One of the easiest, most effective ways to invest in stocks is by using exchange-traded funds (ETFs) that give you a broad position in the entire market. Just holding on to these types of ETFs for the long haul can help you grow your portfolio in the years ahead. ETFs are popular because they can give you plenty of diversification and minimize your risk and exposure to any single stock.
But avoiding and minimizing fees is also another important consideration, as they can put a dent in your overall returns. And even a 1% fee can add up significantly over time.
Two funds that can provide you with exposure to more than 2,400 stocks while charging you minimal fees are Schwab U.S. Broad Market ETF (SCHB +0.60%) and iShares Core S&P Total U.S. Stock Market ETF (ITOT +0.64%). Here's a closer look at why these can make for great investments to hold in your portfolio for the long haul.
SCHB Total Return Level data by YCharts
1. Schwab U.S. Broad Market ETF
The Schwab Broad Market fund gives investors access to a diverse mix of stocks, small and large. It currently has more than 2,400 holdings in total. It is a passively managed fund, and that allows its fees to remain incredibly light. The ETF's expense ratio is just 0.03%, which is about as low as you can get for such a diversified fund.
You'll notice from the chart that the Schwab fund has slightly underperformed the S&P 500 over the past decade, and that's one of the drawbacks of having so much diversification -- that safety often comes at the price of lower returns. But in down years, the fund may be less vulnerable to a big decline than the S&P 500.
The largest holding in the ETF is tech giant Apple, which accounts for around 6% of the portfolio's overall weight. Rival Microsoft is not far behind and is the only other stock that makes up more than 5% of the ETF's portfolio.
The fund has significant exposure to tech, with that sector accounting for around 31% of all holdings, followed by financials at 14%, consumer discretionary at 11%, and healthcare at 10%. No other sector accounts for more than 10%. That's some good diversification for investors, and while tech plays a big part, the fund isn't as deeply reliant on tech stocks as other top-performing ETFs.
2. iShares Core S&P Total U.S. Stock Market ETF
Another broad ETF to consider for your portfolio is the iShares Core S&P Total U.S. Stock Market ETF. Its returns over the past decade are comparable to how the Schwab fund has performed, as this too has been a solid investment to hang on to, with limited long-term risk.
Its management fee is also low at just 0.03%. This fund is a bit more diverse than the Schwab ETF, as it holds more than 2,500 stocks. And its exposure to tech is a bit lighter, at just under 29% of its total holdings. But Apple and Microsoft are also the top stocks in this fund and make up similar percentages of the overall portfolio.
Like the Schwab fund, financials (15%), consumer discretionary (12%), and healthcare (11%) are also major sectors the ETF has positions in outside of tech. Choosing between the two funds may come down to how much diversification and exposure to tech you want. The iShares fund is a bit more diverse and less dependent on tech, but the difference isn't massive.
Both funds offer investors a great way to invest in the market over the long haul, and they both offer yields of more than 1%. If you want an easy way to invest in the stock market and achieve a lot of diversification, it's hard to go wrong with either one of these low-cost funds.
