Sometimes, you just want a simple choice: big or small, yes or no, chocolate or vanilla. The same is true with investing. There are thousands of publicly traded stocks, and at times, it can be overwhelming trying to determine the best investment options.
What's great about exchange-traded funds (ETFs) is that they help investors by simplifying the investment process. That said, not all ETFs are suitable, particularly for long-term investors. With that in mind, let's examine two ETFs -- one that's worth considering and one that is not.
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ProShares Short Dow30
There are several reasons to avoid an ETF, including high fees, subpar performance history, or an unsuitable investment strategy. These attributes can serve as a red flag for investors, signaling that they should investigate further to understand the strategy and potential risks of investing in the fund.
Regrettably, the ProShares Short Dow30 (DOG -0.11%) fund displays more than one questionable attribute, making it unsuitable for investors, especially those with long-term investment plans.
This fund is an inverse ETF. That means the fund is designed for short-term hedging -- not for long-term buy-and-hold investing. Specifically, the fund seeks to generate the inverse daily return of the Dow Jones Industrial Average. While this type of ETF may be of some use to traders, one look at a long-term chart of its performance should explain why it's unsuitable for buy-and-hold investors.
DOG Total Return Level data by YCharts
Simply put, investing in this fund for the long term is not a smart move. Instead of leveraging time, this fund turns time into an adversary, as the established upward trend of stocks works against the fund's investors.
When it comes to fees, another obstacle for long-term investing becomes apparent. The fund's fee structure significantly reduces returns. With an expense ratio of 0.95%, for every $10,000 invested in the fund, $95 per year is collected as fees. This is considerably higher than the average ETF's expense ratio of around 0.45%. While short-term traders might be willing to accept this, for long-term investors, this fee is simply too high.
In summary, this fund's strategy, performance, and fee structure conflict with the goals of long-term, buy-and-hold investors.
Vanguard S&P 500 Growth ETF
For investors seeking an uncomplicated way to invest, the Vanguard S&P 500 Growth ETF (VOOG 0.13%) is a reassuring choice. This Vanguard fund is linked to the S&P 500 Growth index -- an index comprised of large-cap growth stocks within the U.S. equity market.
As such, many of fund's holdings are household names, including Nvidia, Apple, Microsoft, and Amazon. While many of the fund's largest holdings are within the technology sector, the fund's holdings are not limited to only one sector. In addition to the tech sector (62% of holdings), retail (9%), healthcare (6%), manufacturing (4%), and finance (3%) are all represented in the fund's diversified holdings.
As for fees, the fund charges a straightforward 0.1% expense ratio, meaning only $10 a year in fees are collected for every $10,000 invested in the fund, which is less than what investors will pay for many ETFs. In summary, this fund keeps it simple -- making it an excellent choice for many long-term investors.
