Each one of us works hard to make money, and it is always a delight to have your money work for you. Investing in the right assets and holding them for the long term can be one way of making money. Exchange-traded funds have gained immense popularity over the past year. It is a passive form of investment that can generate steady dividend income and offer capital appreciation. You can build an instantly diversified portfolio through ETFs.
If you are looking to reallocate your funds to ETFs this year, investing in ETFs like Vanguard Total Stock Market ETF (NYSE:VTI), SPDR S&P 500 ETF (NYSEARCA:SPY), and Invesco QQQ Trust (NASDAQ:QQQ) can be a smart choice. Consider investing in them for the long term to generate maximum returns.
Vanguard Total Stock Market Index Fund ETF
The Vanguard Total Stock Market ETF is a broad-based ETF with over 3,500 stocks across large-cap, mid-cap, and small-cap companies. It tracks the performance of the CRSP US Total Market Index and has an expense ratio of 0.03%.
VTI is a large-blend ETF with the highest allocation towards the technology sector (38.50%), which has allowed it to perform well in the past year. The ETF has gained 13% in the year and is exchanging hands for $340. After tech, it allocates 13.90% to the consumer discretionary sector and 12.10% to the industrials segment. Its top 10 holdings include the well-known tech giants such as Nvidia, Apple, Microsoft Corporation, Amazon, Alphabet, and Meta Platforms. These stocks have led the rally and continue to take the S&P 500 higher.
VTI has a yield of 1.11% and pays quarterly dividends. It has generated a cumulative 1-year return of 17.10%, a 3-year return of 82.69%, and a 10-year return of 278.82%. If you believe in the future of technology, add this fund to your portfolio and hold it for the long term. Since the fund invests in over 3,000 stocks, the weightage on each stock is minimal, which gives you a highly diversified portfolio.
Over the long term, there is likely to be a minimal gap in the performance of the S&P 500 and the total stock market ETF. Besides investing in tech giants, the ETF also gives exposure to smaller companies, which could enhance returns in the long term.
SPDR S&P 500 ETF Trust
One of the most popular ETFs today, the SPDR S&P 500 Trust is a liquid index fund that tracks the S&P 500. It invests in the large-cap U.S. companies and holds 503 stocks. It has a yield of 1.02% and an expense ratio of 0.09%. SPY has become a default choice for passive investors since it tracks the S&P 500 and holds the largest blue chip companies. It is the oldest and the most heavily traded ETF that brings steady growth and stability to the portfolio.
The fund has the highest allocation in the information technology sector at 33%, followed by financials at 13% and communication services at 10.61%. Since it tracks the S&P 500, its top 10 holdings are similar to the index. These include the tech giants Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Broadcom, Tesla, and Berkshire Hathaway. These tech stocks have led the S&P rally, which has helped SPY gain 14% in the year.
It is exchanging hands for $689 and could continue the upward momentum. The fund has about $700 billion in assets and a structure that focuses on the sectors that are winning. This ensures steady returns, irrespective of the market movement. SPY has generated a 1-year return of 17.73% and a 3-year return of 22.84%.
If you’re comfortable with a one-third allocation towards technology and believe in the future of AI, SPY can be an ideal choice.
Invesco QQQ Trust, Series 1
By adding the Invesco QQQ Trust to your portfolio, you get to invest in another important index. The QQQ mirrors the Nasdaq 100 and tracks the largest non-financial companies listed on it. Like the other two ETFs mentioned here, QQQ has the highest allocation to the technology industry (64%), but it also offers exposure to other sectors.
Besides technology, it invests in consumer discretionary (18%) and healthcare (4%). The other sectors, such as consumer staples, industrials, real estate, and energy, have an allocation lower than 4%. Its top 10 holdings include the Magnificent Seven and consumer giant Walmart. These companies are expected to remain in our lives for the foreseeable future, and they will continue to dominate the market.
QQQ has a yield of 0.46% and an expense ratio of 0.18%. It has generated close to 10% returns since inception and about 20% in annual returns in the past decade. Its 3-year cumulative return is 134%, while the 10-year return is 101%. The fund has gained 21% in the past year and is exchanging hands for $622.
The ETF has been a stellar performer for the past years, making it an ideal buy right now. The AI boom will help the ETF move higher, and it hasn’t disappointed until today, setting a gold standard in the industry.