I’m an enormous fan of investing in particular person shares and actually consider {that a} well-crafted inventory portfolio can outperform the general inventory market. At the identical time, there’s worth in placing a few of your funding {dollars} on autopilot with top-quality index funds.
Index fund ETFs cannot solely offer you diversified publicity to a whole portfolio of shares in a single funding car, however also can generate some fairly spectacular returns over lengthy intervals of time. With that in thoughts, though a few of my favourite shares (particularly high-yield dividend shares) appear like glorious values proper now, I’m planning to steadily purchase shares of three ETFs specifically all through 2025.
The ETF each investor ought to personal
If I used to be solely allowed to personal one funding, it might be the Vanguard S&P 500 ETF (VOO 0.20%). This is Vanguard’s flagship S&P 500 index fund. As the identify suggests, this ETF tracks the S&P 500 (^GSPC 0.25%), which is extensively thought-about to be the most effective benchmark of how the U.S. inventory market is performing.
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This ETF has a rock-bottom 0.03% expense ratio, which signifies that if in case you have $10,000 invested within the fund, solely $3 will go towards annual funding bills. Over lengthy intervals of time, the S&P 500 has produced common whole returns of about 10% annualized. For context, because of this a $10,000 funding within the ETF may very well be price about $175,000 in 30 years, with no upkeep wanted alongside the way in which.
My high ETF for 2025
At the start of 2024, small-cap shares had been buying and selling at their lowest price-to-book values relative to giant caps because the late Nineteen Nineties. And all year long, the valuation hole has widened even additional, because of the outperformance of large-cap tech shares and rates of interest not falling as a lot as specialists predicted.
Now, the common part of the Russell 2000 small-cap index trades for a price-to-book a number of of 1.9, in contrast with 4.7 for the everyday S&P 500 inventory. With rates of interest lastly beginning to fall and a probably pro-growth setting with the incoming Trump administration, small caps may have some massive tailwinds. That’s why the Vanguard Russell 2000 ETF (VTWO 0.38%) is my high total ETF choose for 2025.
AI publicity with out the company-specific danger
To be completely clear, I feel synthetic intelligence (AI) is a huge alternative and will find yourself being crucial technological development in my lifetime. However, I’m good at evaluating financial institution shares, actual property firms, and e-commerce companies, to call just a few. The finest AI alternatives are, fairly frankly, not in my wheelhouse. Every good investor ought to know their circle of competence, and AI shares are a bit exterior of mine.
For that motive, I’m planning to begin constructing a place within the Ark Autonomous Technology and Robotics ETF (ARKQ 2.94%), which is run by Cathie Wood’s Ark Invest. The fund owns a hand-selected portfolio of shares that may very well be massive winners of the AI revolution. In addition to family names like Tesla and Nvidia, the fund additionally owns lesser-known firms like Kratos Defense & Security in addition to less-obvious AI performs like Deere.
To be certain, that is by far the very best value ETF on this listing, with a 0.75% expense ratio. However, that is according to different specialised, actively managed funds.
How am I utilizing these ETFs in my portfolio?
To be clear, the majority of my portfolio remains to be made up of particular person shares, and I do not see that altering anytime quickly. However, at this level in my investing profession (I’m in my mid-40s), I’ve began to shift my focus a bit towards constructing a strong “spine” to my portfolio with some top-quality index funds. For 2025, and for the foreseeable future, I’m planning to allocate half of any new cash in my brokerage account to shares, and the opposite half to ETFs like these three.
Matt Frankel has positions in Vanguard Russell 2000 ETF and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Deere & Company , Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure coverage.
