When it comes to stock investing, many people assume that their best route to riches is to carefully pick stocks on their own. That is a way to outperform the overall stock market, but it's far easier said than done.
Most people don't have the skill set to be the next Warren Buffett -- and indeed, over the past 15 years, fully 92% of all large-cap mutual funds underperformed the S&P 500 index. (The S&P 500 index is no slouch, either, averaging roughly 10% annual returns over a long period.)
Simply put, most of us would do well to keep plunking meaningful sums into one or more index funds year after year -- for lots of years. Index funds can really be all you need to build a hefty nest egg for retirement.
Index funds come in two main varieties -- mutual funds and exchange-traded funds (ETFs). The latter are well worth considering, as they can make it especially easy to get into an index fund because they trade like stocks. You don't need an account with a mutual fund company to invest in them, and you don't have to make sure your brokerage offers access to them, either.
Here, then, are seven index ETFs to consider for your portfolio. You might be well served by investing in one or more of them.
Fund | Expense Ratio | 5-Year Average Annual Return | 10-Year Average Annual Return |
|---|---|---|---|
Vanguard S&P 500 ETF (NYSEMKT: VOO) | 0.03% | 14.81% | 12.65% |
Vanguard Total Stock Market ETF (NYSEMKT: VTI) | 0.03% | 13.96% | 11.96% |
Vanguard Growth ETF (NYSEMKT: VUG) | 0.04% | 18.35% | 14.71% |
Schwab US Dividend Equity ETF (NYSEMKT: SCHD) | 0.06% | 12.42% | 11.37% |
Vanguard Real Estate ETF (NYSEMKT: VNQ) | 0.12% | 4.53% | 6.11% |
Vanguard Total Bond Market ETF (NASDAQ: BND) | 0.03% | 0.65% | 1.44% |
Invesco Nasdaq 100 ETF (NASDAQ: QQQM) | 0.15% | N/A | N/A |
Data source: Morningstar.com. Chart by author.
1. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF is a standard S&P 500-tracking index fund and an exceptionally cheap one, with an expense ratio (annual fee) of just 0.03%. If you have $10,000 invested in it, you'll be paying $3 per year in fees. The S&P 500, by the way, is an index of 500 of America's biggest companies.
2. Vanguard Total Stock Market ETF
An S&P 500 index fund is great because it quickly plunks your money into lots of big companies that represent about 80% of the entire U.S. stock market. But you might want to go even broader than that, including medium-sized and small companies, as well. If so, consider the Vanguard Total Stock Market ETF.
3. Vanguard Growth ETF
The Vanguard Growth ETF recently held 208 stocks and is focused on companies growing at a faster-than-average clip or that may well do so. Growth-stock investors seek above-average returns, and this ETF has delivered them over many years, though it won't necessarily do so every year. Its top holdings recently were Microsoft and Apple.
4. Schwab US Dividend Equity ETF
It's also good to include dividend payers in your portfolio, and investing in the Schwab US Dividend Equity ETF will help you do just that. It contains about 100 stocks and currently sports a dividend yield of 3.5%. Some of its top holdings recently were Broadcom and AbbVie.
5. Vanguard Real Estate ETF
Real estate hasn't been the best performer in recent years but can do quite well in some years, and some shares of this ETF can help diversify your holdings. It has plenty of real estate investment trusts (REITs)-- companies that own lots of properties and earn income by renting them out. And REITs often pay meaningful dividends. The ETF's dividend yield was recently 4.1%, and its top holdings were Prologis and American Tower.
6. Vanguard Total Bond Market ETF
It can make sense for retirees not to have 100% of their portfolios in stocks, so consider including bonds in your mix. A good way to get exposure to pretty much all of the bond market is via a broad (and inexpensive) ETF such as the Vanguard Total Bond Market ETF. It tracks the Bloomberg U.S. Aggregate Float Adjusted index and recently yielded 4.6%.
7. Invesco Nasdaq 100 ETF
Finally, if you really want to (try to) juice your returns, you might allocate some of your portfolio to the Invesco Nasdaq 100 ETF. It encompasses 100 of the largest domestic and international non-financial stocks in the Nasdaq stock market -- such as Microsoft, Apple, Nvidia, Amazon.com, and Facebook's parent Meta Platforms. There are no five- and 10-year returns for the ETF in the table above because it's relatively new. It popped 27.4% in 2021, though, followed by a 32.5% drop in 2022 and a 55% surge in 2023. It had recently risen 8.4% year to date in 2024. It's full of many growth stocks -- and very volatile, too.
These are some solid ETFs to consider not only for a retirement portfolio, but also for anyone's long-term stock portfolio.
Should you invest $1,000 in Vanguard S&P 500 ETF right now?
Before you buy stock in Vanguard S&P 500 ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the10 best stocks for investors to buy now… and Vanguard S&P 500 ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service hasmore than tripledthe return of S&P 500 since 2002*.
*Stock Advisor returns as of March 11, 2024
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Selena Maranjian has positions in AbbVie, Amazon, American Tower, Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Amazon, American Tower, Apple, Meta Platforms, Microsoft, Nvidia, Prologis, Vanguard Bond Index Funds - Vanguard Total Bond Market ETF, Vanguard Index Funds - Vanguard Growth ETF, Vanguard Index Funds - Vanguard Total Stock Market ETF, Vanguard S&P 500 ETF, and Vanguard Specialized Funds - Vanguard Real Estate ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $180 calls on American Tower, long January 2026 $395 calls on Microsoft, long January 2026 $90 calls on Prologis, short January 2026 $185 calls on American Tower, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
These 7 Index ETFs Are a Retiree's Best Friend was originally published by The Motley Fool
