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3 of the Best ETFs I Bought in 2021

By Katie Brockman – Dec 8, 2021 at 12:30AM

Key Points

  • As the year winds down, it's the perfect opportunity to add some new investments to your portfolio.
  • ETFs can be a fantastic option, but choosing the right funds is critical.
  • From broad-market funds to growth ETFs, there's a fund for every portfolio.

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I plan to hold these ETFs for as long as possible.

So far, 2021 has been a great year for the stock market. The S&P 500 is up more than 20% since the beginning of the year, and many investors have watched their portfolios soar over the last 18 months or so.

Whether you've just started investing or have been involved in the stock market for years, exchange-traded funds (ETFs) can be a smart option. ETFs require minimal effort to maintain, but they also have the potential for serious growth.

Everyone has different investing preferences and styles, and not all ETFs will be the right fit for every portfolio. But there are a few ETFs in my personal portfolio that have performed well over the past year, and I plan to hold these investments for as long as possible.

Two people sitting on a couch looking at a laptop.

Image source: Getty Images.

1. Vanguard S&P 500 ETF

The Vanguard S&P 500 ETF (VOO 0.17%) closely tracks the S&P 500 index, meaning it contains the same stocks as the index itself and aims to mirror its performance.

S&P 500 ETFs have plenty of strengths, but they're a particularly strong choice during periods of market volatility. The S&P 500 has a long history of bouncing back after downturns, and despite its rollercoaster of ups and downs over the years, it's managed to earn positive average returns over the long run.

Although the market has been strong so far in 2021, many experts warn that a downturn could be looming. If that happens, there's a very strong chance that the Vanguard S&P 500 ETF will be able to recover eventually -- regardless of when that downturn occurs or how severe it is.

2. Vanguard Total Stock Market ETF

The Vanguard Total Stock Market ETF (VTI 0.25%) is similar to the S&P 500 ETF, except it includes a much wider variety of stocks. While the S&P 500 ETF includes around 500 stocks from large companies, the Total Stock Market ETF contains more than 4,100 stocks from small, midsize, and large corporations.

Investing in this ETF can help further diversify your portfolio because it includes stocks from corporations of all sizes from a wide variety of industries. Although it's impossible to eliminate risk entirely when investing, you can reduce it significantly by creating a more diversified portfolio.

Because this fund aims to track the stock market as a whole, it's also more likely to recover from downturns. The stock market has a 100% success rate when it comes to bouncing back from crashes, and it's extremely likely this ETF will recover as well if the market crashes.

3. Vanguard Growth ETF

The Vanguard Growth ETF (VUG -0.46%) is slightly riskier than some other ETFs, but it also has the potential for higher-than-average returns. This fund includes just under 300 stocks from companies that have the potential for rapid growth.

Fast-growing companies can be riskier, because they're often more volatile than older, more established organizations. However, they also generally earn higher returns than their more stable counterparts.

Since its inception in 2004, this ETF has earned an average annual return of close to 12% per year. For comparison, the S&P 500 has historically earned average returns of around 10% per year, and the Vanguard Total Stock Market ETF has earned an average return of just under 9% per year.

The Vanguard Growth ETF can help your investments grow faster, but because it does carry higher levels of risk, it's important to ensure the rest of your portfolio is properly diversified. It may be wise to invest in, say, the Vanguard S&P 500 ETF as well as the Growth ETF to maximize your returns while minimizing risk.

ETFs can be a fantastic investment for many people, but not all funds are created equal. These three ETFs were some of my best buys of the year, and I plan to keep these funds in my portfolio for decades.

Katie Brockman owns shares of Vanguard Growth ETF, Vanguard S&P 500 ETF, and Vanguard Total Stock Market ETF. The Motley Fool owns shares of and recommends Vanguard Growth ETF, Vanguard S&P 500 ETF, and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.

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