Some investors can do better using exchange-traded funds (ETFs) rather than picking individual stocks. The S&P 500 and the NASDAQ are both up more than 20% year to date, so you may have been overthinking things if you've been burned by the stock market.
It's been a turbulent few years for investors, and there's every indication that it's set to continue. ETFs don't have to be boring; there are great options for almost any strategy, from passive index funds to actively managed alternative investments.
1. SPDR S&P 500
You might be frustrated enough to abandon your investment strategy, but don't give up on stocks entirely. Index funds are a reliable tool for long-term growth even if they can be volatile in the short term. The SPDR S&P 500 ETF (SPY -0.87%) is the epitome of keeping it simple. It is the largest ETF by assets under management (AUM), and it is a market-weighted portfolio that tracks the S&P 500.
The fund sports a low 0.09% expense ratio, so costs won't erode your returns each year. Shares are highly liquid with enormous trading volumes and a tight bid-ask spread, which means that it's cheap and easy to buy or sell. The SPDR S&P 500 ETF even kicks off some dividends.
There might be some rocky months ahead as the stock market adjusts to rising interest rates and the ongoing fight against COVID-19. Don't be shocked if index funds experience some volatility in the short term, but this is a relatively safe long-term investment option.
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2. Invesco S&P 500 Equal Weight ETF
Some investors don't want to just mimic the market's performance. They might not love the idea of buying heavily into some stocks that rose to historically high valuation ratios over the past two years. If you're in this category of investors, consider the Invesco S&P 500 Equal Weight ETF (RSP 0.38%)
It's equal-weighted, so the performance is a bit different from normal index funds. Also, due to periodic rebalancing, the fund locks in gains by selling winners and purchases stocks that underperformed in the prior period. That certainly has drawbacks, but there's an argument for a contrarian approach that favors stocks with less aggressive valuations. Since this fund's inception, it's outperformed its market-weighted cousins that track the index.
This methodology requires a heavier 0.2% expense ratio. However, the equal-weight ETF is highly liquid, with low trading costs.
3. iShares Exponential Technologies
Maybe you still believe in growth investing, but you're just not confident in your ability to pick the winners. There are numerous growth-oriented ETFs out there to help with that exact case.
The iShares Exponential Technologies ETF (XT -1.38%) is a unique and compelling product in that category. This fund invests across nearly 200 global stocks involved with emerging technologies that should grow rapidly over the next few decades. Its investment themes include nanotech, data analytics, innovative medicine, robotics, fintech, life sciences, 3D printing, and networks. It's actively managed, using fundamental research to identify a handful of disruptive emerging technology stocks. That results in relatively high exposure to international stocks and smaller companies, which enhances both risk and reward.
Its 0.47% expense ratio is high but reasonable for such a hands-on, proprietary approach.
4. Vanguard Tax-Exempt Bond
Consider the Vanguard Tax-Exempt Bond ETF (VTEB 0.06%) if you're avoiding stock-market volatility. This ETF holds investment-grade municipal bonds issued by state and local governments in the U.S. The interest paid on these bonds is exempt from taxes, which helps with the cash flows relative to investment-grade debt issued by corporations.
That is provided with a low 0.06% expense ratio. Yields are low across the board these days, but this ETF's 1.69% yield is pretty good.
There are very few people who should be giving up on the stock market. It's still one of the best opportunities for long-term growth. If you're coming off a bad year, you shouldn't make any rash decisions. However, it's a good time to review your allocation to make sure that it's aligned with your risk tolerance and growth goals.
