Exchange-traded funds (ETFs) can be fantastic investments for many people, especially those looking for a simple, hassle-free option.
An ETF is a basket of securities pooled into a single investment. When you invest in one, you are actually investing in tens, hundreds or even thousands of stocks at once. Not only does this make building a diversified portfolio easy, it also helps take the guesswork out of what to buy.
Not all ETFs are created equal, however, and some are better investments than others. These three would be great additions to most portfolios as we head into 2024.
1. iShares Core S&P 500 ETF
The iShares Core S&P 500 ETF (IVV -1.43%) tracks S&P 500, so it includes all the same stocks as the index and reflects its performance over time. If you are looking for a safer and more reliable investment, this ETF may be a good fit for your portfolio.
S&P 500 ETFs, in general, are incredibly consistent. In fact, analysts at Crestmont Research examined the index’s long-term performance and found that for every single 20-year period in history, the index ended with a positive total return. So if you invested in an S&P 500 ETF or index fund at any point (or bought the same portfolio yourself, before ETFs existed) and just held it for 20 years, you would have made money.
Although the S&P 500 naturally experiences fluctuations and even sharp declines in the short term, it has a long track record of recovering from declines. If you’re nervous about the market or just want an investment that can stand the test of time, the S&P 500 ETF is a safe bet.
Additionally, the iShares Core S&P 500 ETF has the lowest expense ratio at just 0.03%. This is much lower than many other ETFs, and the difference can save you thousands of dollars in fees over time.
2. Invesco QQQ Trust
Invesco QQQ Trust (QQQ -1.49%) is a growth ETF containing primarily technology stocks. He tracks Nasdaq-100 an index that consists of the 100 largest non-financial companies listed on Nasdaq.
This fund was launched in 1999, making it one of the older ETFs in existence. It also has a history of beating the broader market. Over the past 10 years, the Invesco QQQ Trust has averaged a total rate of return of over 17% per year. The iShares Core S&P 500 ETF, by comparison, has earned an average return of just under 12% per year during that time.
While this investment can help you earn above-average returns, it also carries more risk than a broad-market fund. High-growth stocks (especially technology stocks) tend to be more volatile than their more established counterparts. When the market is booming, this ETF can earn higher than average returns. But it can also experience steeper-than-average declines during downturns.
Before investing in the Invesco QQQ Trust, consider what risk you are willing to take. If you can handle more extreme ups and downs in exchange for potentially higher returns over time, this could be a smart investment for you.
3. Vanguard Growth ETF
The Vanguard Growth ETF (VUG -1.31%) occupies somewhat of a middle ground between the iShares S&P 500 ETF and the Invesco QQQ. It is designed to earn above average returns over time, but also has sufficient diversification.
This ETF contains 221 stocks and is split between smaller, high-growth companies and blue-chip stocks. Its top 10 holdings make up about half of its total value, and those stocks include big names like An apple, Microsoft, Nvidiaand Visa.
The other half of the fund consists of smaller stocks with the potential for explosive growth. Balancing solid companies with growth stocks can help limit risk while increasing your potential gains.
Like the Invesco QQQ, the Vanguard Growth ETF carries more risk than an S&P 500 ETF or other broad market fund. But over the past 10 years, it has earned an average rate of return of just under 14% annually — higher than the iShares S&P 500 ETF but not as high as the Invesco QQQ.
Which one you choose to invest in will largely depend on your goals and risk tolerance. If you’re looking for a safe and stable investment, the S&P 500 ETF is probably your best bet. On the other hand, if you’re willing to take on more risk for the chance of higher-than-average returns, a growth ETF may be right for your portfolio.
Katie Brockman has positions in Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, Vanguard Index Funds-Vanguard Growth ETF and Visa. The Motley Fool has a disclosure policy.