The power of low-cost index funds to deliver long-term returns is well known. They offer one of the simplest ways to grow your nest egg — if you have the patience.
Many studies have shown that a buy-and-hold approach can prove more profitable than chasing fashionable investments. Yes, there are occasionally bad months or even bad years for stocks. However, if you look at any 10-year period on Wall Street — picking a day at random, and then fast-forwarding exactly one decade — you get an average return of about 12% per year in that window.
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Not only does this approach take far less work, it generates far less stress even as you rack up significant profits.
If you have the patience to let your investments ride for many years without sweating the day-to-day newsfeeds, then consider these funds that are among the seven best long-term ETFs to buy and hold.
| ETF | Assets under management | Expense ratio |
| iShares Core S&P 500 ETF (ticker: IVV) | $340 billion | 0.03% |
| Vanguard High Dividend Yield ETF (VYM) | $48 billion | 0.06% |
| Vanguard Growth ETF (VUG) | $89 billion | 0.04% |
| Vanguard Total Stock Market ETF (VTI) | $304 billion | 0.03% |
| Vanguard Total International Stock ETF (VXUS) | $56 billion | 0.07% |
| iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) | $28 billion | 0.14% |
| iShares iBoxx $ High Yield Corporate Bond ETF (HYG) | $14 billion | 0.49% |
iShares Core S&P 500 ETF (IVV)
— Assets under management: $340 billion
— Expense ratio: 0.03%, or $3 annually on every $10,000 invested
The second-largest ETF of any kind on Wall Street, IVV is a popular one-stop shop for long-term investors who are looking to gain exposure to the largest U.S. stocks. This index fund is benchmarked to the S&P index of the largest 500 domestic stocks, including Microsoft Corp. (MSFT) and Apple Inc. (AAPL). Given the nature of dominant Silicon Valley stocks, this ETF is biased toward the tech sector, with about 27% of assets in this corner of the market. But over the long run, that is one of the reasons it can drive significant performance.
Vanguard High Dividend Yield ETF (VYM)
— Assets under management: $48 billion
— Expense ratio: 0.06%, or $6 annually on every $10,000 invested
Composed of almost as many positions, this Vanguard dividend stock ETF holds about 460 total companies right now. The difference is that it prioritizes income-generating corporations with above-average yield. Top components at present include Big Oil giant Exxon Mobil Corp. (XOM) and megabank JPMorgan Chase & Co. (JPM), which are entrenched leaders that may not have the faster-growing flash of tech stocks, but are more generous in sharing their profits with stockholders. Top sectors at present are financial services at 20%, followed by consumer staples companies at 14.5%. With a yield of 3.3% — better than two times the yield of the typical large-cap stock in the S&P 500 index — you can generate a better stream of cash if you’re as interested in income as you are share appreciation.
Vanguard Growth ETF (VUG)
— Assets under management: $89 billion
— Expense ratio: 0.04%, or $4 annually on every $10,000 invested
The flip side of investing in solid dividend stocks is leaning into the growth potential of technology, innovative medical cures and other dynamic parts of the U.S. economy. VUG is the largest dedicated growth ETF out there that embraces this philosophy, with about 240 total components that represent the faster-growing companies on Wall Street. Unsurprisingly, about 43% of total assets are in the information technology sector, with next to nothing in the real estate, utilities or materials sectors. But if you’re after long-term growth potential, then this leading ETF is worth a look.
[READ: 9 Best-Blue Chip Dividend Stocks]
Vanguard Total Stock Market ETF (VTI)
— Assets under management: $304 billion
— Expense ratio: 0.03%, or $3 annually on every $10,000 invested
Don’t feel like making up your mind? This long-term ETF from investment giant Vanguard holds more than 3,800 total stocks right now to contain nearly every listed stock on U.S. exchanges, barring the smallest of micro-caps. It is weighted toward the biggest names, with familiar blue-chip stocks as the top components, but you spread your cash around a much broader list of stocks. Roughly 26% of the portfolio is in tech, followed by 13% in health care and 13% in financial services. Particularly for long-term investors who simply want to play the general growth potential of the stock market, this “kitchen sink” ETF could be a good option.
Vanguard Total International Stock ETF (VXUS)
— Assets under management: $56 billion
— Expense ratio: 0.07%, or $7 annually on every $10,000 invested
It’s worth noting that thus far all the prior funds have had a sole focus on the U.S. But looking at the long term, some investors may be interested in playing overseas stock markets either for the geographic diversification that’s provided or the more aggressive growth potential of emerging markets across Asia or Latin America. That’s where this “ex-U.S.” fund from Vanguard comes in, with a worldwide approach that includes about 7,900 total stocks — but none that are headquartered domestically. Some are familiar multinational megacaps like Japan’s Toyota Motor Corp. (TM) or Swiss consumer staples giant Nestle SA (NESN.CH). However, there are also smaller and otherwise hard-to-access international stocks on the list. If you’re interested in investing beyond the borders of the U.S., this is a great long-term ETF thanks to its broad approach to global stocks.
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
— Assets under management: $28 billion
— Expense ratio: 0.14%, or $14 annually on every $10,000 invested
Looking beyond stocks, this iShares fund allows investors to gain a position in more than 2,600 corporate bonds from the most creditworthy corporations out there. So-called investment-grade bonds are loans to companies like pharma giant Pfizer Inc. (PFE) or financial giant Goldman Sachs Group Inc. (GS) that are all but certain to repay their debts. And right now, thanks to the rising-interest-rate environment, LQD has a 30-day SEC yield of 6% to tally almost four times the dividend yield of the S&P 500. You won’t get the same growth potential here, but if you’re after long-term income, then bonds are a good option and LQD is among the largest and most affordable ETFs out there.
iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
— Assets under management: $14 billion
— Expense ratio: 0.49%, or $49 annually on every $10,000 invested
For investors who 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 8.6% based on the most recent distributions. This bigger potential return comes with bigger risks, however, as “high yield” is the more polite way of saying “junk” bonds. 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. And the big-time payday will provide a stronger stream of income than you may find in any other long-term ETF. Just be aware of the risks — as well as the slightly higher fee structure.
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7 Best Long-Term ETFs to Buy and Hold originally appeared on usnews.com
Update 10/06/23: This story was previously published at an earlier date and has been updated with new information.
