Exchange-traded funds (ETFs) can be fantastic investments for many people, especially those looking for a simple, no-hassle option.
An ETF is a basket of securities bundled together into a single investment. When you invest in one, you're actually investing in dozens, hundreds, or even thousands of stocks at once. This not only makes building a diversified portfolio a breeze, but it also helps take the guesswork out of what to buy.
Not all ETFs are created equal, however, and some are better investments than others. These three would be great additions to most portfolios as we head into 2024.
1. iShares Core S&P 500 ETF
The iShares Core S&P 500 ETF (IVV 0.98%) tracks the S&P 500, so it includes all the same stocks that the index does, and mirrors its performance over time. If you're looking for a safer and more reliable investment, this ETF could be a smart fit for your portfolio.
S&P 500 ETFs, in general, are incredibly consistent. In fact, analysts at Crestmont Research examined the index's long-term performance and found that for every single 20-year period in history, the index ended with positive total returns. So if you had invested in an S&P 500 ETF or index fund at any point (or bought that same portfolio yourself, back before ETFs existed) and simply held it for 20 years, you would have made money.
While the S&P 500 naturally experiences fluctuations and even steep declines in the short term, it has a long track record of recovering from downturns. If you're feeling nervous about the market or simply want an investment that can stand the test of time, an S&P 500 ETF is a safe bet.
In addition, the iShares Core S&P 500 ETF has a rock-bottom expense ratio of just 0.03%. This is far lower than many other ETFs, and the difference could save you thousands of dollars in fees over time.
2. Invesco QQQ Trust
Invesco QQQ Trust (QQQ 1.54%) is a growth ETF containing primarily tech stocks. It tracks the Nasdaq-100 index, which is composed of the 100 largest non-financial companies listed on the Nasdaq.
This fund was launched in 1999, making it one of the older ETFs in existence. It also has a history of beating the broader market. Over the past 10 years, the Invesco QQQ Trust has averaged a total rate of return of over 17% per year. The iShares Core S&P 500 ETF, for comparison, earned an average return of just under 12% per year in that time.
While this investment could help you earn above-average returns, it also carries more risk than a broad-market fund. High-growth stocks (particularly tech stocks) tend to be more volatile than their more established counterparts. When the market is thriving, this ETF can earn higher-than-average returns. But it can also suffer steeper-than-average declines during downturns.
Before you invest in the Invesco QQQ Trust, then, consider how much risk you're comfortable taking. If you can handle more extreme ups and downs in exchange for potentially higher returns over time, this could be a smart investment for you.
3. Vanguard Growth ETF
The Vanguard Growth ETF (VUG 1.82%) occupies somewhat of a middle ground between the iShares S&P 500 ETF and Invesco QQQ. It's designed to earn above-average returns over time, but it also has ample diversification.
This ETF contains 221 stocks, and its composition is split between smaller, high-growth companies and blue chip stocks. Its 10 largest holdings make up around half of its total value, and these stocks include major names like Apple, Microsoft, Nvidia, and Visa.
The other half of the fund is made up of smaller stocks with the potential for explosive growth. Balancing solid companies with up-and-coming stocks can help limit your risk while enhancing your potential earnings.
Like the Invesco QQQ, the Vanguard Growth ETF carries more risk than an S&P 500 ETF or another broad-market fund. But over the past 10 years, it has earned an average rate of return of just under 14% per year -- higher than the iShares S&P 500 ETF, but not quite as high as the Invesco QQQ.
Which one you choose to invest in will depend largely on your goals and risk tolerance. If you're looking for a safe and steady investment, an S&P 500 ETF is probably your best bet. On the other hand, if you're willing to take on more risk for the chance at higher-than-average returns, a growth ETF could be a good fit for your portfolio.
