Best Exchange-Traded Funds – Our Top Picks
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Overwhelmed by the thought of investing? I’ve been there. We all know we should do it, but putting it off for another day is easy. Even if you’re not new to investing, exploring new avenues can be just as overwhelming. Whether investing for the first time or continuing to build your portfolio, you should consider exchange-traded funds (ETFs).
ETFs are funds that provide a basket of assets that you can buy and sell similarly to how you’d trade stocks on the stock market. As with any investment product, there are a LOT of ETFs out there, but these are a few of the best ones out there that you may want to consider.
After record-high inflation that led to a brutal year for the stock market in 2022, the global markets once again provided significant returns to investors in 2023. The Dow Jones index rose 13.7% in the U.S. with NASDAQ climbing 43.4%
Related: Best Stocks to Buy
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Overview of the best ETFs
ETF | Best for |
Schwab US Large-Cap Growth ETF | Growth stocks |
Invesco QQQ | Long-standing track record |
Vanguard Growth ETF | Low expense ratio |
VanEck Vectors | Variety of markets |
Vanguard S&P 500 ETF | Long-term investment strategy |
Vanguard Dividend Appreciation ETF | Income-investing strategy |
Best ETFs
Schwab US Large-Cap Growth ETF
Schwab US Large-Cap Growth ETF is widely considered one of the top ETFs to invest in due in large part to its holdings. League Cap Growth ETFs like this one invest in growth stocks that are thought to have a large market capitalization rate of a minimum of $10 billion.
This ETF is fairly diverse, although it isn’t the most diverse. This ETF, in particular, typically invests in stocks included in the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. Its holdings include Apple Inc. (AAPL), Microsoft Corporation (MSFT), Amazon.com Inc. (AMZN), Tesla Inc. (TSLA), and Alphabet Inc. (GOOG).
The portfolio of this ETF largely focused on the information technology sector, as seen by most of its top holdings. In fact, 46.20% of its portfolio comprises this sector. It also includes consumer discretionary, communication services, health care, industrials, and financial sectors.
All in all, the Schwab US Large-Cap Growth ETF is trending upward, making it a top investment if you’re looking to diversify your portfolio. Since its inception, the fund has returned 50.11%.
Annual operating expenses for this ETF are just 0.04%, making it one of the least expensive products.
Invesco QQQ
Invesco QQQ was established in 1999, making it a long-standing player that remains relevant today. For those who are hesitant to invest in ETFs, going with Invesco QQQ might be a more comfortable option, given its track record spans over two decades.
This ETF is based on the Nasdaq-100 Index, which comprises 100 of the largest non-financial companies on the Nasdaq Stock Market, both domestic and international. Financial advisors who manage ETFs adjust the securities in a portfolio occasionally to adjust to the relative weights of index securities and the changes in the index. You can count on the Fund, and the Index to be rebalanced quarterly and reconstituted annually.
As expected, this ETF has holdings in top stocks, including Apple Inc. (AAPL), Microsoft Corporation (MSFT), Amazon.com Inc. (AMZN), Alphabet Inc. (GOOG), Facebook Inc. (FB), and Tesla Inc. (TSLA). The fund weighs heavily on the technology sector and other sectors, including the communication services, consumer cyclical, financial services, and healthcare sectors.
While this fund does rely heavily on the technology sector — as many do — it offers a fair amount of diversity among its other sectors. The ETF earned a three-year return of 10% at by the end of 2023.
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Vanguard Growth ETF
The Vanguard Growth ETF is also relatively long-standing, established in 2004. If you’re looking for the potential to see rapid growth and don’t mind a larger amount of risk, this ETF may be right for you.
This ETF tracks and is based on the performance of the CRSP US Large Cap Growth Index. In total, it is made up of 247 stocks across several sectors. Of course, the technology sector makes up 46.6% of the ETF’s portfolio, but you’ll also see investments across the consumer discretionary, industrials, and healthcare sectors, among others.
The Vanguard Growth ETF follows a passive management approach. It also follows the full replication method. This method is fairly straightforward and yields little difference between the fund’s return and the index's performance.
While this ETF does have the potential for rapid growth, it also ranks high on the risk scale. Its top holdings include all of the major players that you’d expect. This includes Apple Inc. (AAPL), Microsoft Corporation (MSFT), Facebook Inc (FB), and Alphabet Inc (GOOG). The Vanguard Growth ETF is also relatively low cost, with an expense ratio of 0.05%, well below the industry average of 0.25%.
VanEck Vectors
VenEck has been around since 1955 and hasn’t slowed down yet. The financial firm is based in New York, which has 90% of its assets are in ETFs; the rest are in mutual funds and separately managed accounts.
This ETF is mostly known for its gold investing. This makes it a good option if you want to gain exposure to gold mining companies. But you can also add VanEck Vectors to your investment program with various investment strategies.
In addition to gold investing, you can use VanEck Vectors to invest in various other industries. Its holdings include an unconventional oil & gas ETF and a hydrogen economy UCITS ETF.
You can find shares of VanEck ETFs on the NYSE. VanEck ETF shares can also be bought and sold on the secondary market.
Vanguard S&P 500 ETF
As its name may suggest, this ETF invests in stocks that are in the Standard & Poor’s (S&P) 500 Index. This Index represents 500 of the largest companies in the U.S., allowing you to invest in a large blend of top companies across various industries.
