With the stock market near all-time highs, some investors may be hesitant about entering the market now. However, trying to time the market rarely ends well, and you can often get left out of big gains waiting for a pullback.
That said, there's a better path. Instead of trying to time the market, keep it simple by buying high-quality index exchange-traded funds (ETFs) and consistently dollar-cost averaging into them. With $1,000 to start -- and the discipline to keep adding -- you can build substantial wealth over time.
Let's look at five index ETFs that you can build portfolios around for the long haul.
Image source: Getty Images.
1. Vanguard S&P 500 ETF (VOO)
The Vanguard S&P 500 ETF (VOO -0.38%) is the textbook example of a core holding you can buy in any market. It tracks the benchmark S&P 500 and gives you exposure to around 500 of the largest and most important companies in the U.S. Its 0.03% expense ratio is also about as low as it gets.
The S&P 500 index is built for winners to excel and become bigger contributors over time, so it's no surprise that companies like Nvidia, Microsoft, and Apple are among its top holdings. However, when the market shifts and new leaders emerge, the S&P 500 gradually adjusts on its own.
The ETF is a proven winner, with a 13.6% average annual return over the past decade, as of the end of June. It's a simple, effective, and well-diversified ETF that can be the cornerstone of any portfolio.
2. Vanguard Growth ETF (VUG)
If you want to lean into growth and innovation, the Vanguard Growth ETF (VUG 0.00%) is a great place to start. It tracks the CRSP US Large Cap Growth Index, which is basically the growth side of the S&P 500. As such, its portfolio is filled with large-cap companies that are able to grow their earnings and revenue quickly.
The ETF is more aggressive than the Vanguard S&P 500, but with growth stocks having long led the market higher, it has outperformed. Like other Vanguard funds, it has a low expense ratio, checking in at just 0.04%.
Over the last 10 years, the Vanguard Growth ETF has generated an average annual return of 17.5%, as of the end of June. If you think growth stocks will continue to lead the market higher -- which I do -- this is a great option.
3. Invesco QQQ Trust (QQQ)
Another great growth-oriented ETF is the Invesco QQQ Trust (QQQ -0.55%). It mimics the performance of the Nasdaq-100, which consists of the 100 largest nonfinancial companies that trade on the Nasdaq Composite. The Nasdaq exchange has always been a draw for tech companies, and as such, its holdings are heavily weighted toward the sector. At the end of June, over 60% of its holdings were in tech companies.
The ETF has been a great performer over the past decade. It's returned an average of 18.7% annually over the past 10 years (as of the end of June), easily topping the performance of the S&P 500. Even more impressively is that the ETF has outperformed the S&P 500 on a rolling 12-month basis 87% of the time over this stretch. That means that the outperformance isn't coming from one big year or two, but it's been consistent. Its 0.2% expense ratio is higher than some other index ETFs, but its performance speaks for itself.
4. Vanguard Information Technology ETF (VGT)
If you really like tech stocks, the Vanguard Information Technology ETF (VGT -0.57%) is about as direct as it gets. The ETF tracks the MSCI US Investable Market Information Technology 25/50 Index, which gives investors a portfolio of top companies involved in areas like artificial intelligence (AI).
As of the end of June, Nvidia, Microsoft, and Apple combined made up nearly 45% of its holdings. Meanwhile, its top 10 holdings accounted for nearly 60% of its portfolio. The ETF is highly concentrated, although it is missing some top tech names like Alphabet and Amazon.
Over the last 10 years, it's posted returns north of 21% annually, making it the best performer on this list. However, as a single-sector ETF, it does carry more risk.
5. Schwab U.S. Dividend Equity ETF (SCHD)
Not everyone wants to chase highfliers. Some investors prefer consistency, cash flow, and rising dividends. The Schwab U.S. Dividend Equity ETF (SCHD -1.34%) checks all those boxes. It holds about 100 financially strong companies with solid balance sheets and a track record of paying and growing their dividends.
The ETF has a yield of nearly 4%, and the total return over the last decade has been a solid 11.2% per year, as of the end of June. It has outperformed most value-oriented funds and has a low 0.06% expense ratio. What many investors don't realize is that it is an index fund, tracking the Dow Jones U.S. Dividend 100 Index.
How to succeed with ETFs
Building long-term wealth doesn't require timing the market or even finding the next big stock like Nvidia. What it does require is consistency. All you need to do is start investing in a few high-quality ETFs and dollar-cost average into them on a regular basis. Time and the power of compounding will do the rest.
You can begin with $1,000, but the key is to keep going, investing regularly. That's how real wealth is built.
