Keeping costs down is imperative, whether you're trying to stay on a budget or are investing for the long haul. Either way, costs can accumulate over time and put you in a much worse financial position. When it comes to investing, just a couple of percentage points over time can mean the difference in hundreds of thousands of dollars worth of gains.
For investors to maximize their long-term returns, it's important to focus on quality stocks and investments that don't come with significant fees. Exchange-traded funds (ETFs) can offer investors an easy way to diversify and gain exposure to many stocks through just a single investment. And there are some that charge only minimal fees, making them optimal options to hang on to for not only years, but decades.
A couple of low-cost ETFs you'll want to consider right now, even amid the threat of ongoing trade wars and tariffs, are the Vanguard High Dividend Yield Index Fund ETF (VYM 0.40%) and the Financial Select Sector SPDR Fund (XLF 1.09%). Here's why these funds can make for good buys, even if you're worried about current economic conditions.
1. Vanguard High Dividend Yield Index Fund ETF
The Vanguard High Dividend Yield fund provides investors with an attractive payout of 2.6%, which is higher than the S&P 500 (^GSPC 0.11%) average of just 1.3%. That extra dividend income can be valuable at a time when returns on the market may not be all that strong, especially if investors are pulling money out amid concerns of a recession down the road.
Plus, the fund charges a low expense ratio of just 0.06%, ensuring that your fees over the years won't significantly chip away at your overall returns.
This ETF is also heavily tilted toward financials and consumer defensive stocks, which may be less vulnerable to tariffs and trade wars than other stocks. Defensive stocks, for instance, will have more pricing power and ability to pass on higher costs to consumers, simply because they offer essential products and services.
The top three stocks in the ETF are Broadcom, JPMorgan Chase, and ExxonMobil, which gives investors some good insight into the diversification that they're getting with this fund.
While the ETF has underperformed the S&P 500 in recent years, as investors pivot toward safer investments and away from high-priced tech stocks, that trend could reverse in the not-too-distant future.
2. Financial Select Sector SPDR Fund
Another fund that can make for a good income-generating investment is the Financial Select Sector SPDR Fund, which focuses entirely on financial stocks. Berkshire Hathaway, Visa, and Bank of America are among the top 10 holdings in this ETF, as is JPMorgan Chase, which is also a top holding in the other fund.
Financial stocks may feel the effects of trade wars indirectly due to worsening economic conditions, but they won't be as vulnerable as automotive companies and manufacturers, which import materials and finished goods from other countries. Plus, President Trump has been advocating for big U.S. banks, alleging that Canada doesn't offer them a level playing field -- which some analysts contest is not true.
This is a sector of the economy that may not be hit hard under the president's policies. The greater concern is an all-out recession and downturn in the markets, but that's by no means a sure thing at this point.
For investors, the big advantage of this ETF is that with a low expense ratio of 0.08%, access to the top financial stocks in the world, and a solid yield of 1.3%, this can make for a safe long-term investment to hang on to. While it's down less than 1% since the start of the year, it's still outperforming the S&P 500, which has fallen by more than 4%.
