Let's face it. Stock-picking is difficult, particularly if you're not content to simply sit on your holdings for years on end and let time do most of the heavy lifting. Odds are good that any investor speculating on price swings playing out in a short period of time has ended up regretting at least one of those trades.
Don't give up! For all its risks and sucker punches, the stock market is still the best way for average people to build a nest egg that outgrows inflation. You may simply want to change your tactic, switching to sectors, regions, and bigger themes instead of betting on individual names. Here's a closer look at three exchange-traded funds (ETFs) that might make more sense as core holdings of your particular portfolio.
iShares Global Clean Energy ETF
Just because you're looking to curb your holdings' volatility doesn't mean your portfolio has to be boring. You can -- and should -- take advantage of opportunities presented by the inevitable changes in the way the world works.
To this end, it has become quite clear that clean, alternative energy is the future. Despite last year's pandemic-related challenges, the world managed to add 280 gigawatts' worth of power-production capacity, according to the International Energy Agency (IEA), which is 45% more than was added in 2019. The IEA suggests this pace of wind, solar, and other renewable energy installations is the world's new norm for the foreseeable future. Closer to home, the U.S. Energy Information Administration (EIA) predicts that the proportion of domestic power produced by renewables will double from last year's 21% to 42% by 2050.
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There are all sorts of ways to plug into this opportunity even when limiting your prospect universe to ETFs. Among all of these choices, though, the iShares Global Clean Energy ETF (ICLN -0.53%) is ideal for most. Not only is it the most liquid clean-energy fund, it's also well diversified. Wind, solar, and natural gas are all well represented within the iShares Global Clean Energy ETF, and there's plenty of built-in geographic diversity to boot. Perhaps best of all, this fund holds foreign equities that are difficult if not impossible for U.S. investors to buy.
Invesco S&P 500 Low Volatility ETF
An exchange-traded fund based on alternative energy still isn't stable enough for you (at least by itself)? Pare the big swings back even more with the Invesco S&P 500 Low Volatility ETF (SPLV 0.33%).
The fund does exactly what its name suggests. Designed to mirror the S&P 500 Low Volatility Index, this ETF mostly owns the 100 S&P 500 constituents with the least explosive price changes over the course of the past twelve months. This list of 100 stocks changes a little from one year to the next but rarely changes much. Its top holdings include Colgate-Palmolive, Procter & Gamble, Verizon, and PepsiCo -- the sort of big stalwarts that remain relatively stable specifically because investors know their respective businesses are difficult to disrupt. Their customers are pretty loyal, replenishing their closets and cupboards with the same brands over and over again.
That's not what makes this particular ETF such a compelling option, however. Interestingly enough, the boring nature of the Invesco S&P 500 Low Volatility ETF doesn't dramatically hinder its long-term performance. Over the course of the past ten years, the fund's average annual gain of 12.1% trails the S&P 500's 14.4% average. That's a small price to pay for being able to sleep well at night, however.
Also know that almost all of that performance difference for the past decade has only materialized since market lows hit last March, shortly after the COVID-19 pandemic made landfall in the United States. This rebound abnormally favored more volatile growth stocks. If this leadership from growth names unwinds, that actually favors the value-centric names that make up the S&P 500 Low Volatility Index.
Vanguard Real Estate ETF
Finally, add the Vanguard Real Estate ETF (VNQ 0.01%) to your watchlist of exchange-traded funds that may be better choices for you than individual stocks.
The Vanguard Real Estate ETF aims to mirror the MSCI US Investable Market Real Estate 25/50 Index, which consists of everything from hotel properties to residential buildings to industrial land, and more. In other words, it's a way of investing in non-stock assets without committing to the outright personal purchase of land and/or buildings.
For most investors, though, this is the best way of venturing out of the stock market without the usual headaches of doing so. Like stocks and real estate investment trusts (REITs), ETFs made up of REITs can be bought and sold in a matter of seconds, whereas it can take months if not years to buy and sell real estate, tying up time and capital in the meantime.
One of the key upsides of owning assets like real estate is diversification.
Although stocks and land value may broadly move in tandem with economic ebbs and flows, real estate and REIT prices are not too tightly tethered to the stock market. That is to say, they both have their bullish and bearish moments, but they're not necessarily the same moments.
That's not the only reason to take a look at the highly diversified Vanguard Real Estate ETF, however. In the same sense being a landlord generates recurring income on a piece of owned property, REIT-based ETFs produce recurring income in the form of dividends, while the underlying asset is also (hopefully) undergoing price appreciation. You can find higher yields than the 3.2% yield VNQ presently offers. As is the case with so many Vanguard funds, though, this one's expense ratio is a dirt cheap 0.12%. You'd be hard-pressed to find one that gives you so much net return for so little input.
