401(k) investors who are building long-term stock portfolios should focus on growth to maximize value in retirement. There's plenty of time to ride out temporary market cycles before you start taking 401(k) withdrawals, and the S&P 500 has never delivered a negative return over a 15-year span. Long-term retirement accounts should therefore focus on growth rather than controlling volatility, and ETFs can be a great tool to get diversified investments in high-growth industries.
Most 401(k)s don't let you pick your own investments. But if you see one of these five ETFs on your investment menu, then you should strong consider it. And if you're one of the lucky few who has access to a self-directed 401(k), then take a closer look at all five to see which fits your needs.
Vanguard Growth ETF
The Vanguard Growth ETF ( VUG 2.92% ) tracks an index of large-cap and mid-cap U.S. growth stocks based on six different characteristics, including earnings expansion, sales growth, and analyst forecasts. As a result, the portfolio is more concentrated in tech and consumer cyclical stocks in its 260 holdings. This ETF should produce results similar to the S&P 500, but with larger swings between highs and lows along with more long-term growth potential.
The $67 billion fund comes with an extremely low 0.04% expense ratio. It also boasts more than $180 million in average daily trading volume and a low 0.02% bid-ask spread. This shows that shares are easy and inexpensive to trade.
iShares Russell 3000 Growth
The iShares Core S&P U.S. Growth ETF ( IUSG 2.64% ) is similar to the Vanguard Growth ETF in many ways. It selects stocks from the Russell 3000, an index of the 3,000 largest companies on U.S. exchanges. The fund uses sales growth, price-to-earnings ratio fluctuations, and a momentum statistic to screen for high-growth companies. With 450 holdings, it provides more diversification than the competitor from Vanguard, but long-term performance should be fairly similar.
The iShares U.S. Growth ETF also comes with a great 0.05% expense ratio. The fund doesn't quite offer the same liquidity as Vanguard's, but with $38 million in average daily trading volume and a narrow 0.04% bid-ask ratio, the iShares fund is also liquid and easily tradable.
Global X AI & Technology
The Global X Artificial Intelligence & Technology ETF ( AIQ 3.78% ) is unlike the above funds, but it should be a good long-term growth opportunity because it's focused on an industry that should be at the forefront of technological disruption for the next few decades. The fund holds stocks heavily involved in the development of artificial intelligence and data analytics. The ETF has 86 global holdings, but 75% of the portfolio is invested in U.S. companies.
The Global X AI ETF provides far less diversification than the growth funds above, but this is by design. It's meant to be a fraction of a portfolio along with other equity investments. It also carries a high 0.68% expense ratio, which causes some erosion of returns. The fund's average daily trading volume is only around $1 million, making it harder for investors to put large sums of money to work quickly. The 0.15% bid-ask spread will further increase the net costs for investors.
Global X Robotics & AI
The Global X Robotics & Artificial Intelligence ETF ( BOTZ 3.67% ) is similar to the AI & Tech ETF, but it focuses on robotics rather than data analytics. The fund holds over 30 stocks in developing countries, with major exposure to Japan, the U.S., and Switzerland. The holdings cover a variety of robotics applications, including surgical products, drones, and AI software. Robotics and AI are slated to be high-growth industries as automation is being deployed in many different types of companies to accelerate sales and improve efficiency.
The Global X Robotics ETF provides some superior features to the AI ETF. It shares the same high 0.68% expense ratio, which weighs on returns, but it is far more liquid. Average daily trading volume is much higher at $28 million, and the 0.03% bid-ask spread leads to lower trading costs.
Global X Cybersecurity
The Global X Cybersecurity ETF (NASDAQ: BUG) is another niche ETF that provides investors with exposure to disruptive tech companies that are expected to enjoy strong demand catalysts for the next few decades. The spread of collaborative software, mobile communications, the Internet of Things, and data analytics are going to require cybersecurity solutions to ensure the protection of sensitive data. The fund holds just under 30 stocks from numerous countries, though 90% of holdings are based in the U.S.
The cybersecurity ETF's 0.5% expense ratio is better than the others' but still fairly high. Average daily trading volume of $5 million and a 0.32% bid-ask spread mean that this ETF has sub-optimal liquidity. None of this should be a deal-breaker for investors who intend to buy and hold for the long haul, but it deserves consideration.