2 No-Brainer ETFs That Every Investor Should Have in Their Portfolio
The best chance of long-term investing success is having a diversified portfolio. For most investors, that means a group of 25 to 30 stocks that vary across industry, size, and other factors. But adding exchange-traded funds (ETFs) can bring this strategy up several notches, providing exposure to hundreds or thousands of stocks while minimizing risk.
There are niche ETFs that investors can buy to benefit from specific trends or investment types without making a bet on a single stock or putting too much money into a small group. A great example is the Global X Artificial Intelligence & Technology ETF, which gives investors exposure to artificial intelligence (AI) stocks and has beaten the market over the past year.
That will appeal to some investors. But there are other ETFs that belong in every investor's portfolio.
1. Owning the market
One of the best ways to play the market is to own the market. But instead of investing in every stock out there, or even every stock in the S&P 500 index, typically a stand-in for when investors refer to "the market," you can make your life a lot easier by buying an ETF that tracks it.
It's not easy to beat the market. The majority of actively managed funds don't manage to do it, and you have to pay them, to boot. For most investors, it makes sense to own shares of an ETF that's made up of all of the stocks in the S&P 500 and let it work for you, gaining and compounding over time.
The Vanguard S&P 500 ETF (NYSEMKT: VOO) is a classic S&P 500 ETF, and it's an excellent choice. It has the strong Vanguard brand name and a low expense ratio of only 0.03%, whereas the average for similar ETFs is 0.78%. That means you keep more of your gains.
Like the index itself, this ETF is weighted, so stocks with larger market caps have a bigger presence. The top holdings include Apple and Microsoft, but you get exposure to the other 498 or so in the fund.
The Vanguard ETF, like the index itself, offers steady growth without the intense volatility that can come with more niche ETFs. In the example I used above, the AI ETF, like most AI ETFs, is trailing the market this year. Over time it may or may not beat the market, but investors who are looking for steadier gains may not want to deal with the long-term volatility and risk.
Warren Buffett recommends buying an S&P 500 ETF, and he owns two different ones, including the Vanguard. For long-term investors looking to maximize their money while moderating risk, it's a no-brainer.
2. Beating the market
Most actively managed funds don't beat the market, but there are growth-focused index funds that do, and they don't come with much higher risk. The Vanguard Growth ETF (NYSEMKT: VUG) has been a clear winner, offering exposure to about 200 industry-leading stocks. Like the S&P 500 fund, it mirrors an index. In this case, it's the CRSP US Large Cap Growth Index.
It's very similar to the standard S&P 500 ETF, but it creams off the top 200 stocks. That's still a large range of stocks to diversify your holdings, and these are established industry leaders, so while there's more risk, it's still low.
Don't let the "growth" moniker scare you. This is more of a large-cap group than a true growth group, so its top holdings are similar to the S&P 500's and include stocks like Eli Lilly and Visa.
Its expense ratio is a drop higher at 0.04%, but it's still much lower than the average of similar ETFs, which is 0.95%.
Finally, over time, the growth ETF has outperformed the S&P 500.
Long term, that has translated into many extra dollars.
It makes sense for most investors to have both of these ETFs, benefiting from the steady reliability of the S&P 500 index while maximizing gains with the growth ETF.
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Jennifer Saibil has positions in Apple. The Motley Fool has positions in and recommends Apple, Microsoft, Vanguard Index Funds-Vanguard Growth ETF, Vanguard S&P 500 ETF, and Visa. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
2 No-Brainer ETFs That Every Investor Should Have in Their Portfolio was originally published by The Motley Fool