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The Vanguard S&P 500 ETF stands out as a solid core investment for many. It’s pretty straightforward, and nearly every investor can find a place for it in their portfolio.
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If you’re looking to amp up your investment in growth stocks, the Invesco QQQ Trust could be a fitting choice.
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For those focused on growth stocks, adding the Schwab U.S. Dividend Stock ETF can help in balancing your portfolio.
There’s often chatter about market bubbles and lofty stock valuations, but honestly, my best advice is to overlook it. Trying to time the market can cause you to miss out on substantial gains. Typically, bull markets are long-lasting, sometimes extending over numerous years.
Additionally, accurately predicting a market downturn is tricky. Even if you manage to step back momentarily, timing your return to the market is equally challenging. It can feel impossible to nail it down perfectly. Interestingly, research from JP Morgan shows that often the best market days come right after the worst ones. If you missed just the top 10 days in the market over the last two decades, your total return could have dropped by close to half.
So, the habit of selling and buying back stocks without impacting your returns needs impeccable timing. A more favorable approach for many individual investors could be dollar-cost averaging. This method helps people stick to a plan and shield their investments from distracting market noise. Index ETFs are appealing as they provide quick diversification into various stocks, generally at a lower cost.
Starting this strategy can be done with as little as $1,000, just remember to keep contributing the same amount each month. If you consistently do this and achieve a 15% annual return, theoretically, you could grow a portfolio to over $5.6 million within 30 years. Let’s dive into three low-cost ETFs suitable for this strategy right now.
The Vanguard S&P 500 ETF, which has historically led the index fund investing sector, is currently the largest ETF globally. Its investment strategy is straightforward: follow the performance of the S&P 500 index, which includes the 500 biggest companies in the U.S.
The S&P 500 is market-capitalization weighted, meaning that companies with larger market caps hold more weight in the index. This means that stocks that outperform gradually become the ones driving the market itself.
This method has yielded strong returns for the fund across the years. Over the last decade, this ETF has returned an average annual rate of 15.3% as of late September.
During this same period, growth stocks have been a strong market driver, and the Invesco QQQ Trust emerged as one of the top-performing ETFs. This fund aims to track the Nasdaq-100, which comprises the 100 largest non-financial companies listed on the Nasdaq exchange. Similar to the S&P 500, it also emphasizes market capitalization.
The Nasdaq has consistently been the go-to place for high-tech and growth companies, and technology stocks now make up over 60% of its portfolio—even excluding major players like Amazon and Tesla, which fall under different categories.
Over the past decade, the performance of this ETF has been robust, averaging a 20.3% annual return. Impressively, it tends to outperform the S&P 500 nearly 80% of the time over a rolling 12-month period.
Lastly, the Schwab U.S. Dividend Stock ETF may not have kept pace with the S&P 500 or Nasdaq 100 in the previous ten years, but it deserves attention. Even though growth stocks are currently dominant, value stocks have shown solid long-term benefits historically.
This ETF tracks the Dow Jones U.S. Dividend 100 Index, which evaluates high-dividend stocks based on factors like free cash flow-to-debt ratios and return on equity, leading to a selection of companies well-suited to boost their dividends. Furthermore, with an annual portfolio reconstitution, it helps investors avoid falling into value traps.
Currently, this ETF offers a yield of almost 4% and has generated an annualized return of 12.2% over the last decade, surpassing many other value ETFs. In an environment where some growth stocks seem a bit overvalued, opting for the Schwab U.S. Dividend Stock ETF can add nice stability to an investment portfolio.
Before considering an investment in the Vanguard S&P 500 ETF, keep in mind the following:
Our analyst team has identified stocks that might offer better opportunities than the Vanguard S&P 500 ETF. These picks may have strong potential for impressive returns in the coming years.
In retrospect, if you had invested in Netflix back when it was recommended in December 2004 with $1,000, your investment would now be worth around $603,392. And for Nvidia recommended in April 2005, the same investment could be valued at about $1,241,236.
It’s noteworthy that the total average return for our stock recommendations is significantly higher than that of the S&P 500.
It’s a compelling time to explore our latest picks for strong stocks.
