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.
Image source: Getty Images.
Best long-term ETFs
The bestETFs for the long term hold a diversified portfolioof stocks while charging a very lowETF expense ratio. Although many funds share those two key characteristics, here are the top ETFs for long-term investors:
1. Vanguard S&P 500 ETF
TheVanguard S&P 500 ETF(VOO -1.12%) is anindex funddesigned to track the. The index represents 500 of the largest U.S. publicly traded companies. The ETF's goals are to closely follow the S&P 500's returns, 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.Over the last 50 years, the average stock market return was 9.4% annually, as measured by the S&P 500. The Vanguard S&P 500 ETF has only slightly underperformed that benchmark's returns since its inception.
Like the S&P 500, the 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 25% of its total net assets in early 2023, giving investors relatively concentrated exposure to the largest companies in the index.
The 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 the ETF, compared to $24 per year for every $1,000 invested in the average ETF.
2. Invesco S&P 500 Equal Weight ETF
TheInvesco S&P 500 Equal Weight ETF (RSP -1.07%) 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, the ETF's top 10 holdings represent less than 3% of its total assets.
This approach reduces concentration risk by providing broad exposure across the 500 stocks in the S&P 500. The ETF rebalances its holdings quarterly to ensure each holding remains a relatively equal portion of the fund's assets.
The 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
TheiShares Russell 1000 Growth ETF(IWF -1.41%) 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 slightly more than 500 companies as of early 2023.
The ETF takes a market-weighted approach. Its top 10 holdings made up about 45% of its total assets. Given its growth focus, technology stockscomprised a significant portion of the fund's holdings at more than 40% in early 2023.
The ETF charges investors a reasonable expense ratio of 0.18%. That's a fair price to pay to gain long-term exposure to growth stocks.
4. Vanguard Real Estate ETF
TheVanguard Real Estate ETF (VNQ -0.94%) 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 2023, theREIT ETFhad 166 total holdings. The top 10 made up more than 45% of its assets. However, it's worth noting that its largest holding was a real estate index fund also managed by Vanguard, which helped reduce its overall concentration.
The fund charges a relatively low fee of 0.12%, making 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
TheSchwab U.S. Dividend Equity ETF(SCHD -0.03%) tracks an index focused on holdingdividend stocksknown for the quality and sustainability of theirdividend payments. The ETF enables investors to benefit from the power of dividends in producing attractive total returns for investors over the long term.
The ETF held shares of more than 100 dividend-paying stocks in early 2023. The fund offered adividend yieldof around 3.5%, about double that of the S&P 500.
Its top 10 holdings made up more than 40% of the total. Meanwhile, its overall holdings are weighted heavily in thefinancial sector(20.4% of the fund's holdings) and tech stocks (21%).
The ETF charges an ultra-low expense ratio of 0.06%, letting investors keep a significant portion of the dividend income generated by its holdings. These features make the 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
TheiShares Core MSCI EAFE ETF(IEFA -1.44%) is an ETF focused oninternational stocks. It provides investors with broad exposure to companies in Europe, Australia, and Asia, enabling investors to add some international diversification to their portfolio, which has outstanding long-term growth potential.
The ETF held shares of more than 3,000 stocks as of early 2023. It provides fairly broad exposure to global stocks, with its top 10 holdings making up about 13% of its net assets. The ETF is also reasonably diversified by sector and geography:
| Top 5 Sectors | Top 5 Geographies |
|---|---|
| Financials (17.2% of the fund's holdings) | Japan (22.4%) |
| Industrials (16.2%) | United Kingdom (14.9%) |
| Healthcare (12.4%) | France (11.2%) |
| Consumer discretionary (12.0%) | Switzerland (9.3%) |
| Consumer staples (9.9%) | Germany (8.0%) |
The iShares Core MSCI EAFE ETF charges a very low expense ratio of 0.07%, making 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
TheiShares Core Growth Allocation ETF(AOR -0.64%) offers investors a simple way to build a diversified portfolio focused on long-term growth across several asset classes through one single ETF. The fund provides investors with exposure to a broad mix of bonds and global stocks by holding seven ETFs:
- iShares Core Total USD Bond Market (IUSB 0.04%): This U.S.-focused bondETF totaled 32.8% of the fund's holdings.
- iShares Core S&P 500 ETF(IVV -1.09%): This S&P 500 index fund made up 31.9% of the ETF's assets.
- iShares Core MSCI International Developed Markets ETF(IDEV -1.39%) This international ETF focused on developed markets accounted for 19.7% of its assets.
- iShares Core MSCI Emerging Markets(IEMG -1.41%) This emerging markets-focused ETF made up 7.1% of the fund's assets.
- iShares Core International Aggregate Bond ETF (IAGG -0.02%): This international bond ETF comprised 5.3% of the fund's assets.
- iShares Core S&P Mid-Cap ETF(IJH -1.0%): Thismid-cap stock-focused ETF accounted for 2% of the fund's assets.
- iShares Core Small-Cap ETF(IJR -0.13%): Thissmall-cap stock-focused ETF totaled 0.8% of the fund's assets.
The 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.
Related investing topics
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 while 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 that the funds aim to track over the long term.
Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF, Vanguard Specialized Funds - Vanguard Real Estate ETF, and iShares Trust - iShares Core S&p Small-Cap ETF. The Motley Fool has a disclosure policy.
