A lot of investors think they will wait for the next big stock market drop before putting money to work. That is a dangerous strategy. A J.P. Morgan study found that over the last 20 years (ending in 2023), seven of the 10 best market days happened within two weeks of the worst days. If you missed out on those big rebound days, your return was cut in half.
You may think that's not relevant given that the market is currently trading near all-time highs, but some investors are likely waiting for a dip. However, this study shows that the rebound often happens so quickly that even if you correctly identify that a dip is coming, you're likely going to miss the rebound. Essentially, you have to time the market right twice, which is no easy task and more than likely will lead to you missing out on gains.
That is why dollar-cost averaging is so important. It takes emotions and market timing out of the game. The key is to just start investing and continue to invest on a regular, set basis. Starting with $1,000 and adding the same amount each month can lead to a multimillion-dollar portfolio if you hold it for 30 or more years.
Let's look at four exchange-traded funds (ETFs) worth buying every month and holding for the next few decades.
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Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (VOO -0.56%) is the simplest way to stay fully invested in the market and not worry about picking individual stocks. It tracks the S&P 500 index, which consists of the 500 largest companies in the U.S. Its holdings are diversified across sectors, although as technology stocks have outperformed, they now account for about a third of the index.
The ETF has delivered a 14.6% annualized return over the last decade. If you only have room for one ETF in your portfolio, this is the one that can help you compound wealth for decades.
Vanguard Growth ETF
For investors who want to put more emphasis on fast-growing companies, the Vanguard Growth ETF (VUG -1.05%) is a great way to do it. This ETF focuses on large-cap growth stocks, giving you a heavy dose of technology and consumer companies with strong revenue momentum.
The ETF tracks the CRSP US Large Cap Growth Index, which is essentially the growth portion of the S&P 500. More than 60% of the ETF's holdings are in the tech sector, which has helped power it to an average annual return of 17.1% the past 10 years. If you're a big believer in artificial intelligence (AI) stocks, this is a good way to get some great exposure without solely focusing on the sector.
Invesco QQQ Trust
The Invesco QQQ Trust (QQQ -0.66%) takes growth exposure up another notch. It tracks the Nasdaq-100, which is heavy in technology and innovation-focused companies. Tech makes up more than 60% of the fund, which is why it has dramatically outperformed the S&P 500 over the last decade with a 19.4% average annual return.
While it shares many of the same top holdings as the Vanguard Growth ETF, it is slightly less concentrated among its top positions. Its expense ratio is a bit higher than Vanguard's ETFs at 0.2%, but the fund's results speak for themselves.
Schwab U.S. Dividend Equity ETF
Right now, the market is all about growth, but adding a value and income component to your portfolio can balance out the growth-heavy nature of the first three ETFs. The Schwab U.S. Dividend Equity ETF (SCHD 0.55%) does this by focusing on companies with consistent free cash flow and a strong record of raising dividends. The fund currently yields close to 4%, which is attractive whether you reinvest it back into the ETF or take the cash.
Over the last decade, SCHD has returned about 12.3% annually, which is solid given how much growth has outperformed over this period. It's also solidly ahead of the 10.4% return from large-cap value funds over the same period, according to Morningstar.
