For followers of Warren Buffett (Trades, Portfolio)’s “buy-and-hold" strategy, patience is a virtue. Time in the market can make an investor a fortune, and it is less anxiety-inducing and time-consuming than day trading.
For smaller or beginning investors, exchange-traded funds can be a shortcut to broad exposure to the growth end of the stock market.
Investing in ETFs for long-term growth has never been more affordable than now. Beginning investors can purchase fractional shares of ETFs to get started, building a portfolio for long-term growth as they continue investing.
By using dollar-cost averaging to increase market exposure and flatten share prices over time, steadily buying ETF shares and not selling during corrections, patient investors can watch their investments grow.
Less than 20 years ago, there were only a hundred or so exchange-traded funds. Today, there are more than 2,000, and that number grows daily. ETFS range from indexed funds to sectors including utilities, real estate, different types of stocks, bonds and more. As such, ETFs are more diverse than ever.
To make the most of ETF investing, investors should gain exposure to a variety of funds for diversified asset allocation. Here are some options with low fees and plenty of growth potential over time. As with any investment, past growth does not indicate future performance.
Vanguard Total Stock Market ETF
The Vanguard Total Stock Market ETF (VTI, Financial) has about 3,500 holdings in its portfolio, including tech stocks such as Apple Inc. (AAPL, Financial) and Microsoft Corp. (MSFT, Financial) as well as Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), Johnson & Johnson (JNJ, Financial) and more. In 2020, the ETF featured a 1.71% dividend yield. In 2021, its value has grown by more than 25%. The 10-year growth rate is more than 16%.
Vanguard S&P 500 ETF
The Standard & Poor’s 500 Index represents 500 of the largest companies in the United States. The Vanguard S&P 500 ETF (VOO, Financial) gives investors exposure to them all. The ETF's dividend yield was 1.81% in 2020 and, in the past year, its price went up by nearly 27%. Over the past decade, the ETF saw 16% growth.
SPDR S&P ETF Trust
SPDR has an S&P 500-based ETF (SPY, Financial) that includes large-cap and mid-cap stocks from the S&P 500 Index. Its dividend yield of 1.82% will add to portfolio growth, especially if dividends are reinvested. During the past year, the ETF was up by 26.86%, with more than 16% growth since 2011.
Vanguard Russell 2000 ETF
The Vanguard Russell 2000 ETF (VTWO, Financial) tracks the Russell 2000 index, a listing of small-cap stocks in the U.S., so this fund gives investors exposure to smaller-cap companies that could grow in the future such as Arrowhead Pharmaceuticals Inc. (ARWR, Financial) and AMC Entertainment Holdings Inc. (AMC, Financial). Since these are smaller growth stocks, the ETF's dividend yield is lower (at 0.76% in 2020). Over the past decade, the ETF has experienced 14% growth. Growth in 2021 tops 20%.
IShares MSCI EAFE ETF
The acronym EAFE stands for Europe, Australasia and the Far East, so the iShares MSCI EAFE ETF (EFA, Financial) gives investors exposure to foreign stocks. Since the ETF holds only stocks of companies from outside the United States, it is a hedge against economic problems in America. Its portfolio includes Toyota Motor Corp. (TM, Financial), Nestle (XSWX:NESN, Financial) and Novartis AG (XSW:NOVN). The ETF's dividend yield was 2.13% in 2020. It has produced returns of 8.17%.
Vanguard High Dividend Yield ETF
A high-dividend ETF can grow a portfolio significantly with dividend reinvestment, or DRIP. The Vanguard High Dividend Yield ETF (VYM, Financial) is based on the FTSE High Dividend Yield Index, which includes high-value stocks such as Johnson & Johnson and JPMorgan Chase & Co. (JPM, Financial). The ETF had a dividend yield of 2.81% in 2020. Over the past decade, it had gains of more than 13%, including 22% year to date.
IShares Core MSCI Emerging Markets ETF
The iShares Core MSCI Emerging Markets ETF (IEMG, Financial) has diversification through more than 2,500 positions across China, India, South Korea and Brazil. During the past five years, the ETF produced returns of more than 10%. It had a healthy dividend yield of 2.17% in 2020.
Vanguard Total Bond Market ETF
The Vanguard Total Bond Market ETF (BND, Financial) gives investors looking for a hedge exposure to government bonds, corporate bonds and even mortgage debt through agencies such as Fannie Mae (FNMA, Financial). Since interest rates are at a historic low, dividend yields will be lower with the ETF than with equities. Growth in share price could grow, though. Its performance over the past decade was a return of 3.36% and, in 2020, its dividend yield was 2.38%.
Invesco S&P Pure Growth ETF
The Invesco S&P Pure Growth ETF (RPG, Financial) includes S&P 500 value stocks and growth stocks. Invesco screens holdings for value as well as growth potential for the long term. The ETF's 10-year return is 15.19%. This year, it is up more than 35%.
Vanguard FTSE All-World ex-U.S. ETF
The Vanguard FTSE All-World ex-U.S. ETF's (VEU, Financial) portfolio includes stocks such as Alibaba (BABA, Financial), Samsung (XKRX:005930, Financial) and Roche (RHHBY, Financial), among the world’s best. The ETF's dividend yield was 2.31% in 2020. Over the past decade, it returned 7.79%.
