The best long-term ETFs allow investors to easily build a diversified portfolio because they provide broad exposure across many asset classes, industries, and geographies. This diversification can help an investor reduce risk without sacrificing long-term returns.
There are many exchange-traded funds (ETFs) built for long-term investors. Here's a closer look at several top ETFs that make ideal buy-and-hold investments.
Best long-term ETFs
The best ETFs for the long term hold a diversified portfolio of stocks while charging a very low ETF expense ratio. While many funds share those two key characteristics, here are the top ETFs for long-term investors:
1. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (NYSEMKT:VOO) is an index fund designed to track the S&P 500 index. That index represents 500 of the largest U.S. publicly traded companies. This ETF's goals are to closely follow that index's returns, which is the primary benchmark for the overall returns of the U.S. stock market. It offers investors a high potential for investment growth, making it an ideal long-term investment.
Like the S&P 500, this ETF uses a market weight strategy, giving a higher weighting to the largest companies. As a result, its top 10 holdings made up more than 30% of its total net assets in early 2022. That gives investors relatively concentrated exposure to the largest companies in the index.
This ETF offers investors exposure to the largest U.S. stocks for a very low cost. Its ETF expense ratio of 0.03% is significantly below the industry average expense ratio of 0.24%. In other words, investors would only pay $3 in annual management fees per $1,000 invested in this ETF compared to $24 per year for every $1,000 invested in the average ETF.
2. Invesco S&P 500 Equal Weight ETF
The Invesco S&P 500 Equal Weight ETF (NYSEMKT:RSP) is also an index fund designed to track the stocks in the S&P 500. However, it uses an equal weight approach instead of one based on market cap. As a result, this ETF's top 10 holdings represent just 2.5% of its total assets.
This approach reduces concentration risk by providing broad exposure across the 500 stocks in the S&P 500. This ETF rebalances its holdings quarterly to ensure each holding remains a relatively equal portion of the fund's assets.
This ETF has a relatively low expense ratio of 0.2%. That's a reasonable fee to gain broad equal-weight exposure to 500 of the largest public companies in the U.S.
3. iShares Russell 1000 Growth ETF
The iShares Russell 1000 Growth ETF (NYSEMKT:IWF) provides exposure to U.S. companies expected to increase their earnings at an above-average rate compared to the broader stock market. The fund held shares of about 500 companies as of early 2022.
This ETF takes a market-weighted approach. Because of that, its top 10 holdings made up almost 50% of its total assets. Given its growth focus, technology stocks make up a significant portion of the fund's holdings. Overall, the information technology sector accounted for 46% of the ETF's holdings.
This ETF charges investors a reasonable expense ratio of 0.19%. That's a fair price to pay to gain long-term exposure to growth stocks.
4. Vanguard Real Estate ETF
The Vanguard Real Estate ETF (NYSEMKT:VNQ) invests in real estate stocks, with a focus on real estate investment trusts (REITs). These entities typically own income-producing commercial real estate such as apartments, office buildings, retail properties, and industrial complexes.
As of early 2022, this REIT ETF had 164 total holdings. The top 10 made up 44.7% of its assets. However, it's worth noting that its largest holding was a real estate index fund also managed by Vanguard, which helps reduce its overall concentration.
This fund charges a relatively low fee of 0.12%. That makes it an inexpensive way to gain exposure to the real estate market, which has historically been an excellent long-term investment.
5. Schwab U.S. Dividend Equity ETF
The Schwab U.S. Dividend Equity ETF (NYSEMKT:SCHD) tracks an index focused on holding dividend stocks known for the quality and sustainability of their dividend payments. This ETF enables investors to benefit from the power of dividends in producing attractive total returns for investors over the long term.
This ETF held shares of more than 100 dividend-paying stocks in early 2022. The fund offered a dividend yield of around 3%, about double that of the S&P 500.
Its top 10 holdings made up about 40% of the total. Meanwhile, its overall holdings are weighted heavily in the financial sector (21.1% of the fund's holdings) and tech stocks (20.5%).
This ETF charges an ultra-low expense ratio of 0.06%. Because of that, investors keep a significant portion of the dividend income this fund's holdings generate. These features make this ETF a very low-cost way to collect passive income via dividend stocks, which have historically been exceptional long-term investments.
6. iShares Core MSCI EAFE ETF
The iShares Core MSCI EAFE ETF (NYSEMKT:IEFA) is an ETF focused on international stocks. It provides investors with broad exposure to companies in Europe, Australia, and Asia. That enables investors to add some international diversification to their portfolio, which has outstanding long-term growth potential.
This ETF held shares of more than 3,000 stocks as of early 2022. It provides fairly broad exposure to global stocks, with its top 10 holdings making up about 12% of its net assets. This ETF is also reasonably diversified by sector and geography:
| Top 5 Sectors | Top 5 Geographies |
|---|---|
| Financials (16.8% of the fund's holdings) | Japan (23%) |
| Industrials (16.5%) | United Kingdom (15.5%) |
| Healthcare (12%) | France (10.2%) |
| Consumer discretionary (11.5%) | Switzerland (9.6%) |
| Consumer staples (9.5%) | Australia (8.5%) |
Data source: iShares.
The iShares Core MSCI EAFE ETF charges a very low expense ratio of 0.07%. That makes it a low-cost way for investors to add some international exposure to their portfolios to benefit from the long-term growth of the global economy.
7. iShares Core Growth Allocation ETF
The iShares Core Growth Allocation ETF (NYSEMKT:AOR) offers investors a simple way to build a diversified portfolio focused on long-term growth across several asset classes. This fund provides investors with exposure to a broad mix of bonds and global stocks by holding seven ETFs:
- iShares Core Total USD Bond Market (NASDAQ:IUSB): This U.S.-focused bond ETF totaled 33.9% of the fund's holdings.
- iShares Core S&P 500 ETF (NYSEMKT:IVV): This S&P 500 index fund made up 32.6% of the ETF's assets.
- iShares Core MSCI International Developed Markets ETF (NYSEMKT:IDEV) This international ETF focused on developed markets accounted for 18.3% of its assets.
- iShares Core International Aggregate Bond ETF (NYSEMKT:IAGG): This international bond ETF comprised 6.2% of the fund's assets.
- iShares Core MSCI Emerging Markets (NYSEMKT:IEMG) This emerging markets-focused ETF made up 6% of the fund's assets.
- iShares Core S&P Mid-Cap ETF (NYSEMKT:IJH): This mid-cap stock-focused ETF accounted for 2% of the fund's assets.
- iShares Core Small-Cap ETF (NYSEMKT:IJR): This small-cap stock-focused ETF totaled 0.9% of the fund's assets.
This ETF allows investors to easily set up a balanced long-term portfolio, helping to reduce their risk profile while still delivering attractive returns. It charges investors a reasonable fee of 0.15% after adjusting for the fees and associated waivers on the ETFs in the fund.
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Why ETFs are good for long-term investors
ETFs can be great building blocks for long-term investors. They can provide broad exposure to market sectors, geographies, and industries and help investors quickly diversify their portfolios and reducing their overall risk profile.
The best long-term ETFs provide this exposure for a relatively low expense ratio. The low cost allows investors to earn returns roughly matching the underlying index these funds aim to track over the long term.
