Investing in individual stocks can be quite an intriguing journey, but it’s not without challenges. You know, JP Morgan Research indicates that between 1980 and 2020, around two-thirds of stocks actually lagged behind the market, with 40% showing negative returns. This reality leads me to think that for most investors, having one or more index exchange-traded funds (ETFs) as core holdings makes a lot of sense, especially for regular dollar-cost averaging.
When you consistently dollar-cost average over a long period, it often turns out to be a solid strategy for building wealth through investing. Index ETFs serve as fantastic investment tools, giving you instant access to a broad array of stocks. Plus, many of these indexes are market capitalization-weighted, which helps in capitalizing on the winners, a crucial element for long-term success.
So, let’s explore four compelling ETFs that you might consider buying and steadily adding to over time.
Vanguard S&P 500 ETF
Today’s changes
(0.78%) $5.33
current price
$690.59
Key data points
parrot
$1.7 trillion
dividend yield
1.06%
expense ratio
0.03%
top holdings
NVDA
7.90%
AAPL
7.05%
MSFT
5.15%
If you had to choose just one investment, many might lean toward the Vanguard S&P 500 ETF (VOO +0.78%), and I’d agree. ETFs track the S&P 500, granting investors immediate access to a portfolio comprising the 500 largest U.S. companies.
The S&P 500 Index has a rich history of strong performance. The Vanguard S&P 500 ETF stands out as a low-cost choice, sporting an expense ratio of just 0.03%. It’s a fund you shouldn’t overlook, considering that fewer than 15% of active large-cap fund managers have outperformed this index over the past decade. It has managed to deliver impressive average returns of 15.5% annually over the last ten years.
Vanguard Growth ETF
Today’s changes
(1.15%) $0.99
current price
$86.98
Key data points
parrot
$394 billion
dividend yield
1.81%
expense ratio
0.03%
top holdings
NVDA
13.10%
AAPL
12.32%
MSFT
8.99%
In the last decade, growth stocks have significantly surpassed value stocks, especially as technological advancements continue to evolve rapidly. With the intervals between major tech breakthroughs seeming to shorten, this trend could very likely persist in the long run. Thus, investing in ETFs that center around growth stocks makes logical sense. One solid option is the Vanguard Growth ETF (VUG +1.15%), which essentially tracks the growth aspect of the S&P 500.
Close to 70% of this ETF’s holdings are in tech stocks, while about 15% are in consumer stocks. Not surprisingly, it has delivered well, achieving an average annual return of 18% over the past ten years. The expense ratio remains attractive, sitting at only 0.03%.
Invesco QQQ Trust
Today’s changes
(1.66%) $11.84
current price
$723.28
Key data points
parrot
$488 billion
dividend yield
0.42%
expense ratio
0.18%
top holdings
NVDA
7.64%
AAPL
7.32%
MU
4.69%
Another noteworthy growth stock ETF is the Invesco QQQ Trust (QQQ +1.66%). This ETF tracks the Nasdaq 100 index, which comprises the largest 100 non-financial stocks listed on the Nasdaq exchange. Roughly 70% of this fund consists of technology stocks, with more than 16% in consumer stocks.
This ETF has been a remarkable performer, achieving an average annual return of 22% over the past decade, which far surpasses the S&P 500’s results. Interestingly, it has outperformed the S&P 500 on a rolling 12-month basis over 88% of the time across seven of the last ten years.
Schwab US Dividend Stock ETF
If you’re interested in dividends and value stocks, the Schwab US Dividend Stock ETF (SCHD 0.25%) could be a good pick. This ETF mirrors the Dow Jones US Dividend 100 Index, which undergoes a significant annual reconstitution, adding or removing stocks based on criteria such as balance sheet strength and dividend growth.
Currently, it boasts a yield of 3.3% and has shown impressive performance this year, with an increase of about 18% as of early July. Over the last decade, it has produced an annual return of 12.4%, outperforming the value category.
