Etfs For Young Investors: Building A Solid Foundation

Exchange-traded funds (ETFs) are a great way for young people to start investing. They are a good choice for young investors because most have low fees, no minimum investment requirement, and the convenience of trading throughout the day.

ETFs are similar to mutual funds in that they are a pool of money that's invested in various assets. However, the major difference is that ETFs trade just like stocks, on major exchanges, all throughout normal trading hours, providing them with liquidity.

- SPDR Portfolio S&P 500 ETF (SPLG)

- Schwab US Small-Cap ETF (SCHA)

- Vanguard Growth ETF (VUG)

- iShares Core MSCI International Developed Markets ETF (IDEV)

- Vanguard FTSE Emerging Markets ETF (VWO)

- Fidelity MSCI Information Technology Index ETF (FTEC)

- iShares Global Clean Energy ETF (ICLN)

- Vanguard Total Bond Market ETF (BND)

- Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)

Large-cap ETFs

Vanguard S&P 500 ETF (VOO)

This ETF is a clear leader in the market, with over $500 billion in assets under management. It tracks the S&P 500 index, which consists of the largest U.S. companies across various sectors. VOO has a very low expense ratio of 0.03%, making it a cost-effective option for long-term investment. Its top holdings include well-known companies such as Apple, Microsoft, Amazon, and Nvidia.

Invesco QQQ Trust (QQQ)

The Invesco QQQ ETF is another popular choice, with a focus on innovative companies in the Nasdaq stock exchange. While it has a slightly higher expense ratio of 0.20%, it offers exposure to 100 of the most innovative companies, with a heavy focus on technology stocks. QQQ is a good option for those seeking higher-risk, higher-reward investments.

Vanguard Growth ETF (VUG)

VUG is a large-cap growth ETF with over $140 billion in assets under management. It has a low expense ratio of 0.04% and tracks the CRSP US Large Cap Growth Index. The ETF holds about 200 large-cap growth stocks, with a heavy focus on the technology sector (58%). VUG provides exposure to well-known companies such as Apple, Microsoft, Nvidia, and Amazon.

IShares S&P 500 Growth ETF (IVW)

The iShares S&P 500 Growth ETF has over $50 billion in assets under management and tracks the S&P 500 Growth Index. It has a slightly higher expense ratio of 0.18% but offers exposure to about 230 large-cap growth stocks. The ETF is heavily weighted towards technology stocks (50%) but also includes consumer discretionary (14%) and communication services (12%).

Vanguard Total Stock Market ETF (VTI)

VTI provides exposure to the entire U.S. stock market, with over 3,900 stocks in its portfolio. It has an extremely low expense ratio of 0.03% and has returned 7.16% year-to-date. Its top holdings include Apple, Alphabet (Class A and C), Facebook, and Exxon Mobil. VTI offers a diverse range of large, mid, and small-cap equities across various industries.

Small-cap ETFs

IShares Russell 2000 ETF (IWM)

IWM is managed by BlackRock Investment Management Company, one of the most successful and respected firms in the industry. This ETF is designed to track the performance of the Russell 2000 Index, which consists of 2,000 small domestic companies. IWM has a low expense ratio of 0.19% and a loss of (11.63)% over the past 12 months, in line with its benchmark index.

Vanguard Small Cap Value ETF (VBR)

VBR is a Vanguard Small Cap Value ETF that focuses on small US companies valued at less than $2 billion. It aims to mirror the returns of the CRSP US Small Cap Value Index and holds nearly 850 stocks in its portfolio. With an expense ratio of 0.07%, VBR has returned 0.61%, matching its benchmark index.

Vanguard Mid Cap ETF (VO)

VO is a Vanguard Mid Cap ETF that focuses on mid-cap companies valued between $2 billion and $10 billion. It offers a balance between the risks of high-growth small-cap stocks and the lower returns of large-cap stocks. VO uses the CRSP US Mid Cap Index as its benchmark and holds around 350 medium domestic stocks. Its expense ratio is 0.04%, and it has returned 3.88% year-to-date.

Schwab U.S. Small-Cap ETF (SCHA)

SCHA is a Schwab fund focused on small-cap stocks, with an average market capitalization of about $3.7 billion across roughly 1,750 total holdings. This ETF provides incredible diversification, smoothing out volatility. SCHA spreads its assets across top sectors, including industrials, technology, and financial services. Its expense ratio is 0.04%.

IShares Core S&P Small-Cap ETF

This ETF is part of the iShares family of funds, which are managed by BlackRock Investment Management Company.

Invesco FTSE RAFI US 1500 Small-Mid ETF

This ETF is offered by Invesco.

Vanguard Small-Cap ETF

This ETF is offered by Vanguard.

Avantis U.S. Small Cap Value ETF

This ETF is offered by Avantis.

IShares Russell 2000 Growth ETF

This ETF is part of the iShares family of funds, which are managed by BlackRock Investment Management Company.

