Please ensure Javascript is enabled for purposes of website accessibility

3 ETFs Better Than ARK Innovation

By Katie Brockman – Updated May 10, 2021 at 9:06AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These ETFs can reduce your risk while maximizing your earnings.

ARK Invest and its CEO, Cathie Wood, have been making headlines in the investing world. The investment management firm is known for its high-flying ETFs, which have experienced phenomenal returns over the past year.

Its flagship fund, the ARK Innovation ETF (ARKK -5.48%), has earned an incredible 175% return over the past 12 months. Since its inception in 2014, it's earned an average return of nearly 34% per year.

Stack of dollar bills against a blue background

Image source: Getty Images.

With returns like that, it's easy to see why this ETF is attractive. But while it has had a good run so far, it's also an incredibly risky investment. The fund has only been around for a few years, and any investment without an extensive track record is risky.

Also, the ETF only contains between 35 and 55 stocks on average, which focus on "disruptive innovation." Considering many other ETFs contain hundreds or thousands of stocks, ARK Innovation doesn't provide much diversification. In addition, "innovative" companies tend to be higher risk than well-established ones.

This doesn't necessarily mean it's a bad investment, but it is a risky one. And there are a few ETFs that may be a better option for most investors. Here are three:

iShares Core S&P 500 ETF

The iShares Core S&P 500 ETF (IVV -2.06%) tracks the S&P 500, meaning it includes all the same stocks as the index and aims to mirror its performance. The S&P 500 includes just over 500 stocks from some of the largest and most stable companies in the U.S., which makes this ETF a relatively safe investment.

While it does see lower average returns than ARK Innovation, it's far less risky. This doesn't mean you won't have years where you experience losses. But over the long term, you're more likely to earn positive average returns.

Since its inception in 2000, it has earned an average annual return of around 7%. Keep in mind that the market has experienced a significant amount of volatility in the past 20 years, including the dot-com bubble burst and the Great Recession. Despite these downturns, this ETF has still earned positive returns over time.

Vanguard Total Stock Market ETF 

The Vanguard Total Stock Market ETF (VTI -2.08%) includes 3,755 stocks from small, midsize, and large corporations in the U.S.

Similar to the S&P 500 ETF, this fund aims to track the stock market as a whole. But it contains far more stocks than an S&P 500 ETF, and it also includes stocks from companies of all sizes.

This provides more diversification and more opportunity for growth. Small and midsize companies can be more volatile, but they also tend to grow faster than large corporations. This means you could experience higher growth rates while still limiting your risk.

This ETF was established in 2001, and since then it has earned an average return of around 8%. Like the S&P 500 ETF, this fund has a long track record and has shown that it can withstand volatility over the long term.

Schwab U.S. Large-Cap Growth ETF 

The Schwab U.S. Large-Cap Growth ETF (SCHG -2.49%) includes 235 stocks from companies that are expected to experience above-average growth. Three of its largest holdings include tech behemoths Apple, Microsoft, and Amazon.

Growth ETFs can be riskier than S&P 500 ETFs or total stock market ETFs, but they also generally see higher-than-average returns. In fact, since this fund's inception in 2009, it has earned an average return of more than 17% per year.

This doesn't mean you'll earn returns of 17% every single year. There's a much greater chance that some years you'll experience low returns or even losses, while other years you'll earn significantly higher-than-average returns.

Jar full of hundred dollar bills

Image source: Getty Images.

While its returns don't match those of ARK Innovation, this fund is safer because it includes more stocks, and many of the stocks in the fund are from large, well-established corporations. Despite being lower risk, though, it's still possible to make a lot of money with this ETF.

If you were to invest, say, $300 per month while earning a 17% average annual return, you'd have more than $2.3 million accumulated after 30 years. Again, you may not necessarily experience those types of returns, but this fund is designed for above-average growth.

ARK Innovation might be the flashy new fund taking the investing world by storm, but it's not necessarily the right investment for everyone. To keep your money safer while still maximizing your returns, these three ETFs could be a better option.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Katie Brockman owns shares of Vanguard Total Stock Market ETF. The Motley Fool owns shares of and recommends Amazon, Apple, and Microsoft. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Schwab Strategic Trust - Schwab U.S. Large-Cap Growth ETF Stock Quote
Schwab Strategic Trust - Schwab U.S. Large-Cap Growth ETF
SCHG
$56.72 (-2.49%) $-1.45
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$237.50 (-1.48%) $-3.57
Apple Inc. Stock Quote
Apple Inc.
AAPL
$142.48 (-4.91%) $-7.36
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$114.80 (-2.72%) $-3.21
Vanguard Index Funds - Vanguard Total Stock Market ETF Stock Quote
Vanguard Index Funds - Vanguard Total Stock Market ETF
VTI
$181.94 (-2.08%) $-3.86
iShares S&P 500 ETF Stock Quote
iShares S&P 500 ETF
IVV
$364.37 (-2.06%) $-7.65
ARK ETF Trust - ARK Innovation ETF Stock Quote
ARK ETF Trust - ARK Innovation ETF
ARKK
$37.80 (-5.48%) $-2.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.