Are you the sort of investor who embraces the buy-and-hold strategy, preferring to do your due diligence up front and then let the returns accumulate over time? If so, index-based exchange-traded funds (ETFs) may be a good vehicle for you. Even Warren Buffett knows it’s hard to beat index funds. In fact, he made a point of requesting that 90% of the money he leaves his wife when he dies be invested in an S&P 500 index fund.
Of course, you don’t have to park all your money in an S&P 500 fund. In fact, most experts recommend some diversification. But as far as long-term investments go, indexed funds are an attractive and typically low-cost choice. (Investopedia has put together a list of the best online stock brokers for stock trading if you’re looking to get started with ETFs.)
What Is an ETF?
An ETF is a security that tracks a stock index, a commodity, bonds, or a basket of assets. ETFs can differ from mutual funds because shares trade like common stock on an exchange. An ETF owns underlying assets and divides ownership of those assets into shares.
Top ETFs for Long-Term Investors
If you’re doing some portfolio planning for 2019, here are a few good bets for ETFs that work for long-term investors. All year-to-date (YTD) performance figures are based on fiscal year 2019. Funds were selected based on a combination of performance over time and assets under management (AUM). All figures were current as of Feb. 3, 2019.
- Issuer: Vanguard
- Assets under management: $103.78 billion
- YTD performance: 8.70%
- Expense ratio: 0.04%
If you’re not sure which index to follow, or you want to hedge your bets across a variety of sectors and market caps, this is the fund for you. As the name implies, the Total Stock Market ETF covers the entire domestic stock market, tracking the CRSP U.S. Total Stock Market Index. VTI is a balanced fund, with a good mix of mid- and small-cap equities, in addition to blue chips.
VTI is an extremely efficient fund with a low expense ratio. The fund hit a high of $144.00 on Dec. 3, 2018. Since hitting that high, the stock has see-sawed a bit. Since hitting that high, the stock has see-sawed a bit, hitting a low of $119.35. Investors will need to decide if current levels warrant an entry or if it is better to hold off a bit longer. (For related insight, read more about whether VTI is the best index fund.)
- Issuer: State Street Global Advisors
- Assets under management: $250.96 billion
- YTD performance: 8.06%
- Expense ratio: 0.09%
This is the granddaddy of ETFs – the oldest and most easily recognized of the exchange-traded funds. It tops the list in terms of AUM and trading volume, making it appropriate for both tactical traders and buy-and-hold investors. The fund tracks the S&P 500, which is a group of equities from the U.S. large-cap space (although not always the largest) selected by a committee.
Technically, SPY is a unit investment trust (UIT), which means that the fund can’t reinvest cash dividends between distributions, a minor detail that may slightly affect performance compared with the index. Regardless, this fund has solid three-year and five-year performance figures at 47.92% and 67.35%.
- Issuer: iShares
- Assets under management: $55.23 billion
- YTD performance: 6.75%
- Expense ratio: 0.08%
IEFA delivers exposure to developed-market stocks in Europe, Australasia and the Far East, excluding domestic and Canadian equities. Its benchmark index, the MSCI EAFE, covers about 98% of investable markets and includes small caps in proportion to the market, which is something that competing funds don’t do. Japan and the U.K. take the top two spots in the fund’s portfolio, which is tilted toward financials and industrials.
There are 2,759 equities in the fund, which is well diversified. This is a highly liquid fund with tight spreads and low ownership costs, making it a good choice for both long- and short-term investors who want exposure to markets outside of North America. The fund is newer than the other two, with an inception date of October 18, 2012. Year-to-date, the price of the stock has seesawed and is currently up 6.75%. Nonetheless, the three year and five-year performance figures are on the positive side, at 24.94% and 16.88%, respectively. (For related insight, read more about IEFA’s ongoing growth.)