Key Points
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These five ETFs spread your dollars across big American companies, dividend-paying companies, semiconductor stocks, foreign companies, and bonds.
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Each has a low or reasonable expense ratio — annual fee.
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Each should perform well over the long run.
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When you’re looking to invest some long-term dollars, consider doing so via exchange-traded funds (ETFs), which are funds that trade like stocks, making them easier to get in and out of than regular mutual funds. (Of course, as a long-term investor, you’ll be planning to hang on for a long time.)
Here’s a handy set of five ETFs to consider for your portfolio. Together they offer diversification, and each also sports a low expense ratio (annual fee), too. After I introduce them, I’ll show how a $10,000 total investment in them might perform over 20 years.
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Meet the five ETFs
Here are the five ETFs I’m suggesting:
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ETF
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Expense Ratio
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Recent Yield
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5-Year Avg. Annual Return
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10-Year Avg. Annual Return
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Vanguard S&P 500 ETF (NYSEMKT: VOO)
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0.03%
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1.06%
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13.17%
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15.62%
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Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD)
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0.06%
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3.24%
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9.70%
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13.18%
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First Trust Nasdaq Semiconductor ETF
(NASDAQ: FTXL)
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0.60%
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0.07%
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28.53%
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28.29%
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Vanguard Total International Stock Index Fund ETF Shares (NASDAQ: VXUS)
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0.05%
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2.34%
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8.43%
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9.29%
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Vanguard Total Bond Market Index Fund ETF Shares (NASDAQ: BND)
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0.03%
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4.17%
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(0.36%)
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1.33%
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Source: Data from Morningstar.com as of mid-October.
Vanguard S&P 500 ETF
Let’s start with perhaps the least surprising ETF: Vanguard’s S&P 500 index fund. It’s been recommended by both Warren Buffett and The Motley Fool for decades. It encompasses 500 of the biggest companies in America, which together make up about 80% of the overall market. It’s essentially a bet on the future of America.
One nice thing about it (and about most index funds) is that the folks who oversee the index will kick out some companies now and then to make room for better-suited companies. So the collection of businesses doesn’t grow stale. Top holdings recently were Nvidia and Apple.
For this and other funds, take note of the expense ratio. Vanguard is known for ultra-low fees, and this 0.03% ratio means that for every $10,000 you have invested in the fund, you’ll pay $3 per year. (Not bad, right?) As you note those nice returns for the ETF in the table above, remember that the past decade has featured extra-good returns for stocks. Over many decades, the S&P 500 has averaged annual returns closer to 10% (ignoring inflation).
Schwab U.S. Dividend Equity ETF
Next up is the Schwab U.S. Dividend Equity ETF, and it’s here because it’s a solid dividend payer — and also a solid grower. It tracks the Dow Jones U.S. Dividend 100 Index, which features about 100 stocks with track records of paying dividends for at least 10 years — and which also seem to be financially strong companies.
The ETF’s dividend yield was recently a respectable 3.24%, and its expense ratio a mere 0.06%. Top holdings include Texas Instruments, Procter & Gamble, and Chevron.
First Trust Nasdaq Semiconductor ETF
This ETF is in the collection for growth. When the market pulls back (as it will inevitable do from time to time), this ETF and growth stocks in general will typically fall harder than other stocks or the overall market. Still, over the long haul, they tend to grow briskly. This ETF has averaged annual gains of 28% over the past decade and 52% over the past three years.
Its expense ratio is 0.60%, meaning you’ll have to cough up $60 annually for every $10,000 you have invested in the fund. Its top holdings recently were https://www.morningstar.com/etfs/xnas/ftxl/portfolioQualcomm and Intel.
Vanguard Total International Stock Index Fund ETF
This ETF is here to represent the rest of the world, since America does not have the only stock market around. It features some 8,800-plus companies from everywhere except the U.S., and its top holdings recently included Taiwan Semiconductor Manufacturing and SK Hynix. Its expense ratio is a low 0.05%, and it has averaged annual gains of 9% over the past decade and nearly 15% over the past year.
Vanguard Total Bond Market Index Fund ETF
Finally, diversifying in another way, this ETF is here to offer exposure to bonds. It sports an ultra-low expense ratio of 0.03% and it has averaged annual gains of 1.85% over the past 15 years. Its yield was recently 4.2% and it tracks the Bloomberg US Aggregate Float Adjusted Index, which encompasses investment-grade, fixed-rate, taxable bonds.
How might your money grow?
Let’s assume you plunk $2,000 into each of these funds and, to be a bit conservative, we’ll assume that each grows by somewhat less than the current 10-year average annual gain for each fund:
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ETF
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Assumed annual growth rate
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After 20 years grows to
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Vanguard S&P 500 ETF
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10%
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$13,455
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Schwab U.S. Dividend Equity ETF
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10%
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$13,455
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First Trust Nasdaq Semiconductor ETF
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20%
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$76,675
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Vanguard Total International Stock Index Fund ETF Shares
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8%
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$9,322
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Vanguard Total Bond Market Index Fund ETF Shares
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1%
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$2,440
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Total
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$115,347
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Source: Calculations by author.
None of these estimates are guaranteed, but you may be able to grow your $10,000 stake into more than $100,000 over 20 years with this mix. You might do better, though — or worse.
Should you really not touch these ETFs for 20 years?
If you invest in some or all of these funds, or any other stocks or funds, do not ignore them for 20 years. Instead, buy with the intention of hanging on for 20 years or more, but do keep up with their progress over time. That way, if they seem to lose their way, you might consider selling.
Just be sure that you are saving for your future, because your retirement will need some extra help beyond Social Security.
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Selena Maranjian has positions in Apple, Nvidia, Procter & Gamble, SK Hynix, Schwab U.S. Dividend Equity ETF, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Apple, Chevron, Intel, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, Texas Instruments, Vanguard S&P 500 ETF, and Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.
