5 ETFs To Buy and Hold For the Long-Term
In case you haven’t heard, ETFs are all the rage right now. But what exactly is an ETF? ETF stands for “Exchange Traded Fund” and is an investment vehicle that trades like an individual stock but includes multiple stocks in one. It’s like a basket of stocks, rather than choosing between Tesla and Apple, you can buy one ETF that includes both companies.
Why ETFs? An ETF is a safer investment than owning individual stocks because of diversification. Like they say, don’t put all your eggs in one basket. What if all of your 401k was in Enron stock? Or Blockbuster? Or Kodak? The list of failed companies goes on forever, and we are all susceptible to bad investments. With an ETF, an individual stock is often not going to comprise more than 5–10% of the value so even if you encounter an Enron situation, it’s not going to sink the ship. Better yet, many of the index ETFs listed below are actively managed to weed out the bad companies and replace them with good ones — that makes it really hard to lose!
Are ETFs Safe? Since ETFs are a newer investment vehicle compared with mutual funds, some may feel uneasy about putting their hard-earned cash in them. While that is understandable, ETFs are considered to be safe, secure, and regulated — granted that you do your homework and only invest in high-quality funds from well-established financial institutions.
That’s enough talk, here’s my list of 5 ETFs to buy and hold for the long-term:
1) DIA — The Classic Dow Jones 30
We have all heard of “The Dow” — an index formed in 1896 that contains 30 of the largest and well-known corporations (McDonalds, Home Depot, Microsoft). The DIA ETF accurately tracks the value of the Dow Jones Industrial Average but at 1/100th of the price, $260 compared to $26,000. The DIA is attractive because these 30 companies have a proven track records with solid balance sheets, and the ETF sports a 2.6% dividend yield (much higher than bonds or savings!).
Click here for more info on DIA.
2) QQQ — The Big Tech 100
The Nasdaq has been on fire lately! The Nasdaq index is primarily for technology-related stocks (Amazon, Intel, Cisco) and the QQQ is a beautiful ETF that tracks the value of the 100 largest companies of the Nasdaq (ranging from Microsoft to Sirius XM) and is up over 30% over the past 12 months and currently hitting records! Why? Because the future is tech.
Click here for more info on QQQ.
3) IGV — The Cloud / Software 100
Talking about the future, you cannot escape the dominance of cloud and software companies. As the COVID-19 pandemic has shown us, nothing is safe… except technology. The IGV ETF is one of my faves because it includes all the major players of the cloud computing space. Salesforce, Oracle, Adobe, Workday… they are all incredible companies but I’m not going to try and pick a winner — so I would rather own them all and this ETF allows you to do that. It’s been on a voracious run, up over 50% in value since March. The ETF currently trades at $290, and I would hope for a pullback to $250 before buying, but either way it’s probably going to $400 in the next 2–3 years.
Click here for more info on IGV.
4) XLU — Boring Safe Dividends
Not everyone is cut out for the thrill and risk of high-flying tech stocks. That’s where utility stocks come into play. Can you name 3 utility companies? Probably not. But you probably pay one of them $100s every month without realizing it. Dominion, Duke, Exelon are all publicly traded utility companies that are held in this utility ETF. I like it for its consistency, dependability and high dividend payments (ranging 3–4%). Also, be sure to automatically re-invest those dividends to earn compound interest!
Click here for more info on XLU.
5) VOO — The Gold Standard of Investing
When most people talk about investing in the stock market, they are referring to the S&P 500 Index — which tracks 500 of the largest and well-known companies in America and thus giving a good indicator of the overall economy. Beginning in 1926, the S&P 500 has averaged a 10% return on investment, or 7% adjusted for inflation. For decades, this has been the bread-and-butter staple of retirement accounts and investment portfolios. If you’re not invested in the S&P, stop reading and do it now.
Click here for more info on VOO.
(Note: I personally don’t own VOO, but SWPPX which is technically a mutual fund but I prefer it because of its slightly lower expense ratio).
In conclusion, ETFs are an excellent investment option for investors, young and old. The key is to get your money out from under your pillow and start making it work for you in the markets. While we can’t know the short-term, the long-term trend has consistently been up for the overall stock market.
“For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.” Warren Buffett
