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Building a strong investment portfolio can be challenging, because there are seemingly limitless options to choose from. If you’re new to the stock market, all of those choices can be overwhelming.
The good news is that it’s easier than you may think to create a solid core portfolio. These three types of investments are a fantastic choice regardless of where you are on your investing journey, and they can help send your savings to the moon.
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1. S&P 500 ETFs
An S&P 500 ETF is a group of stocks that is designed to mirror the performance of the S&P 500 index itself. That means each of these funds contains around 500 stocks from the largest U.S.-based companies.
This type of investment is one of the more stable and lower-risk options. While the S&P 500 does experience short-term volatility, it’s earned an average rate of return of around 10% per year since its inception. In other words, the highs and lows each year average out to around 10% annually over time.
These funds are also very likely to recover from market crashes. The S&P 500 has endured countless corrections and crashes over the years, but it’s survived each and every one so far. Although there are never any guarantees in investing, there’s a very good chance it will recover from any future crashes as well.
Where to get started: There are many S&P 500 ETFs to choose from, and they’re all similar. Some of the best options include:
Vanguard S&P 500 ETF (NYSEMKT: VOO)
iShares Core S&P 500 ETF (NYSEMKT: IVV)
SPDR S&P 500 ETF Trust (NYSEMKT: SPY)
2. Growth ETFs
A growth ETF is a fund that contains stocks with higher-than-average growth rates. The advantage of this type of investment is that you may earn higher returns than you would with a broad-market fund like an S&P 500 ETF.
The downside, though, is that growth ETFs can be on the riskier side. High-growth stocks can be more volatile than their more established counterparts, so you may see more ups and downs with this type of fund than you would with an S&P 500 ETF.
That said, many growth ETFs include companies that have experienced phenomenal growth but are also strong businesses, such as Amazon, Apple, and Microsoft. These organizations are still subject to volatility in the short term, but it’s very likely they’ll experience long-term growth.
Where to get started: It’s important to choose carefully when investing in a growth ETF, because not all funds are created equal. Some funds only contain smaller organizations from niche industries, for example, which poses more risk than a fund that includes large corporations from a variety of industries. A few of the stronger growth ETFs include:
Vanguard Growth ETF (NYSEMKT: VUG)
iShares Russell 2000 Growth ETF (NYSEMKT: IWO)
Invesco QQQ ETF (NASDAQ: QQQ)
3. Dividend ETFs
A dividend ETF is a collection of stocks that will actually pay you to own them. Some companies pay a portion of their profits back to shareholders each quarter or year, which is called a dividend. By investing in a dividend ETF, you’ll earn quarterly or annual dividend payments in addition to the fund’s normal earnings.
By investing consistently over time, you could build a source of passive income with dividend ETFs. Most funds also offer the opportunity to reinvest your dividends and buy more shares of that particular ETF. By reinvesting, you can gradually buy more shares without having to pay more money out of pocket. And the more shares you own, the more you’ll receive in dividends.
Where to get started: As with growth ETFs, all dividend ETFs are different and offer varying levels of risk and reward. Some of the most popular funds include:
Vanguard Dividend Appreciation ETF (NYSEMKT: VIG)
iShares Core High Dividend ETF (NYSEMKT: HDV)
Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD)
Choosing the right investments isn’t as challenging as it may seem. By building a portfolio filled with solid funds, you’ll be on your way to generating long-term wealth.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Katie Brockman owns shares of Vanguard Growth ETF and Vanguard S&P 500 ETF. The Motley Fool owns shares of and recommends Amazon, Apple, Microsoft, Vanguard Dividend Appreciation ETF, Vanguard Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
