If you want to amass a million dollars (or more!) by retirement, the stock market is arguably your best long-term investing approach. There are lots of ways to invest in the stock market, though. For example, you can do quite well just plunking significant sums into a simple, low-fee index fund, such as one that tracks the S&P 500. The S&P 500 has averaged annual returns close to 10% (ignoring inflation) over long periods.
To aim for better returns than that, you might add lots of carefully chosen individual stocks to your portfolio. Alternatively, you might want to consider sector exchange-traded funds (ETFs) for sectors you're bullish on.
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What are Sector ETFs?
The business world can be divided into 11 sectors (groups of stocks with multiple commonalities, usually because they are in similar industries). Some sectors will perform better than others over any given period. As you decide on an ETF, think about which sectors seem most promising to you. Once you have a few in mind, look for ETFs with low fees and good track records that specialize in those sectors.
An ETF is very much like a mutual fund, filled with a variety of securities and invested in by many shareholders. But it trades like a stock, not a fund, so you can buy a few or a lot of shares whenever the stock market is open through your regular brokerage account.
Here are nine sector ETFs to learn more about and consider. Each might turbocharge your portfolio -- though none is guaranteed to do so, of course. You might compare each one's returns with those of a low-fee S&P 500 index fund like the Vanguard S&P 500 ETF (VOO 0.56%), which is at the top of the chart below.
Remember, though, that an ETF with an 11% 10-year average annual return might average far less or much more than that over the coming decade. Past performance is not a certain indicator of future performance. Think more about your expectations for each sector and then look closely at ETFs of interest, seeing what stocks constitute their portfolios and what expense ratios (annual fees) they charge.
|
ETF |
Expense |
5-Year Avg. |
10-Year Avg. |
|---|---|---|---|
|
Vanguard S&P 500 ETF (VOO) |
0.03% |
15% |
12.8% |
|
VanEck Semiconductor ETF (SMH) |
0.35% |
35.7% |
27.7% |
|
Technology Select Sector SPDR ETF (XLK) |
0.09% |
25.4% |
20.9% |
|
Health Care Select Sector SPDR ETF (XLV) |
0.09% |
12% |
11.2% |
|
iShares US Home Construction ETF (ITB) |
0.4% |
26.5% |
16.5% |
|
Vanguard Information Technology ETF (VGT) |
0.1% |
23.3% |
20.4% |
|
Fidelity Cloud Computing ETF (FCLD) |
0.39% |
N/A |
N/A |
|
Vanguard Communication Services ETF (VOX) |
0.1% |
9.8% |
6.8% |
|
Vanguard Industrials ETF (VIS) |
0.1% |
12.9% |
10.8% |
|
Financial Select Sector SPDR ETF (XLF) |
0.09% |
11.5% |
10.7% |
Source: Morningstar.com.
Some added details about these sector ETFs
1. VanEck Semiconductor ETF (SMH 0.21%): Semiconductors are in just about every electronic thing you own or will own, so you might want to own some shares of this ETF. It holds about 25 stocks, with more than a quarter of its value tied to Nvidia's performance.
2. Technology Select Sector SPDR ETF (XLK 0.75%): This ETF casts a broader net, including semiconductors, IT consultants, software, computers, and more. It holds about 64 stocks, with top berths going to Microsoft, Apple, and Nvidia.
3. Health Care Select Sector SPDR ETF (XLV 0.25%): This ETF spans healthcare equipment and supplies, healthcare providers and services, biotechnology, and pharmaceutical industries. It holds roughly 64 stocks, including top performers like Eli Lilly, UnitedHealth, and Johnson & Johnson.
4. iShares US Home Construction ETF (ITB +0.47%): This ETF is invested in U.S. businesses that build homes. It recently held about 46 stocks, with its biggest holdings being D.R. Horton, Lennar, and NVR.
5. Vanguard Information Technology ETF (VGT 0.86%): This IT-focused ETF recently boasted 312 stocks, with the biggest holdings including Microsoft, Apple, Nvidia, Broadcom, Adobe, and Salesforce.
6. Fidelity Cloud Computing ETF (FCLD +0.52%): This is quite a young ETF, launched in 2021, so there are no longer-term returns to share in the table above. It has been somewhat volatile, losing 41% of its value in 2022 and gaining 52% in 2023. It may not be for the faint of heart, but if you're bullish on cloud computing, give it a closer look. Its 49 holdings feature companies like Super Micro Computer, Salesforce, and MicroStrategy.
7. Vanguard Communication Services ETF (VOX 0.91%): This ETF holds stocks of 117 companies focused on telephone, data transmission, cellular, and wireless communication services, among other things. Top holdings recently included Meta Platforms, Alphabet, Netflix, and Verizon Communications.
8. Vanguard Industrials ETF (VIS 0.50%): High-tech companies are exciting and often do well, but our economy needs manufacturing, too. This ETF, with close to 400 holdings, features businesses such as Caterpillar, Union Pacific, General Electric, and Honeywell.
9. Financial Select Sector SPDR ETF (XLF +0.12%): Finally, financial services companies are also critical to keeping our economy afloat. This ETF's 72 holdings include Warren Buffett's Berkshire Hathaway, JPMorgan Chase, and Visa.
Plenty of ETFs to choose from
These are just 10 of many sector ETFs out there. A little digging online will turn up many more, including some that will also be quite promising and offer low fees and appealing holdings.
However you go about saving and investing for retirement, don't put it off. Remember, too, the value of investing in great funds and/or companies for a very long time, ideally adding dollars to them regularly and consistently over time.
