invested
Vanguard Total Bond Market ETF (BND)
Another leading Vanguard fund, this one focuses on bonds instead of stocks. In particular, this long-term ETF holds nearly 18,000 individual bonds in its portfolio, with roughly 50% in U.S. Treasury and government bonds, 25% in investment-grade corporate debt, and another 25% in mortgage-backed securities. All told, this diversified portfolio adds up to a yield of about 4.5% that covers the breadth of the domestic bond market. When it comes to a long-term portfolio, diversification across asset classes is just as important as diversification across sectors and stocks. As a one-stop shop for the entirety of the bond market, BND is a good foundational fund for long-term investors.
Assets: $94 billion Expense ratio: 0.03%, or $3 annually on every $10,000 invested
[See: 10 Best Industrial Stocks to Buy in 2023]
iShares iBoxx $ High Yield Corp Bond ETF (HYG)
For investors who really like the income potential of bonds but are looking for even more in the way of yield, HYG offers a significantly bigger payday of about 7.9%. This bigger potential return comes with bigger risks, however, as “high yield” is the polite way to say “junk” in the bond market. These are debts carried by lower-quality borrowers that are at a higher risk of default — which means there’s greater inherent risk in this product. There are about 1,200 positions in this ETF, however, so if a few companies do fail to come through on their bonds, it doesn’t mean the fund is doomed.
Assets: $14 billion Expense ratio: 0.49%, or $49 annually on every $10,000 invested
Vanguard Short-Term Corporate Bond ETF (VCSH)
The most interesting thing about the bond market right now is the so-called inverted yield curve. Typically, long-term debt instruments carry a higher rate of return simply because there’s so much more uncertainty when you’re measuring things over a few decades instead of just a few months. But right now, short-term yields are higher thanks to the recent interest rate increases — while long-term rates haven’t jumped as much thanks to skepticism about whether those currently elevated rates will stick around. Short-term bonds, by definition, mature more quickly than long-term bonds, so they are riding this recent trend in a much bigger way — and as a result, VCSH yields 5.4% to top the total bond fund’s yield despite being theoretically lower-risk thanks to its short duration.
Assets: $36 billion Expense ratio: 0.04%, or $4 annually on every $10,000 invested
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7 Best Long-Term ETFs to Buy and Hold originally appeared on usnews.com
Update 08/16/23: This story was previously published at an earlier date and has been updated with new information.
