Just getting started with investing? A good idea can be to begin by adding some diverse exchange-traded funds (ETFs) to your portfolio. Focus on ETFs first, put the bulk of your money into them, and that can ensure that you're not too dependent on individual stocks.
Safety and diversification are always important, as there's nothing more discouraging than starting out with a loss because you may have picked a bad stock. This way, even if your stock-picking abilities don't turn out to be great, you'll have the comfort of knowing that the majority of your portfolio is tied up in relatively safe ETFs.
Picking the right ETFs is important, however, as there's a broad mix of them in the market that you can choose from. Some focus on growth, others on dividends, while some simply attempt to mirror the S&P 500 (^GSPC 1.08%) and give you exposure to the overall market.
Three ETFs that could make for great options to get started with include the Vanguard S&P 500 ETF (VOO 1.12%), Roundhill Magnificent Seven ETF (MAGS 1.53%), and iShares Core High Dividend ETF (HDV +0.32%). Here's why these can be good options for new investors to build their portfolios around.
Image source: Getty Images.
1. Vanguard S&P 500 ETF
A good first ETF to put into your portfolio is the Vanguard S&P 500 ETF. The S&P 500 is a collection of the leading stocks on U.S. markets, which means it covers all the largest, most successful companies in the world.
It's hard to go wrong with the index, as it has averaged an annual return of 10% per year for decades. There are bad years along the way, but historically, investors have done well by simply tracking the index, and that's what this Vanguard ETF does.
It charges a low expense ratio of 0.03%, ideal for long-term investors, as that means your fees will be minimal. On a $10,000 investment, for example, that translates into an annual fee of just $3. It's a great, low-cost way to just track the market.
NYSEMKT: VOO
Key Data Points
Given its diversification and broad exposure to the overall market, this is an ETF where you can feel comfortable putting the majority of your money. While you might still incur declines if the stock market experiences a broad correction or crashes, you can be confident in knowing that it'll recover in the long run.
2. Roundhill Magnificent Seven ETF
The Roundhill fund is a bit of a riskier ETF, as its focus is strictly on the "Magnificent Seven" stocks, which include the biggest names in tech: Apple, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla.
While you won't get much in the way of diversification with the ETF, you will get an easy way to invest in all these top stocks without having to manually track them yourself. You may be tempted to invest in a broad tech ETF, but with these companies often leading the charge in the sector, simply tracking the leaders can be a good move.
NYSEMKT: MAGS
Key Data Points
Given that they are in tech and highly vulnerable to trends related to artificial intelligence (AI), this is undoubtedly the riskiest ETF on this list. Thus, you'll likely want a smaller position in this fund relative to the others. But from a growth perspective, this can be a great investment to hang on to for the long haul. This year, it has risen by 23% in value, which is far better than the S&P 500's return of 16%.
3. iShares Core High Dividend ETF
This last ETF, the iShares Core High Dividend ETF, will give you a steady stream of recurring dividend income. At just over 3%, you'll be collecting a dividend that's higher than the S&P 500 average of only 1.2%. You can use this if you need the cash flow, without having to sell anything. Or, you can reinvest the dividends to pad your overall returns.
What's attractive about this fund is that it focuses on not just any dividend stocks, but high-quality U.S. companies. These are stocks that are financially strong and that can be relied on for dividends.
As of Dec. 8, there were 75 holdings in the fund. It's not the most diverse ETF by any stretch, but by carefully selecting and screening the stocks in its portfolio, it can reduce the overall risk for investors, which is key if your priority is dividend income.
ExxonMobil, Johnson & Johnson, Coca-Cola, and Procter & Gamble are among the top holdings in this fund, and are all stocks that are all popular options for dividend investors. Not only are these stocks reliable dividend payers, but they've also been increasing their payouts for decades.
NYSEMKT: HDV
Key Data Points
The iShares Core High Dividend ETF has generated modest gains of around 9% this year. It's not the flashiest or most exciting ETF, but it can be a reliable one to hang on to for the long haul and be a pillar for your portfolio for decades.
