Best Exchange Traded Funds to buy now
It’s always a good idea to invest in Exchange Traded Funds or ETFs to build a strong portfolio of your smart investment.
ETFs allow you to enjoy the flexibility and ease of buying or selling stocks on the stock exchange.
Besides, it also has that taste of mutual funds with the fund manager and diversification across various sectors.
Rather than buying plenty of individual stocks of various companies and sectors, you can smartly choose ETFs to diversify your portfolio across various leading themes.
Some US ETFs are also there that help you to diversify in international stocks or track various indices.
No matter whether you want to invest in value stocks, large caps, mid-caps, or small caps, ETFs enable you to maintain the strength of your portfolio.
Although ETFs are maintained by fund managers and require certain extra costs like expense ratio and others, all those are much lesser as compared to mutual funds.
The problem arises when you start to select the best ETF stock, to begin with, your investment.
That is the reason we felt the need to prepare this detailed guide on the best exchange-traded funds to buy now.
We have done a lot of research to pick up the top 5 best exchange-traded funds to buy now. Still, it is advised to do thorough research on your own before investing your hard-earned money.
What do ETFs mean?
Though we have discussed a lot above about ETFs, still it’s time to explain to you formally what are ETFs.
Exchange-Traded Funds are a bunch of stocks, bonds, commodities that generally track an index or a sector.
You can buy or sell the ETFs anytime throughout the day on a stock exchange just like any individual stock.
The extra costs involved for ETF trading are also much less than the other types of funds available.
You can think of ETF to be a bag of skittles where you can enjoy different flavors. Since ETF constituents are already diversified and track a particular index or sector, it is not necessary to neither have plenty of knowledge about the stock market nor need to keep a close eye on the market.
Different types of ETFs are there which can help you to get a constant income, double up your investments, or maybe can also be used for hedging.
So, multifold benefits can be enjoyed through ETF investments.
Working Mechanism of ETFs
As mentioned earlier, ETFs and mutual funds may look similar but there are some differences in them.
The biggest difference is that ETFs can be traded throughout the day whereas MFs are traded only at the end of the day.
A person with huge underlying assets generally designs a fund to track its performance and growth.
Then that fund is divided into shares by that fund provider and listed on the stock exchange. So, investors can buy those ETF shares based on his/her investment capability.
This is how the exchange-traded funds work and your invested money grows as per its performance.
Best Exchange Traded Funds to buy now in US stock market
- SPDR S&P 500 ETF Trust (SPY),
- Vanguard 500 Index ETF (VOO),
- SPDR Dow Jones Industrial Average ETF Trust (DIA), and
- Invesco QQQ Trust (QQQ).
If you are interested to invest in ETFs that track a particular sector in the US equity market, then that can also be a nice option. Some of those best ones include –
- Vanguard Information Technology Index Fund ETF (VGT),
- Vanguard Health Care Index Fund (VHT).
These are some of the best ETFs to consider based on your area of interest and risk appetite.
However, it is worth noting that the sectoral ETFs feature higher volatility and also higher expenses.
If you want to achieve higher returns and also want to take higher risk, then small-cap or mid-cap ETFs can also be a better choice.
One of the best small-cap ETFs is iShares Russell 2000 Growth ETF (IWM).
Any financial literate person will advise you to start with index ETFs and it’s a perfect choice to make because they need lower expenses and also good diversification.
Some of the best ETFs that can be perfect for people with lower to higher risk appetite include –
- Vanguard Total International Stock ETF (VXUS),
- Vanguard Total International Bond ETF (BNDX),
- Vanguard Total Stock Market ETF (VTI), and
- Vanguard Total International Stock ETF (BND)
Top 5 Best ETFs to invest now
Here are the best of best ETFs that you can consider for investing and keeping in your long-term or short-term portfolio.
SPDR S&P 500 ETF Trust (SPY)
As inferred from the name of this ETF, it tracks the S&P 500 index. This ETF is commonly referred to as the SPY ETF.
S&P 500 is an index that comprises the top and large-cap US companies from eleven different sectors.
So, investing in this ETF will help you to get exposure to the best US companies because this index is considered the major indicator of large-cap US securities.
Almost 50% of this index is composed of three main sectors, namely Information Technology, Health Care, and Communication Services.
The three main companies that carry the highest weightage within this index are Microsoft, Apple, and Amazon.
- 5-year returns of this ETF: 17.51% (Category: 15.76%).
- 3-year returns of this ETF: 18.51% (Category: 10.14%).
- 1-year returns of this ETF: 40.90% (Category: 13.45%).
- Net Assets: 374.03B.
- Expense Ratio: 0.09%.
Vanguard Total Stock Market ETF (VTI)
The name of this fund again gives a clear explanation that it offers you access to the entire US stock market.
This implies, its portfolio constituents include large-cap, mid-cap, or small-cap growth and value stocks.
Unlike the previous one, it not only tracks S&P 500 index but also all the indices like Nasdaq 100, Dow 30, and Russell 2000.
Thus, Vanguard Total Stock Market ETF ensures that your portfolio is exposed to more than 3900 US stocks.
