It was another great year for the stock market, with the S&P index of the 500 largest U.S. stocks up just over 26% for calendar 2023. But it’s worth remembering that past performance is never a guarantee of future returns. So what does 2024 hold as markets get rolling in January?
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Well, there are certainly risks out there — from geopolitical unrest in Ukraine and Gaza, to depleted U.S. consumer savings and elevated debt thanks to recent inflationary pressures. On the bullish side, economic indicators seem to signal a “soft landing” on interest rates and there’s big potential buying power as capital could move out of “risk-off” assets like bonds and certificates of deposit and back into the stock market.
Whatever your outlook is, the following list of exchange-traded funds has something to offer. Just remember that all investments are personal decisions that should match up with your own goals and risk tolerance before placing an order for any of these ETFs:
| ETF | Expense ratio |
| Invesco Nasdaq-100 ETF (ticker: QQQM) | 0.15% |
| Vanguard Mega Cap Growth ETF (MGK) | 0.07% |
| iShares U.S. Home Construction ETF (ITB) | 0.4% |
| SPDR S&P Regional Banking ETF (KRE) | 0.35% |
| ProShares Bitcoin Strategy ETF (BITO) | 0.95% |
| Vanguard Short-Term Corporate Bond ETF (VCSH) | 0.04% |
| iShares Core S&P 500 ETF (IVV) | 0.03% |
Invesco Nasdaq-100 ETF (QQQM)
— Assets under management (AUM): $18 billion
— Expense ratio: 0.15%, or $15 annually on $10,000 invested
Most investors are familiar with the $220 billion Invesco QQQ Trust (QQQ) that’s benchmarked to the Nasdaq-100 index. But the QQQM look-alike fund recommended here owns the same stocks at a five-percentage-point discount on expenses, and is still well established and liquid. If you’re bullish on the leading Nasdaq stocks like Apple Inc. (AAPL) and Microsoft Corp. (MSFT), then why pay more for your exchange-traded fund than you have to? After a more than 50% gain in 2023 thanks to a big tailwind for the tech sector, which makes up about half of the Nasdaq-100 index, there’s plenty of momentum for this top ETF as we enter 2024.
Vanguard Mega Cap Growth ETF (MGK)
— Assets under management: $16 billion
— Expense ratio: 0.07%, or $7 annually on $10,000 invested
Another way to ride 2023’s momentum and positive economic outlook is to look only at growth-oriented names on Wall Street. As the name implies, this Vanguard fund is only concerned with the very largest companies on Wall Street, with an average market cap of $650 billion across less than 100 holdings. It’s also very top-heavy in the biggest of these names, with trillion-dollar tech leaders Apple and Microsoft representing about 30% of assets between the two of them. But you can’t argue with performance, as this fund put up more than 50% gains last year and offers exposure to growth-oriented sectors like tech stocks and discretionary retailers, with less than 3% combined exposure across the four lowest-growth sectors: utilities, real estate, energy and industrials.
iShares U.S. Home Construction ETF (ITB)
— Assets under management: $12 billion
— Expense ratio: 0.4%, or $40 annually on $10,000 invested
Getting more tactical, one area that growth-oriented investors are increasingly bullish about is the U.S. housing sector. The industry performed very well in the fourth quarter, thanks to both resilient consumer sentiment as well as a decline in mortgage rates. After the prominent 30-year mortgage rate fell below 7% for the first time since the summer of 2023, we saw an increase in home sales — and a strong uptrend for the roughly 50 builders like D.R. Horton Inc. (DHI) and Lennar Corp. (LEN) that make up ITB. The fund has surged more than 25% in the last three months alone and could be a good play for those who think the bullish environment for housing will continue into 2024.
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SPDR S&P Regional Banking ETF (KRE)
— Assets under management: $4 billion
— Expense ratio: 0.35%, or $35 annually on $10,000 invested
Another tactical play based on recent momentum and rate changes is an investment in this regional bank ETF. KRE excludes the big players, with an average market capitalization of less than $6 billion for the 140 or so smaller financial institutions that make up its portfolio. After volatility in the sector to start off 2023, including the collapse of Silicon Valley Bank and First Republic Bank, investors got serious jitters about the sector. After all, these were mammoth events and marked the end of the longest stretch without a bank failure in more than 15 years. But the news also scared smaller banks straight about interest rate risk, and caused greater regulatory scrutiny. Now that the dust has seemed to settle, KRE has surged more than 25% in the last three months. While it’s still in the red compared with its early 2023 levels, the recent outperformance may be a sign that smaller banks are again worth adding to your portfolio in 2024.
ProShares Bitcoin Strategy ETF (BITO)
— Assets under management: $2 billion
— Expense ratio: 0.95%, or $95 annually on $10,000 invested
An even more aggressive strategy for 2024 is to bet on the continued rise of Bitcoin. Though historically volatile, the cryptocurrency surged from a low of almost $16,000 to a high of $44,500 in 2023. If you’re not the kind of person who likes to play the newest tokens or to monkey around with a crypto wallet, then BITO is a good alternative. Linked to regulated Bitcoin futures — not publicly traded stocks that mine cryptocurrency or operate as exchanges — BITO is a very focused play on the digital asset marketplace without directly owning Bitcoin. Just remember that Bitcoin and all related plays have a history of downside volatility, too. After all, the cryptocurrency has bounced back strongly, but it’s still down a ton from its all-time highs near $70,000. But considering recent momentum, there’s a chance that the 2023 run will continue for this asset class and this crypto ETF.
Vanguard Short-Term Corporate Bond ETF (VCSH)
— Assets under management: $35 billion
— Expense ratio: 0.04%, or $4 annually on $10,000 invested
On the other end of the risk spectrum is VCSH, a defensive bond fund that is focused on short-term corporate debt from the most creditworthy corporations. We’re talking companies like Bank of America Corp. (BAC) and CVS Health Corp. (CVS). Thanks to recent increases in interest rates, even the short-dated debt that makes up this fund is yielding a good return, with current yields of about 5.1%. That’s just over three times the income you’ll get from the typical S&P 500 stock right now. What’s more, with an average duration of just 2.6 years across the portfolio, there’s a heck of a lot less risk than in the stock market.
Not only is it incredibly unlikely that mega-cap stocks like BofA will default on their debt in the next year or two, the short-term nature of the bonds means they’ll roll off quickly and are thus less exposed to interest rate risk if the Federal Reserve chooses to cut rates in 2024 or 2025. It’s not as sexy as growth-oriented tech ETFs, but if you’re leery of the red-hot stock market right now, then this could be a decent low-risk alternative.
iShares Core S&P 500 ETF (IVV)
— Assets under management: $395 billion
— Expense ratio: 0.03%, or $3 annually on $10,000 invested
It’s fun to speculate about the ups and downs of the stock market, but the reality is that most investors should probably make a New Year’s resolution to stop actively trading so much. Instead, a long-term investment in a low-cost index fund like this leading S&P 500 ETF can be a powerful way to build your wealth — without the extra cost or extra stress of jumping in and out of positions. Remember, high-profile investors including the iconic Warren Buffett have long recommended index funds for investors of modest means. Chances are if you’re reading this article, you don’t have the $1 million minimum investment for a high-class hedge fund, so rather than assuming you can beat Wall Street, it may be safer and more profitable to just set it and forget it in 2024 (and beyond) via an index fund like IVV.
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Update 01/05/24: This story was previously published at an earlier date and has been updated with new information.
