I've been focusing on index funds in my retirement account, and here are three I've been buying this year.
I'm a big believer in the idea that investors with the time, knowledge, and desire to do so can beat the market over time with a portfolio of individual stocks. However, when I've added money to my retirement accounts recently, most of it has been used to buy shares of high-quality, low-cost index fund ETFs.
There are a few reasons I'm focusing more on index funds than individual stock investing in my retirement account this year.
- I've spent most of my 12 years covering the stock market building a portfolio of individual stocks that could be excellent retirement investments. Just to name a few, top holdings in my retirement account include Berkshire Hathaway (BRK.B 0.38%), Realty Income (O -0.25%), and Walt Disney (DIS 1.09%).
- There is nothing wrong with using ETFs to establish a "core" for a portfolio of individual stocks, and my portfolio's core isn't quite where it should be.
- I'm getting older. While I'm in my early 40s and still a couple of decades away from retirement, my risk tolerance is significantly lower than when I was 22 and opening my first brokerage account.
- There are some excellent opportunities for investing in entire indices because of short-term headwinds like higher interest rates. More on that in a bit.
I won't keep you in suspense. Here are the three ETFs I've been buying in 2024 when I deposit money into my retirement account.
Vanguard S&P 500 ETF
While the S&P 500 isn't particularly cheap right now at about 3% below its all-time high, a basic is still a great long-term addition to any retirement portfolio. The Vanguard S&P 500 ETF (VOO 0.68%) is one of the cheapest index funds in the market, with a 0.03% expense ratio, which means just $3 will go toward fees annually for every $10,000 in assets.
I'm adding this ETF not because I think it will outperform over the next year or two, but because I'm extremely confident that by the time I'm ready to retire my investment will be worth significantly more than I paid for it. After all, simply matching the market's performance over time isn't such a bad thing.
![Here Are the 3 ETFs I Can't Stop Buying in 2024 | The Motley Fool (1) Here Are the 3 ETFs I Can't Stop Buying in 2024 | The Motley Fool (1)](data:image/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==)
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Vanguard Small-Cap Value ETF
Two of my favorite opportunities in the stock market right now are small-cap stocks and value stocks, as both have significantly underperformed the S&P 500 recently and could be big winners as interest rates fall. The Vanguard Small-Cap Value ETF (VBR 0.88%) lets me invest in both.
The short version is that small caps haven't traded for such a low price-to-book valuation relative to their large-cap counterparts in 25 years. And while the S&P 500 is close to an all-time high, most of its recent performance has been driven by growth stocks like Nvidia (NVDA 2.57%), not by value stocks. To be clear, I'm buying this ETF to hold for the long haul, but now looks like a fantastic entry point.
Vanguard Real Estate ETF
Last but certainly not least is the Vanguard Real Estate ETF (VNQ 0.07%). Real estate has been one of the worst-performing areas of the stock market over the past couple of years, as real estate investment trusts, or REITs, are highly sensitive to rising interest rates.
Because REITs are built for predictable income, their yields tend to move in the same direction as rates from risk-free investments like Treasury bonds. Since yield and price have an inverse relationship, higher yields tend to pressure REIT prices. In addition, REITs tend to rely on borrowed money to finance their operations, similar to how most people use mortgages to buy properties, and rising rates make borrowing more expensive. As rates normalize, real estate has a high probability of outperforming.
What are the best ETFs for you?
To be perfectly clear, there are plenty of excellent ETFs you could add to your portfolio, and the right choices for you depend on your investment goals and risk tolerance. For example, someone who is a little closer to retirement than me might want to put more of their capital in income-based ETFs. But with that in mind, these are three excellent and low-cost choices that could be great ETFs to buy and hold for decades.
Matt Frankel has positions in Berkshire Hathaway, Realty Income, Vanguard S&P 500 ETF, Vanguard Small-Cap Value ETF, Vanguard Specialized Funds-Vanguard Real Estate ETF, and Walt Disney. The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia, Realty Income, Vanguard S&P 500 ETF, Vanguard Specialized Funds-Vanguard Real Estate ETF, and Walt Disney. The Motley Fool has a disclosure policy.
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The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia, Realty Income, Vanguard S&P 500 ETF, Vanguard Specialized Funds-Vanguard Real Estate ETF, and Walt Disney.
What are the best ETFs for 2024? ›
5 Best ETFs by 5-year return as of May 2024
Ticker | Fund name | 5-year return |
---|
SMH | VanEck Semiconductor ETF | 31.19% |
SOXX | iShares Semiconductor ETF | 26.35% |
XLK | Technology Select Sector SPDR Fund | 21.30% |
IYW | iShares U.S. Technology ETF | 20.70% |
1 more rowMay 21, 2024
What is the 3 ETF strategy? ›
A three-fund portfolio is a portfolio which uses only basic asset classes — usually a domestic stock "total market" index fund, an international stock "total market" index fund and a bond "total market" index fund.
