Which is the best ETF to invest now?
1. Vanguard S&P 500 ETF (VOO 0.78%) Legendary investor Warren Buffett has said that the best investment the average American can make is a low-cost S&P 500 index fund like the Vanguard S&P 500 ETF.
| Exchange-traded fund (ticker) | Assets under management | Yield |
|---|---|---|
| Vanguard 500 Index ETF (VOO) | $406.2 billion | 1.4% |
| Vanguard Dividend Appreciation ETF (VIG) | $75.6 billion | 1.9% |
| Vanguard U.S. Quality Factor ETF (VFQY) | $298.0 million | 1.4% |
| SPDR Gold MiniShares (GLDM) | $6.1 billion | 0.0% |
| Symbol | Name | 5-Year Return |
|---|---|---|
| PSI | Invesco Semiconductors ETF | 25.18% |
| XLK | Technology Select Sector SPDR Fund | 24.36% |
| XHB | SPDR S&P Homebuilders ETF | 23.87% |
| IYW | iShares U.S. Technology ETF | 23.78% |
1. Vanguard S&P 500 ETF (VOO 0.78%) Legendary investor Warren Buffett has said that the best investment the average American can make is a low-cost S&P 500 index fund like the Vanguard S&P 500 ETF.
| FUND(TICKER) | EXPENSE RATIO | 10-YEAR RETURN AS OF MARCH 1 |
|---|---|---|
| Vanguard Growth ETF (VUG) | 0.04% | 13.97% |
| iShares Russell 1000 Growth ETF (IWF) | 0.19% | 14.66% |
| iShares S&P 500 Growth ETF (IVW) | 0.18% | 13.16% |
| Schwab U.S. Large-Cap Growth ETF (SCHG) | 0.04% | 14.88% |
| Symbol | Name | AUM |
|---|---|---|
| SPY | SPDR S&P 500 ETF Trust | $506,172,000.00 |
| IVV | iShares Core S&P 500 ETF | $446,478,000.00 |
| VOO | Vanguard S&P 500 ETF | $424,793,000.00 |
| VTI | Vanguard Total Stock Market ETF | $380,267,000.00 |
You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.
| Symbol | Name | Dividend Yield |
|---|---|---|
| SURI | Simplify Propel Opportunities ETF | 12.26% |
| XRMI | Global X S&P 500 Risk Managed Income ETF | 12.23% |
| QRMI | Global X NASDAQ 100 Risk Managed Income ETF | 12.20% |
| SDIV | Global X SuperDividend ETF | 12.06% |
The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.
Vanguard S&P 500 ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, VOO is a great option for investors seeking exposure to the Style Box - Large Cap Blend segment of the market.
What is the downside of ETFs?
For instance, some ETFs may come with fees, others might stray from the value of the underlying asset, ETFs are not always optimized for taxes, and of course — like any investment — ETFs also come with risk.
Key Takeaways
ETFs are less risky than individual stocks because they are diversified funds. Their investors also benefit from very low fees. Still, there are unique risks to some ETFs, including a lack of diversification and tax exposure.
Some funds, such as money market funds or certain exchange-traded funds (ETFs), are highly liquid and allow for same-day or next-day withdrawals. On the other hand, certain alternative investment funds or funds with lock-up periods may have limited liquidity, making it difficult to withdraw your money immediately.
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.
ProShares UltraPro QQQ is the most popular and liquid ETF in the leveraged space, with AUM of $20.4 billion (read: A Guide to Nasdaq ETF Investing).
Before purchasing an ETF there are five factors to take into account 1) performance of the ETF 2) the underlying index of the ETF 3) the ETF's structure 4) when and how to trade the ETF and 5) the total cost of the ETF.
ETFs offer advantages over stocks in two situations. First, when the return from stocks in the sector has a narrow dispersion around the mean, an ETF might be the best choice. Second, if you are unable to gain an advantage through knowledge of the company, an ETF is your best choice.
- Vanguard S&P 500 ETF (VOO)
- Schwab U.S. Small-Cap ETF (SCHA)
- Invesco QQQ Trust (QQQ)
- Vanguard High Dividend Yield Index ETF (VYM)
- Vanguard Total International Stock ETF (VXUS)
- Vanguard Total World Stock ETF (VT)
- iShares Core U.S. Aggregate Bond ETF (AGG)
| S&P 500 ETF | 1-yr | 3-yr |
|---|---|---|
| Returns after taxes on distributions | 25.85% | 9.56% |
| Returns after taxes on distributions and sale of fund shares | 15.87% | 7.70% |
| Average Large Blend Fund | ||
| Returns before taxes | 22.32% | 8.83% |
"A newer investor with a modest portfolio may like the ease at which to acquire ETFs (trades like an equity) and the low-cost aspect of the investment. ETFs can provide an easy way to be diversified and as such, the investor may want to have 75% or more of the portfolio in ETFs."
How long do you have to hold an ETF?
For most ETFs, selling after less than a year is taxed as a short-term capital gain. ETFs held for longer than a year are taxed as long-term gains. If you sell an ETF, and buy the same (or a substantially similar) ETF after less than 30 days, you may be subject to the wash sale rule.
For most standard, unleveraged ETFs that track an index, the maximum you can theoretically lose is the amount you invested, driving your investment value to zero. However, it's rare for broad-market ETFs to go to zero unless the entire market or sector it tracks collapses entirely.
The largest high dividend yield ETF is the Schwab U.S. Dividend Equity ETF (SCHD). The Vanguard High Dividend Yield ETF (VYM) is also a popular high dividend yield ETF.
| Ticker | Name | Annual dividend yield |
|---|---|---|
| SDOG | ALPS Sector Dividend Dogs ETF | 4.19% |
| OEUR | ALPS O'Shares Europe Quality Dividend ETF | 4.00% |
| RDIV | Invesco S&P Ultra Dividend Revenue ETF | 3.91% |
| LVHD | Franklin U.S. Low Volatility High Dividend Index ETF | 3.87% |
| Symbol Symbol | ETF Name ETF Name | % In Top 10 % In Top 10 |
|---|---|---|
| VIG | Vanguard Dividend Appreciation ETF | 32.12% |
| VYM | Vanguard High Dividend Yield Index ETF | 26.25% |
| VYMI | Vanguard International High Dividend Yield ETF | 14.46% |
| VIGI | Vanguard International Dividend Appreciation ETF | 34.27% |