Growth ETFs

As a 24-year-old, you may want to consider investing in growth-focused ETFs, which offer a balance between the risks of high-growth small-cap stocks and the slower returns of established large-cap stocks. Here are some options for growth ETFs:

Vanguard Growth ETF (VUG)

With a low expense ratio of 0.04%, Vanguard's Growth ETF aims to deliver growth while sticking with large-cap companies. It tracks the CRSP US Large Cap Growth Index and has returned 17.24% year-to-date, aligning with the index. Its top holdings include well-known companies such as Apple, Microsoft, Amazon, and NVIDIA.

Schwab US Large Cap Growth ETF (SCHG)

The Schwab US Large Cap Growth ETF challenges the notion that large-cap stocks are not typically considered growth stocks. It tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market Index to generate growth without increasing risk. With a low expense ratio of 0.04%, it holds a total of 246 stocks and has returned 17.46% year-to-date, almost matching the underlying index. Its top holdings include Apple, Microsoft, Amazon, and NVIDIA.

IShares Core S&P US Growth ETF

This iShares ETF seeks to track the investment results of the S&P 900 Growth Index, which is composed of large- and mid-capitalization U.S. equities exhibiting growth characteristics. With total assets of $18.93 billion and a low expense ratio, it is a good option for those seeking exposure to large- and mid-cap growth stocks.

Vanguard Mega Cap Growth ETF

This Vanguard ETF seeks to track the performance of the CRSP U.S. Mega Cap Growth Index, focusing on large-capitalization growth stocks. With total assets of $235.34 billion, it is a popular choice for investors.

IShares Morningstar Growth ETF

The iShares Morningstar Growth ETF aims to track the Morningstar® U.S. Large-Mid Cap Broad Growth IndexSM, which includes large- and mid-capitalization growth stocks. With total assets of $19.57 billion, it is another popular choice for investors seeking exposure to growth stocks.

When considering these growth ETFs, it is important to remember that they may be more volatile than their large-cap peers. However, they offer higher growth potential, making them suitable for young investors with a longer investment horizon.

International ETFs

When it comes to investing in international ETFs, there are a few options that are commonly recommended for young investors. Here are some of the most popular choices:

• Vanguard Total International Stock ETF (VXUS): This ETF provides exposure to a diverse range of international companies, with over 8,600 stocks in its portfolio. It offers a mix of established companies and smaller emerging market plays, with Japan, the United Kingdom, and China being the top three regions by exposure. With an expense ratio of 0.08%, it is a cost-effective way to gain international exposure.
• IShares Core U.S. Aggregate Bond ETF (AGG): While not strictly an international ETF, AGG provides important diversification across asset classes, including U.S. Treasurys, loans to blue-chip stocks, and securitized mortgage debt. With over 12,000 "investment-grade" bonds in its portfolio, it offers stability and a generous yield of 3.4% over the last 12 months.
• WisdomTree International Hedged Quality Dividend Growth Fund (IHDG): This ETF is ideal for dividend investors who want to invest internationally. It focuses on companies based outside the U.S. and Canada, with the top three countries by weight being the United Kingdom (18%), Switzerland (15%), and Japan (14%). IHDG has a dividend yield of 1.7%, which is higher than the S&P 500's average of 1.2%.
• Global X Lithium & Battery Tech ETF (LIT): This ETF tracks the performance of the Solactive Global Lithium Index, which includes companies involved in lithium mining, battery production, and electric vehicles (EVs). With a dividend yield of 1.4% and exposure to global companies, mainly from China, the U.S., and Australia, LIT provides access to a secular growth trend.

When considering international ETFs, it is important to remember that they can provide valuable diversification to your portfolio and exposure to growth opportunities in foreign markets. However, it is always recommended to do your own research and consult with a financial advisor before making any investment decisions.

Bond ETFs

IShares Core U.S. Aggregate Bond ETF (AGG)

With assets worth $120 billion and an expense ratio of 0.03%, AGG is one of the largest and lowest-cost bond ETFs. It offers a generous yield of 3.4% and invests in more than 12,000 "investment-grade" bonds, including U.S. Treasurys and loans to blue-chip stocks. It's a low-risk option that provides unmatched stability in the long term.

Vanguard Total Bond Market ETF (BND)

BND is a highly-rated intermediate-term core bond ETF with assets worth $78 billion and an expense ratio of 0.035%. It invests in a blend of U.S. investment-grade bonds, including government, corporate, and securitized debt.

Vanguard Short-Term Corporate Bond ETF (VCSH)

VCSH is a short-term bond ETF with assets worth $21.3 billion and an expense ratio of 0.07%. It focuses on high-quality corporate bonds with durations in the 1.0- to 3.0-year range.

Vanguard Long-Term Corporate Bond ETF (VCLT)

VCLT is a specialized bond ETF with an intermediate-term focus. It has assets worth $4.6 billion and an expense ratio of 0.04%. The ETF invests in corporate bonds and is very sensitive to interest rate changes, making it a good choice for investors looking to benefit from falling interest rates.

SPDR Bloomberg Convertible Securities ETF

This ETF tracks an index of bonds and has an expense ratio of 0.40%. It is one of the best-performing bond ETFs in December 2024.

Frequently asked questions