GOVT iShares U S Treasury Bond ETF
Introduction – Index Funds
John Bogle, founder of Vanguard and considered the father of index investing,said “invest early and often.” Many don’t realize how powerful that statementand approach is until it’s too late. One of the main regrets I have in life isnot investing earlier, and not investing smarter when I did start.For far too long I erroneously believed that I was part of the 1% who couldtrade stocks in the short-term and beat the market. Years later I finallyaccepted the truth that stock picking doesn’t beat the market for the vastmajority of investors, especially over long investing horizons.Thankfully, if you’ve arrived here, you probably already know that fact.Investing in broad indexes drastically lowers portfolio volatility and risk,especially when incorporating multiple asset types. I delved into the natureof index funds and index investing as a strategy in more detail here if you’reinterested. Below we’ll explore some of the best index funds for younginvestors for long-term growth.
ITOT – iShares Core S&P Total U.S. Stock Market ETF
If you also want some exposure to small- and mid-cap stocks, which haveoutperformed large-caps historically, this total market index fund fromiShares is great. The fund holds over 3,500 stocks. This ETF seeks to trackthe S&P Total Market Index and has an expense ratio of 0.03%.
VT – Vanguard Total World Stock ETF
Prefer to invest globally? Vanguard’s Total World Stock ETF is roughly halfU.S. stocks and half foreign stocks. This ETF seeks to track the FTSE GlobalAll Cap Index, delivering global diversification with equities. The fundcontains over 8,500 stocks and has an expense ratio of 0.08%.
VIG – Vanguard Dividend Appreciation ETF
Want a dividend focus in your portfolio? This ETF tracks the NASDAQ USDividend Achievers Select Index, formerly known as the Dividend AchieversSelect Index, which is comprised of companies that have increased theirdividend payment for 10 consecutive years. VIG has an expense ratio of 0.06%.
AGG – iShares Core U.S. Aggregate Bond ETF
If you have a low risk tolerance or a short time horizon, you’ll probably wantsome bonds in your portfolio. Bonds and stocks are uncorrelated, meaning whenstocks go down, bonds tend to go up, and vice versa. This relationship tendsto be conveniently amplified during periods of market turmoil. Because ofthis, bonds can drastically lower a portfolio’s volatility and risk. A popularlow-risk asset allocation is 60% stocks and 40% bonds, called the 60/40Portfolio.The iShares Core U.S. Aggregate Bond ETF is a good choice for a single, simplebond holding, providing broad diversification across the entire U.S. bondmarket. This ETF seeks to replicate a market-weighted U.S. bond index,containing both government/treasury and corporate bonds. With AGG, younginvestors don’t have to worry about deciding on a specific bond type orduration. At the time of writing, AGG has an expense ratio of 0.04%.
GOVT – iShares U.S. Treasury Bond ETF
If you’re like me, you might prefer treasury bonds over corporate bonds, sincethey are a superior hedge for stocks. Moreover, if you’re investing in ataxable brokerage account, interest from treasury bonds is tax-free at stateand local levels. The iShares U.S. Treasury Bond ETF seeks to track the ICEU.S. Treasury Core Bond Index, a market-weighted index for U.S. treasurybonds. Think of this fund as AGG above minus corporate bonds. This fund has anexpense ratio of 0.15%.
FTIHX – Fidelity Total International Index Fund
Fidelity has a total international (ex-US) stock market mutual fund as well.FTIHX has an expense ratio of 0.06%.
VTWAX – Vanguard Total World Stock Index Fund Admiral Shares
If you’d prefer to keep it even simpler and just use a total world stockmarket fund, a good option comes from Vanguard as VTWAX. This is essentiallythe mutual fund equivalent of the VT ETF mentioned above. The fund has anexpense ratio of 0.10%.
VBTLX – Vanguard Total Bond Market Index Fund Admiral Shares
Similarly, Vanguard offers a nice, low-cost option for the total U.S.investment-grade bond market. VBTLX has an expense ratio of 0.05% and anaverage duration of about 7 years.
