Despite all the chatter about the stock market being overheated, the bull market just surpassed its third anniversary. History, meanwhile, gives a clear picture of what will happen next.
According to data compiled by Carson Group, every bull market over the past 50 years that has made it to three years has continued until at least five years. There have been five bull markets in that span, with the shortest fizzling out after five years and the longest lasting more than 12 years.
Meanwhile, since 1950, bull markets have lasted an average of five and a half years, so this market still should have some legs. In addition, whenever the S&P 500 has rallied more than 35% in a six-month period since 1950, like it did earlier this year, the market has been up 12 months later. During these five periods, the average return a year later was 13.4%.
Image source: Getty Images.
That said, for exchange-traded fund (ETF) investors, the best strategy remains dollar-cost averaging in both good markets and bad. This will take out trying to time the market, and is what will ultimately help you create long-term wealth.
Let's look at three great ETFs to buy as we head into the fourth year of this current bull market.
The Vanguard S&P 500 ETF
The S&P 500 is the benchmark for the U.S. stock market, and very few actively managed funds outperform it in the long run. In fact, over the past decade, only about 14% of actively managed funds have been able to top the index. That is why investing in a fund that tracks the performance of the S&P 500 is a simple yet wise investment choice. With an expense ratio of just 0.03%, the Vanguard S&P 500 ETF (VOO +0.47%) is a great, low-cost option.
NYSEMKT: VOO
Key Data Points
The ETF has generated a solid 14.6% average annual return over the past decade, as of the end of November. It's performed even better during this bull market run, up an average of 20.5% over the past three years.
The Vanguard Growth ETF
While the S&P 500 has been on a strong run, it's largely been growth stocks that have been leading the way higher. That's why investing in the Vanguard Growth ETF (VUG +0.70%) can be a smart move. The ETF essentially tracks the performance of the growth side of the S&P 500, removing the value stocks from the equation.
NYSEMKT: VUG
Key Data Points
The ETF has been a strong performer over the years. It's produced an annual return of 17.2% over the past 10 years. Meanwhile, during this strong three-year run, the ETF has more than doubled, up 107.4%, or 28.9% on a yearly basis.
The Invesco QQQ Trust
While actively managed funds have struggled to outpace the S&P 500 over the long term, it's been no issue for the Invesco QQQ Trust (QQQ +0.47%). The ETF tracks the performance of the tech-heavy Nasdaq-100 index, and it has outperformed the S&P 500 on a rolling 12-month basis nearly 88% of the time over the past 10 years. That's a remarkable string of consistency.
NASDAQ: QQQ
Key Data Points
With the ETF, investors are getting a heavy dose of the tech stocks leading the charge in artificial intelligence (AI). Nearly two-thirds of the ETF's portfolio is in tech stocks, although if you include cloud computing giant Amazon and autonomous vehicle company Tesla, it would be closer to three-quarters.
The ETF has been a great performer, up an average of 19.4% annually over the past decade. During the past three years, it's up an average of 29.1%.
