Best ETFs for Long term growth

What is ETFs (Exchange Traded Funds) ?

ETFs, or exchange-traded funds, have become extremely popular, with their numbers growing from 276 to over 8,000 by 2022. These funds offer a great opportunity for regular individuals like us to grow our wealth in the stock market. They work well for various investment accounts like Roth IRAs, HSAs, and taxable investment accounts. However, it’s important to remember that not all ETFs are free, so it’s crucial to choose wisely before investing. It’s worth noting that out of the many ETFs available, around 99% may not be worthwhile and should be avoided. Investing in ETF is market risk so please do your own research before taking decision. This article is just for educational and awareness purpose.

Vanguard Total Stock Market ETF (VTI)

I want to assist you in cutting through the confusion by sharing top ETF recommendations that you can confidently purchase and hold for a long time, maybe even indefinitely. These picks are chosen based on the different criteria. However, it’s essential to recognize that investing in ETFs comes with the risk of possible losses. I don’t suggest holding these funds individually or all at once. Instead, it’s advisable to begin building a diversified portfolio with a core investment like the Vanguard Total Stock Market ETF (VTI).

While past performance doesn’t guarantee future results, let’s examine the historical returns of VTI over different time frames. Currently, the one-year return is negative due to a recovery from a down year in 2022. However, the three and five-year returns are approximately 9%. Over a ten-year period, the return is around 12%, and since the inception of the fund, it has yielded slightly less than 8%. To provide some context, if you had invested $1,000 in VTI since its inception, it would have grown to a little over $5,000 today.

It’s important to understand that relying solely on past performance is not sufficient. Another factor to consider is the largest drawdowns that the fund has experienced since its inception. These figures indicate how much the fund’s value can decline during market downturns. If it becomes difficult for you to stay invested in the fund during these challenging periods, you might miss out on the returns mentioned earlier. While VTI has been available since 2011, let’s analyze a broader range of data to illustrate the potential decline in value. These numbers pertain to a hypothetical portfolio consisting entirely of the Vanguard Total Stock Market ETF. Suppose you had invested a million dollars, and after a market downturn, your portfolio value dropped to $500,000. Although it eventually recovered, it took approximately three years to do so. This scenario serves as a reminder that patience, a long-term perspective, and a commitment to ongoing investments are crucial, regardless of market fluctuations.

In conclusion, it is crucial to understand that market cycles encompass both ups and downs, which are natural occurrences. By embracing a buy-and-hold strategy and consistently investing, you position yourself to benefit from the market’s returns, even during turbulent times.

The market cycle is a normal occurrence, much like bathing every morning, and it’s important to prioritize regular body care.

The cost of this fund is exceptionally low, which is advantageous because expenses have a significant impact on your returns. Don’t let anyone convince you otherwise. Let’s quickly explore how fees can affect the future value of your portfolio. With an average annual return of 8%, the expense ratio of VTI is 0.03% per year. This means that for every $1,000 invested, it will cost you 30 cents annually and only reduce your future portfolio value by 1% over a span of 40 years.

Vanguard rates the risk level of this fund as moderately aggressive, with a four out of five rating. This is primarily due to VTI’s composition of stocks, which can experience significant price fluctuations in the short term. However, if you plan to hold this fund for 10 years or longer, this should not be a cause for concern. As a market-capitalized fund, the sector breakdown of VTI is determined by the overall market. Currently, the majority of the fund’s investments are allocated to the Technology, Healthcare, Industrials, and Consumer Discretionary sectors. This allocation is neither inherently good nor bad; it simply reflects the market’s determinations. The top 10 holdings of VTI make up approximately 20% of its total assets and consist of well-known companies. By investing in VTI, you can track the performance of the overall US stock market and gain exposure to companies of varying quality. If you prefer to reduce volatility by investing in larger, less volatile companies while still having exposure to more volatile ones, this ETF is a suitable choice. Instead of attempting to predict the future and identify stocks that will consistently outperform the market over the long term, VTI allows you to hold a diversified portfolio.

As the legendary Jack Bogle once said, why search for a needle in a haystack when you can simply buy the entire haystack? VTI is an excellent fund for your US stock allocation, particularly within a two- or three-fund portfolio. For more information on these portfolios, you can refer to my linked two and three-fund portfolio videos. If you’re enjoying this video and would like to support my dog Molly and this channel, please hit the thumbs up button and share the video with someone who could benefit from it. If you’re interested in exploring alternative portfolio options, please continue reading.

Vanguard S&P 500 ETF (VOO)

Let’s talk about an alternative to the Vanguard Total USA for your core portfolio holding. The Vanguard S&P 500 ETF (VOO) is a great option. Holding both VTI and VOO simultaneously isn’t necessary for most people. VOO represents 85% of VTI, as it focuses on the 500 largest companies in the United States. Despite holding fewer companies, these stocks have a significant impact on the overall stock market. Looking at past performance, the 1, 3, and 5-year returns are similar to VTI, but the return since the fund’s inception is higher at 13%. However, comparing the returns based on when each fund was created can be misleading. Considering the 1, 3, and 5-year returns shows that VTI and VOO are quite close.

If you had invested $1,000 in VOO 12 years ago, it would be worth over $4,000 today.

Similar to VTI, the expense ratio for VOO is low at 0.03% per year. This means that for every $1,000 you invest, it would cost you 30 cents and only reduce your portfolio value by 1% over 40 years.

VOO has a risk level of four, as it consists of 100% stocks.

The sector breakdown includes tech, healthcare, financials, and consumer discretionary. Since VOO only focuses on the largest 500 stocks, the top 10 holdings are familiar companies and account for almost 25% of the total. If you aim to match the performance of the US market with the 500 largest stocks, VOO is a great ETF to consider for a two or three-fund portfolio.

Vanguard Total International Stock ETF (VXUS)

The Vanguard Total International Stock ETF (VXUS) consists of stocks from companies outside of the United States, encompassing 7,900 stocks worldwide. Despite recent underperformance, it still meets the criteria mentioned earlier.

Investing $1,000 in VXUS since its inception 11 years ago would have grown to $1,900.

The low expense ratio of 0.07% per year makes VXUS an attractive option.

It’s important to note that international stocks generally exhibit higher volatility, leading to increased risk for this ETF. However, if held for 10 or more years the volatility should not be a major concern.

The top sectors in which VXUS invests are Financials, Industrials, Technology, and Consumer Cyclical. The fund primarily focuses on Europe, emerging markets, and the Pacific region, accounting for about 90% of its holdings. The top 10 companies in the ETF represent a significant portion of its holdings. VXUS serves as an ideal choice for the international component of a two or three-fund portfolio, offering broad coverage across the world. It’s crucial to avoid recency bias and consider the long-term perspective, as international markets have their periods of outperformance. By excluding VXUS and only holding VTI or VOO, you miss out on true global diversification.  

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