Best ETFs for U.S. Sectors
Some investors want to focus on specific sectors, like financials, utilities,or healthcare. Usually they are not held forever, but are instead traded for afew months or years during periods of the market cycle. * Invesco QQQ ETF (QQQ) * SPDR S&P 500 Select Sector ETFs (tickers vary) * Invesco Equal Weight Sector ETFs (tickers vary)The Invesco QQQ ETF isn’t exactly a sector, but it’s close. It’s one of themost popular ETFs in the world and represents the Nasdaq 100. It mostlyconsists of technology and consumer discretionary stocks, and has an emphasison growth. It is rather inexpensive and extremely liquid.The SPDR S&P 500 Select Sector ETFs are the most liquid ways to trade 11individual sectors. They have been around since the 1990’s and are relativelyinexpensive. Do you want to overweight some defensive sectors like utilitiesand consumer staples, for example? These ETFs are for you.Invesco has their equal-weighted versions of the typical sector ETFs. Themajority of them have outperformed their non-equal weighted counterparts, butnot all of them.
Best ETFs for Emerging Markets
These ETFs focus on emerging markets, meaning countries that are moredeveloped than “frontier” or “unclassified” countries, but don’t have legalframeworks or capital markets that are quite as fully developed as advancedcountries. Here are some of the big ones: * Vanguard Emerging Markets ETF (VWO) * iShares Emerging Markets ETF (EEM) * iShares Core Emerging Markets ETF (IEMG)The VWO ETF does not include South Korea, because South Korea is part ofVanguard’s developed market ETFs. The iShares emerging market ETFs do includeSouth Korea.EEM is extremely liquid, but more expensive, and thus ideal for traders. IEMGis cheaper and only moderately liquid, which makes it better for buy-and-holders.Emerging markets can be kind of tricky, and if you want to emphasize certainqualities, there are some factor ETFs that can help narrow your selection.These ETFs tend to have higher expense ratios and aren’t as liquid, but can begood alternatives if you’re looking for something specific: * Invesco FTSE RAFI Emerging Markets ETF (PXH) * WisdomTree Emerging Markets ex-State-Owned Enterprises ETF (XSOE) * Pacer Emerging Markets Cash Cows 100 ETF (ECOW)The PXH ETF is fundamentally-weighted based on sales, cash flow, dividends,and book value rather than market capitalization, which gives it more of avalue-tilt. This is the “RAFI” methodology developed by Research Associates.The companies in this fund are cheaper than average, and they have a bigweighting towards financials. (Schwab also has a set of RAFI ETFs, includingone for emerging markets.)The XSOE ETF is an emerging markets fund that excludes state-ownedenterprises, which are common in some countries. Companies that are partiallyowned by the government may not always act in the best interest ofshareholders, for better or worse. Although it’s not explicitly meant to, dueto the companies this fund excludes, it has somewhat of a growth-tilt and isunderweight financials.The ECOW ETF is one of Pacer’s series of “Cash Cow” ETFs that rank companiesbased on their cash flow yield. It has a strong value tilt, and all of thecash cow ETFs exclude financials completely.
Best ETFs for Dividends
These ETFs focus on various groups of companies that pay dividends in acertain way, and are generally classified as either dividend growers or high-yielders. They are fairly cheap and lower liquidity, meant for buy and holdinvestors. * Vanguard Dividend Appreciation ETF (VIG) * Vanguard International Dividend Appreciation ETF (VIGI) * Vanguard High Dividend Yield ETF (VYM) * Vanguard International High Dividend Yield ETF (VYMI) * ProShares S&P 500 Dividend Aristocrats ETF (NOBL)There are some other good ones as well, from WisdomTree and other providers.The higher-yield ETFs tend to have a value-tilt while the dividendappreciation ETFs have 7-10 years or more of consecutive annual dividendgrowth, which gives them a blended quality/growth tilt.The NOBL ETF focuses on companies with 25+ years of consecutive annualdividend increases, and is equally-weighted, which makes it a bit differentthan the rest of this set.