Key Points
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The Vanguard S&P 500 is a solid core ETF to own.
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The Vanguard Growth ETF and Invesco QQQ Trust are two top growth ETFs to buy and hold for the long term.
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The Schwab U.S. Dividend Equity is a top value and dividend stock ETF to own.
- 10 stocks we like better than Vanguard S&P 500 ETF ›
I love investing in individual stocks; however, it isn’t easy. In fact, a J.P. Morgan study found that between 1980 and 2020, about two-thirds of stocks underperformed the market while 40% had negative absolute returns. That is why I firmly believe that it is in the best interest of most investors to have one or more index exchange-traded funds (ETFs) that they use as core holdings to consistently dollar-cost average into on a regular basis.
Consistent dollar-cost averaging over a long period of time is the best strategy to build long-term wealth through investing. Meanwhile, index ETFs are the best investment vehicle for this, as it gives investors an instant portfolio of stocks. Many indexes are also market cap weighted, letting their winners run, which is often a key to long-term performance.
Let’s look at four great ETFs to buy and continue to add to over the long haul.
The Vanguard S&P 500 ETF
If I could only hold one investment, the Vanguard S&P 500 ETF (NYSEMKT: VOO) would be my first choice. The ETF mimics the performance of the S&P 500 index, giving investors an instant portfolio of 500 of the largest companies in the U.S.
The S&P 500 index has been a strong performer over the years, and the Vanguard S&P 500 ETF is a low-cost way to invest in it, with an expense ratio of just 0.03%. With less than 15% of active large cap fund managers able to beat the index during the past 10 years, this is a fund to own. It’s generated a strong 15.5% average annual return during the past decade.
The Vanguard Growth ETF
As the technology and innovation curve has steepened, growth stocks have nicely outperformed value stocks during the past decade. Given that the time between big tech breakthroughs continues to shrink, this very well could become the long-term trend. As such, investing in an ETF that is focused on growth stocks makes sense. One great option in this category is the Vanguard Growth ETF (NYSEMKT: VUG), which essentially tracks the growth side of the S&P 500.
Nearly 70% of the ETF’s portfolio is in tech stocks, with almost 15% in consumer discretionary stocks. Not surprisingly, the fund has been a strong performer, with the ETF generating an average annual return of 18% during the past 10 years. It also has a minuscule expense ratio of just 0.03%.
The Invesco QQQ Trust
Another great growth stock ETF to own is the Invesco QQQ Trust (NASDAQ: QQQ). The ETF tracks the tech-heavy Nasdaq-100 index, which is made up of the 100 largest non-financial stocks that trade on the Nasdaq Exchange. About 70% of its holdings are technology stocks, with consumer discretionary accounting for more than 16% of its portfolio.
The ETF has been a tremendous performer, with a 22% yearly average return during the past 10 years. That’s considerably more than the returns of the S&P 500. Even more impressive is that it has outperformed the S&P 500 in seven of the past 10 years, and more than 88% of the time on a rolling-12-month basis.
The Schwab U.S. Dividend Equity ETF
For investors looking for dividend income or some exposure to value stocks, the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is a nice option. The ETF is actually an index fund that mirrors the Dow Jones U.S. Dividend 100 Index. The index is a bit unique in that it has a big annual reconstitution each year, where it will add and remove stocks based on a few criteria such as balance sheet strength, operational efficiency, and dividend growth and yield.
The fund has a 3.3% yield and has been a strong performer this year, with the ETF up almost 18% as of July 8. It’s produced a 12.4% annual return during the past decade, which has outperformed the value category.
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Geoffrey Seiler has positions in Invesco QQQ Trust and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard Growth ETF and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