Why are 3x ETFs bad? ›
A leveraged ETF uses derivative contracts to magnify the daily gains of an index or benchmark. These funds can offer high returns, but they also come with high risk and expenses. Funds that offer 3x leverage are particularly risky because they require higher leverage to achieve their returns.
Is 3 ETFs enough? ›
Generally speaking, fewer than 10 ETFs are likely enough to diversify your portfolio, but this will vary depending on your financial goals, ranging from retirement savings to income generation.
What are the three best ETFs? ›
3 Top ETFs for a Diversified Stock Portfolio
- SPDR S&P 500 ETF Trust. The SPDR S&P 500 ETF Trust (SPY -0.48%) mirrors the S&P 500 Index, encompassing 500 of the largest U.S. corporations. ...
- Invesco QQQ Trust. ...
- iShares Russell 2000 ETF.
Which ETF gives the highest return? ›
Performance of ETFs
Schemes | Latest Price | Returns in % (as on May 30, 2024) |
---|
CPSE Exchange Traded Fund | 91.95 | 64.99 |
Kotak PSU Bank ETF | 732.76 | 71.75 |
Nippon ETF PSU Bank BeES | 82.33 | 71.69 |
SBI - ETF Nifty Next 50 | | 34.31 |
32 more rows
What is the most aggressive ETF? ›
The largest Aggressive ETF is the iShares Core Aggressive Allocation ETF AOA with $1.91B in assets. In the last trailing year, the best-performing Aggressive ETF was EAOA at 18.14%. The most recent ETF launched in the Aggressive space was the iShares ESG Aware Aggressive Allocation ETF EAOA on 06/12/20.
What is the number one traded ETF? ›
Most Popular ETFs: Top 100 ETFs By Trading Volume
Symbol | Name | Avg Daily Share Volume (3mo) |
---|
SPY | SPDR S&P 500 ETF Trust | 66,317,398 |
SOXL | Direxion Daily Semiconductor Bull 3x Shares | 66,222,352 |
TQQQ | ProShares UltraPro QQQ | 65,880,477 |
XLF | Financial Select Sector SPDR Fund | 43,382,785 |
96 more rows
Should I put all my money in ETFs? ›
You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.
The disadvantages are complexity and trading costs. With so many ETFs in the portfolio, it's important to be able to keep track of what you own at all times. You could easily lose sight of your total allocation to stocks if you hold 13 different stock ETFs instead of one or even five.
Can an ETF go to zero? ›
Yes, an inverse ETF can reach zero, particularly over long periods. Market volatility, compounding effects, and fund management concerns can exacerbate losses. To successfully manage possible risks, investors should be aware of the short-term nature of these securities and carefully monitor their holdings.
Should you buy multiple S&P 500 ETFs? ›
You only need one S&P 500 ETF
You could be tempted to buy all three ETFs, but just one will do the trick. You won't get any additional diversification benefits (meaning the mix of various assets) because all three funds track the same 500 companies.
What are the best 3 ETF portfolios? ›
One option for a solid three-ETF portfolio could be to include the Schwab U.S. Dividend Equity ETF (SCHD), the Vanguard S&P 500 ETF (VOO), and the Invesco QQQ Trust (QQQ). The SCHD ETF focuses on high-quality dividend stocks, which can provide stable income and potential long-term growth.
What is the Lazy 3 fund portfolio? ›
Three-fund lazy portfolios
These usually consist of three equal parts of bonds (total bond market or TIPS), total US market and total international market.
Is it better to have one ETF or multiple? ›
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.
What are the best stocks to invest in 2024? ›
9 Best Growth Stocks to Buy for 2024
Stock | Implied upside over May 29 close* |
---|
JPMorgan Chase & Co. (JPM) | 8.5% |
Tesla Inc. (TSLA) | 19.2% |
Mastercard Inc. (MA) | 22% |
Advanced Micro Devices Inc. (AMD) | 21.1% |
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What is the best mutual fund to invest in in 2024? ›
Best-performing U.S. equity mutual funds
Ticker | Name | 5-year return (%) |
---|
MAEIX | MoA Equity Index Fund | 13.40% |
BSPSX | iShares S&P 500 Index Service | 13.33% |
VLACX | Vanguard Large Cap Index Investor | 13.30% |
GRMSX | Nationwide S&P 500 Index Svc | 12.92% |
3 more rowsMay 1, 2024
Which ETF will grow the most? ›
Compare the best growth ETFs
FUND(TICKER) | EXPENSE RATIO | 10-YEAR RETURN AS OF MAY 1 |
---|
Vanguard Growth ETF (VUG) | 0.04% | 15.07% |
iShares Russell 1000 Growth ETF (IWF) | 0.19% | 15.78% |
iShares S&P 500 Growth ETF (IVW) | 0.18% | 14.34% |
Schwab U.S. Large-Cap Growth ETF (SCHG) | 0.04% | 15.95% |
3 more rows
What is the best performing ETF in the last 5 years? ›
The Top 5 Best Performing ETFs of the Last 5 Years