The top five sectors of this ETF comprise Technology, Consumer Discretionary, Industrials, Health Care, and Financials.
The topmost holdings of this best Exchange Traded Fund are Apple, Microsoft, Alphabet, Amazon, Tesla, Facebook, Johnson & Johnson, JPMorgan, etc.
- 5-year returns of this ETF: 17.39%.
- 1-year returns of this ETF: 38.98%.
- Net Assets: 284.192B.
- Expense Ratio: 0.03%.
SPDR Dow Jones Industrial Average ETF Trust (DIA)
This is also one of the best exchanges traded funds to buy now tracking the Dow 30 index.
Dow Jones Industrial Average or Dow 30 is an index of 30 large-cap US companies but it is a bit different from other US indices.
It’s because the companies selected for this index are not decided by their market capitalization or any other quantitative rules.
Those companies are only included in this index that has a brand value, market reputation, sustained growth, and also the ones that mainly attract investors the most.
- 5-year returns of this ETF: 16.42% (Category: 15.36%).
- 3-year returns of this ETF: 13.18% (Category: 10.53%).
- 1-year returns of this ETF: 26.70% (Category: 17.04%).
- Net Assets: 30.66B.
- Expense Ratio: 0.16%.
iShares Russell 2000 Growth ETF (IWM)
Russell 2000 is also an index of the US equity market that marks the diversification of 2000 small-cap companies.
If you want your money to be invested across small-cap US companies, then it is better to invest in this ETF.
Small-cap stocks can be a little riskier but can help you to achieve higher returns. Therefore, if you are such a person with a higher risk appetite, then IWM ETF can help you to get exposure to all the 2000 companies of the respective index.
- 5-year returns of this ETF: 14.33% (Category: 12.14%).
- 3-year returns of this ETF: 10.66% (Category: 4.58%).
- 1-year returns of this ETF: 46.87% (Category: 3.71%).
- Net Assets: 68.63B.
- Expense Ratio: 0.19%.
Invesco QQQ Trust (QQQ)
Are you more interested to invest in the Nasdaq 100 index and want to invest in those companies only? Get your job done by Invesco QQQ Trust ETF.
Buying this ETF lets you get your money invested in all the 100 companies.
The top-performing FAANG stocks of the US market are the major ones of this Nasdaq 100 index. FAANG implies Facebook, Amazon, Apple, Netflix, and Google.
So, you can very well assume from the name of the companies as to why this ETF can be one of your preferred choices.
- 5-year returns of this ETF: 27.72% (Category: 17.05%).
- 3-year returns of this ETF: 27.69% (Category: 11.46%).
- 1-year returns of this ETF: 29.58% (Category: 12.42%).
- Net Assets: 192.85B.
- Expense Ratio: 0.2%.
How to select the best Exchange traded funds to buy now? || Investing Guide
A lot of ETFs are there, hence it is somewhat difficult to decide which one to include in your portfolio.
For that, you need to check certain factors and this section will help you with that.
Assets: Ensure to check the net assets before investing in an ETF. It should be at a minimum threshold level of 10 million dollars. If any ETF features net assets below this level, it implies that investors have lesser interest in that ETF. Try to avoid that because lower investor interest means it has poor liquidity.
Tracking Index or asset class: The most important factor to check while choosing an ETF is its tracking index or the underlying asset class. You need to discuss with yourself the amount of risk that you can tolerate and choose the index where you would like to invest. Once you are done with that, then only you can check for the ETFs in that category and choose the best one among them. It is always better to diversify your portfolio with those ETFs that are based on a broader and popular index rather than the one that has a narrower spread.
Market Position: You must always make sure to invest in those ETFs that have a decent market reputation. Brand value is always an important thing to consider and ETFs are no exception too. Sustainable growth and past performance enhance the market reputation of a fund. Hence, investing in those ETFs can help you to get confidence that your money is invested in the right place.
Tracking Error: As mentioned several times, ETFs are based on certain indices or other asset classes. That implies it should closely follow the performance of those underlying assets. The difference between the performance of an ETF and its underlying asset class is termed as tracking error. It is always good to invest in those ETFs that feature a lower degree of error or those which outperform the benchmark.
Volume or other trading activities: You must check the trading volume of an ETF before deciding to invest in it. It is a measure of liquidity because a higher trading volume means you will easily get buyers or sellers whenever you want. The best exchange traded funds feature millions of shares traded daily. While there are some ETFs that have lower trading volumes. Hence, it is a good idea to select those ETFs that have a higher trading volume.
These are some of the important factors that you need to consider for the selection of the best ETFs.
We have tried to highlight all the important things that you need to know while investing in ETFs.
Not only that we have pointed out the top 5 best Exchange-traded Funds to buy now in the US equity market, but also we have made all related things clear and simple for you to understand.
You can choose any one ETF among the ones mentioned in this article because all of them have been examined thoroughly by our team.
One piece of advice that we would like to give here is that you can also divide your money into four to five ETFs mentioned above for diversification.
This can help you to achieve better overall returns than investing in a single ETF.
Thanks for staying with us, Happy Investing!