90% Of My Investments are in ETFS. Here’s Why

Since I am in my 40s, I’ve been working on investing for retirement for a while, and I have a good amount of money set aside for my later years. I also have some investments in taxable brokerage accounts in case I decide to retire early. 

As I’ve made my investment choices, there has been a clear and consistent pattern as far as where I put my money. Specifically, while I own a few individual stocks, around 90% of my investments are in ETFs. Here’s why that’s the case, along with some tips on whether ETFs could be right for you. 

1. ETFs often outperform individual investments over time

The biggest reason the bulk of my money is in ETFs is that I feel investing in exchange-traded funds gives me the best chance of success. 

See, I’ve invested heavily in ETFs that track the performance of the S&P 500, which gives me exposure to around 500 of the largest companies in the U.S. 

The S&P 500 has very consistently produced an average annual return of 10% since the late 1950s. While individual stocks can obviously provide much more than a 10% return, it’s much harder to consistently pick a bunch of individual stocks that can beat that. In fact, around 86% of professional fund managers have struggled to match the performance of the S&P 500 over the past five years, according to S&P Global.

Of course, there are never any guarantees of future performance. But the S&P 500’s long and consistent track record makes it as close to a sure thing as you can get. I’d rather have the certainty of knowing the odds are very high that I’ll make at least 10% on my money than a chance at bigger wins but also a far greater risk of losses. 

2. Investing in ETFs means you don’t need a lot of specialized knowledge

I also like investing in ETFs because I’m not an expert in picking individual stocks. I don’t like poring over earnings reports and keeping up with changes in company leadership or business strategies, even for companies I’m interested in. 

Picking an ETF is a lot easier than finding individual companies to buy shares of. My brokerage account includes screeners that allow me to search for ETFs based on things like the fees they charge, the types of companies or industries they invest in, and their past performance. It takes just a few minutes to find the right investments, and I don’t have to be an expert in anything other than clicking a few buttons in the search tool.

3. ETFs are a hands-off investment

Finally, I like ETFs because they are a very simple investment that doesn’t really require any active management on my part. Because ETFs that track the S&P 500 invest in companies across a bunch of different industries, buying an S&P 500 ETF basically provides me with instant diversification. And, I don’t have to monitor my investments very closely or very carefully because there aren’t likely going to be any major swings in the performance of my ETFs based on events at any one particular company. 

Are ETFs right for you?

ETFs clearly make sense for me for all these reasons — but are they right for you? It depends on your investment goals.

If you want a simple, quick portfolio that’s very likely to produce reliable returns, ETFs could be the way to go. If you want to beat the market and you feel confident in your ability to pick individual stocks that will do that, then you may want to put your money elsewhere. 

Ultimately, you need to think about your risk tolerance and investment goals as you make your choices. A financial advisor can help you consider your options and find the investing approach that’s right for you.