Most investors will have faced setbacks in stock market performance this year. From trading individual stocks to index funds and exchange-traded funds (ETFs), returns have been slim.
ETFs typically track a particular index or sector, and shares can be purchased or sold on the stock exchange. Despite the bearish market, over the long term, ETFs can have lower risk than other strategies because one ETF is many up of hundreds of stocks.
However, you can choose from thousands of ETFs, and it can be challenging to decide where to invest. A few tips to consider are tracking the benchmark to determine exposure, looking for higher volumes and finding tighter spreads.
The Best Safe ETF Holdings
New ETFs are generally launched every year, and it is difficult to decide which one will work best for you. Benzina introduces these five ETFs that have offered safe and diverse exposure in the past to potential investors looking to invest their money long term.
#1 SPDR Portfolio S&P 500 ETF
The SPDR Portfolio S&P 500 ETF (NYSEARCA: SPLG) is one of the more popular ETFs among investors. This ETF provides a cheaper investment opportunity and corresponds to the performance of the S&P 500 index.
This low-cost ETF provides a portfolio of diverse asset classes and exposure to some of the largest U.S. markets. In addition, it represents approximately 80% of the U.S. market, making it one of the safest ETF holdings.
This fund harbors a total of 507 holdings at a total asset value of $13.6 billion. Its top holdings include familiar names such as Apple Inc. (NASDAQ: AAPL), Amazon.com Inc. (NASDAQ: AMZN), Tesla Inc. (NASDAQ: TSLA) and Alphabet Inc. (NASDAQ: GOOGL), with its top sectors being technology, healthcare and financial services.
#2 Vanguard Dividend Appreciation ETF
The Vanguard Dividend Appreciation ETF (NYSEARCA: VIG) is an excellent investment for investors looking for consistent dividend payments and those investing for the long run. The ETF tracks and manages dividend-paying firms, making it an attractive ETF for individuals looking for a passive return over a consistent period.
The ETF holds $76.1 billion in total assets over 292 holdings. Financial services and technology comprise a large proportion of the ETF, including familiar names such as UnitedHealth Group Inc. (NYSE: UNH), Microsoft Corp. (NASDAQ: MSFT) and Johnson & Johnson (NYSE: JNJ).
#3 Schwab U.S. Small-Cap ETF
The Schwab U.S. Small-Cap ETF (NYSEARCA: SCHA) holds small-cap companies from the small-cap portion of the Dow Jones U.S. Total Stock Market Index. It represents a solid investment into a wide range of smaller companies in several sectors with potential for rapid growth.
SCHA is considered a relatively cheap ETF, and it charges minimal expenses. Smaller-cap stocks can be more volatile but can collectively provide considerable returns. SCHA invests in 1,807 companies for a total asset value of $14.2 billion. Holdings include familiar names like Chesapeake Energy Corp. (NASDAQ: CHK), AECOM (NYSE: ACM) and Mattel Inc. (NASDAQ: MAT) in sectors like financials, industrials, information tech and consumer discretionary.
#4 Vanguard Information Technology ETF
Vanguard has several ETFs, and the Vanguard Information Technology ETF (NYSEARCA: VGT) is diverse in market cap and concentrates on the specific sector of information technology. The focus remains on small- and micro-cap firms in the tech sector while keeping costs low.
Furthermore, the ETF focuses on sectors such as electronic technology, technology services, and commerical services, to name a few. If you are an investor looking to gain exposure in the U.S. tech market, VGT could be an ideal ETF.
Stocks such as Apple and Microsoft make up the majority of this fund, as the technology sector maintains 90% of the $50.4 billion total assets. Furthermore, the ETF invests in 360 companies, including financial services and industrials.
#5 iShares Core U.S. Aggregate Bond ETF
Despite the volatile nature of interest rates and monetary policy, iShares offers broad exposure to U.S. investment bonds through its iShares Core U.S. Aggregate Bond ETF (NYSEARCA: AGG). It can be an improved way to diversify your portfolio and provide stability despite short-term uncertainties in the market.
AGG tracks U.S. investment-grade bonds, meaning it provides less risk than holding single bonds, and its holdings include corporate bonds and U.S. treasuries.
In addition, the fund has a net asset value of $83 billion spread across 10,289 holdings. Its top sectors are government, mortgage-backed and corporate bonds. The fund does not hold stocks.
What is an ETF?
ETFs are tradeable funds that track a particular sector or asset and offer a basket of securities to invest in. They are similar to mutual funds. However, ETFs can be purchased on the stock exchange, similar to an individual stock. An ETF’s share price can fluctuate daily as it is bought and sold.
Are ETFs and Stocks the Same Thing?
ETFs and stocks share similar attributes, but they are not the same thing. ETFs and stocks can be bought or sold on the stock exchange, making them widely available to investors and increasing their liquidity.
ETF prices fluctuate throughout the day as investing in an ETF and stock can be done simply through your broker.
However, stocks represent a number of shares within individual companies, whereas ETFs offer a basket of securities. Therefore, it is essential to understand that ETFs are not tied to one company but rather a particular sector or index.
The number of common shares can change based on stock buybacks, secondary offerings and stock splits. However, the number of shares per ETF is likely to match the net asset value.
What to Look for in an ETF
Picking an ETF to invest in still requires research, despite the fact they are considered somewhat less risky investments. You will have your own criteria, but here is a list of some essential aspects of an ETF.
Liquidity: Liquidity is important in managing trading costs and keeping your returns. Liquidity will stem from the liquidity of the fund and the liquidity of its shares. Higher daily trading volumes tend to lead to tighter spreads, benefiting the consumer.
Underlying Index: The most critical consideration must be the underlying index of the ETF. All indexes are not the same and will perform differently. ETFs disclose their holdings, and you should to look into your investments first to match your ideal market.
Number of Assets: A ETF should hold a strong market position, and its number of assets can dictate its investment position. A considerable minimum level of assets would be at least $10 million to garner interest from investors.
How do ETFs Fit Into Your Portfolio?
ETFs are popular investment choices as they help build a diversified portfolio. First, however, it is necessary to assess how an ETF will fit with your current investments to produce the best returns.
Reduce risk: Investing in an ETF provides easy exposure to a particular market. Risk is diversified as it covers an entire market segment rather than an unproven or risky stock. As a result, it is easier to bet on a whole market than an individual company.
Low fees: ETFs are passively managed and have a lower expense ratio than mutual funds. The costs of mutual funds are higher as they incur management fees and service fees. ETFs have lower prices as a result of expenses being passed onto the brokerage firms. In addition, ETFs can be more tax-efficient than mutual funds.
Offers flexibility: ETFs are versatile and allow consumers the flexibility to move money between different asset classes such as stocks or bonds. In addition, they can be traded during market hours, making adding or removing ETFs from your portfolio straightforward.
Compare Online Brokers
You can find various ETFs to purchase via most of the top online brokerage accounts. However, finding the right broker can be a challenging task, given the various platforms and promotional offers brokerages provide. Below you can find a list of the top online brokerages offering ETFs.
Frequently Asked Questions
Is there such a thing as a safe ETF?
No investment comes without risk. However, most ETFs carry a somewhat reduced risk as they follow an underlying index fund like the S&P 500. Many diversified ETFs are exposed to the market’s total volatility. Whatever investment you make, it is important to conduct thorough due diligence.
What is the most socially responsible ETF?
The iShares ESG Aware MSCI USA ETF (NASDAQ: ESGU) is considered the largest socially responsible ETF; it holds $23.27 billion in assets.