Key Points
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It’s hard to go wrong with buying an index fund.
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Getting some Bitcoin exposure via an ETF is also a good move.
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Holding a gold ETF means getting some protection from inflation.
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There’s something satisfying about putting $1,000 into an exchange-traded fund (ETF) that you know you can leave alone for the next 25 years and probably have a decent return at the end.
To truly have the confidence that you won’t need to touch an investment over such a long period, it’s necessary to pick assets that can weather everything from recessions to fads, and especially those stretches when it looks like you made a big mistake with the purchase.
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Here are three that I own and would happily allocate another $1,000 to today. I don’t plan to sell any of them for at least the next two-and-a-half decades.
1. The index fund to rule them all
Every portfolio needs an anchor, and the Vanguard S&P 500 ETF (NYSEMKT: VOO) is one that’s cheap and as sturdy as they come.
It holds 505 stocks to track the S&P 500, and it charges an expense ratio of just 0.03%, or $0.30 a year on an initial purchase of $1,000. Over the 10-year period ending on Sept. 30, the fund returned an average of 15.3% a year. It’s very hard to beat that return over such a long timescale with pretty much anything else.
The biggest strength of the index underlying the ETF is that it updates itself, adding companies as they grow large enough and dropping ones that shrink. You won’t need to worry about picking winners or avoiding losers; it’s all handled.
It’s the simplest way I know to build wealth with index funds. That’s why I own it, and why I’ll continue to buy it on a regular basis for years to come.
2. The Bitcoin ETF
Bitcoin is a scarce store of value, as its protocol limits the number of Bitcoin that can ever exist to 21 million coins. 20.1 million of those are already in circulation as of Nov. 5. The next halving, a 50% cut in the pace of issuance of new supply up to the limit, will occur in 2028, and halvings are spread out such that there’s approximately one occurring every four years.
The point of holding this asset is that no government can print more of it, which, as a result of its slow production of supply and its supply’s finite nature, makes it a strong hedge against currency debasement. In the context of this slow-moving asset, a holding period of 25 years is perfect, as it gives the holder exposure to at least five halvings. These tend to be the events that drive the coin’s bull market cycles.
The iShares Bitcoin Trust ETF (NASDAQ: IBIT) is one strong option for exposure, as it holds the coin directly, so you get the upside of its scarcity without the need to manage a digital wallet or interact with any blockchain. As for the ETF’s fees, its expense ratio is 0.25% per year.
The main irritant for investors who hold Bitcoin or its ETF is the coin’s volatility, which is significant. For example, Bitcoin’s price was near $76,184 on Nov. 5, down 26.7% from a year prior. Expect a lot more bear markets like that for the coin over the next 25 years. Of course, its bull markets are far better than the bear markets are bad: It’s up by 129% in the last three years alone.
3. The gold exposure
Gold is the traditional version of the idea outlined above regarding Bitcoin, as it’s a scarce store of value asset that’s difficult to produce, and which no government can ever print or completely ban. It’s one of the classic inflation hedges, and it’s proven to work well in that role.
SPDR Gold Shares (NYSEMKT: GLD) is one great option for getting some exposure to gold, as it holds physical bars of bullion, which were worth $132.3 billion in net assets. The fund’s expense ratio is 0.40%, and it pays no dividend.
Unlike Bitcoin, which few central banks hold, gold is a reserve staple. Central banks purchased 321 metric tons of it in the third quarter of this year alone, according to the World Gold Council. Should that demand continue, and it likely will, it’ll be a tailwind for the ETF’s price.
Still, investors should be aware that the gold ETF is a defensive investment, not one that you should be expecting to grow tremendously in an average year.
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Alex Carchidi has positions in Bitcoin, SPDR Gold Shares, Vanguard S&P 500 ETF, and iShares Bitcoin Trust. The Motley Fool has positions in and recommends Bitcoin, Vanguard S&P 500 ETF, and iShares Bitcoin Trust. The Motley Fool has a disclosure policy.