The S&P Index is a “market-capitalization-weighted index of the 500 largest publicly-traded companies in the U.S.” It is also widely known as the benchmark of the U.S. stock market performance. This ETF tracks the prices and yield performance of the Index and aims to hold each component with about the same weight as the S&P Index.
Since it invests in so many companies, this ETF offers more diversification than other ETFs based on different Indexes. For example, most domestic ETFs on this list have a portfolio that is made up of over 40% of the information technology sector. Comparatively, the information technology sector only makes up 26.4% of the Vanguard S&P 500 ETF’s portfolio. This allows more room for investments in other key sectors, such as communication services, financials, and health care.
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Vanguard Dividend Appreciation ETF
Vanguard is a top player among ETFs, and this dividend ETF is no exception. The Vanguard Dividend Appreciation ETF holds around 289 of the U.S.’s top dividend stocks, making it the largest dividend ETF on the market.
With so many ETFs available, you may wonder why you should consider a dividend ETF. The Vanguard Dividend Appreciation ETF is perfect for investors who want to pursue an income-investing strategy. The stocks that make up this ETF are the ones that have a record of increasing dividends over a period of time. As such, investing in this ETF means that, in theory, you can expect your dividend yield to increase over time. However, things don’t always go as planned in the investing world, so there is an element of risk here that shouldn’t be understated.
This ETF works by tracking the performance of the NASDAQ US Dividend Achievers Select Index. By doing this, it can track the performance of company stocks with a record of dividend growth from year to year. Like the Vanguard Growth ETF, this ETF follows a passively managed, full-replication approach.
Unlike some of the other ETFs on this list, the Vanguard Dividend Appreciation ETF’s portfolio’s top sectors are almost evenly split among a few different industries. As always, the IT sector makes up a large chunk of the portfolio at about 23%. Financial services, healthcare, and consumer staples also make up a large portion of the portfolio.
Summary table
ETF | Top holdings include |
Schwab US Large-Cap Growth ETF | AAPL, MSFT, AMZN, FB, GOOGL, GOOG, TSLA, UNH, V, HD |
Invesco QQQ | AAPL, MSFT, AMZN, GOOG, FB, TSLA, GOOGL, NVDA, PYPL, CMCSA |
Vanguard Growth ETF | AAPL, MSFT, FB, GOOGL, GOOG, TSLA, V, HD, MA |
VanEck Vectors | TSM.TW, NVDA, ASML, QCOM, AMD, INTC, TXN, AVGO, MU, AMAT |
Vanguard S&P 500 ETF | AAPL, MSFT, AMZN, FB, GOOGL, GOOG, TSLA, BRK.B, JPM, JNJ |
Vanguard Dividend Appreciation ETF | JPM, JNJ, MSFT, WMT, UNH, V, PG, HD, CMCSA, KO |
FAQs
What’s the difference between large-cap and small-cap?
When you’re exploring ETFs, you may notice that they’re categorized by phrases such as large-cap and small-cap ETF. This refers to the size of the company or companies, based on its market capitalization. Market capitalization is calculated by multiplying a company’s share price by the number of shares outstanding. The dollar amount that results from this calculation is the company’s market cap. As you might expect, large-cap refers to larger market capitalizations, and small-cap refers to smaller capitalizations. You may also see mid-cap, which encompasses companies that fall somewhere between large-cap and small-cap.
Should I be worried about stock market volatility?
Volatility might seem like a scary and complex concept that’s only talked about by the professionals on Wall Street, but it’s pretty simple. Volatility refers to how much or how little the price of a security has changed over a period of time. If the price hasn’t changed all that much over that time, the security has low volatility. Securities that change in price erratically or have large swings between highs and lows are considered to be highly volatile. Volatility should certainly be considered when choosing your investments, but you don’t necessarily need to stay away from highly volatile securities. Securities with low volatility may carry less risk, but you also aren’t likely to receive a large total return from it. It all depends on the level of risk that you’re comfortable with and whether you’re looking to make short-term gains.
What is the difference between Dow Jones and NYSE?
Even if you’ve never invested before, you’ve probably heard of the Dow Jones and the New York Stock Exchange (NYSE). So let’s break down exactly what they are. The Dow Jones is an index that indicates how the market is doing by averaging the 30 top blue-chip stocks of the economy. Blue-chip stocks are stocks from well-known and established companies that have a strong performance history. The NYSE is an exchange, meaning that this is where people can actually buy and sell stocks. It is the largest exchange in the world and you’ll find companies that are included in the Dow here, as well as thousands of other companies.
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Here’s why you should invest in ETFs
With all the investment products out there, you might ask yourself why you should bother with ETFs. For beginning investors or any investor using small amounts of capital, ETFs are a great way to build a diversified portfolio at a relatively low cost. In fact, you may even be able to find an online broker that offers commission-free ETFs.
ETFs have come a long way since they were first established a few decades ago. Today, there are sector ETFs for just about anything you can imagine. So if you want to invest in a real estate or clean energy ETF, you can do so! Suppose you’re interested in using your investments for social good. In that case, you’ll be happy to know that some newer ETFs focus on companies that follow specific Environmental, Social, and Governance (ESG) criteria.
There are also ETFs for various asset classes to diversify, from a short-term bond ETF to an equity ETF. You can even invest specifically in an ETF for a broad market or emerging markets. You can consider a leveraged ETF for those comfortable taking on some risks. This comparison tool from iShares is a great way to start exploring the variety of available ETFs.
The liquidity of ETFs also makes them an attractive investment, whether you’re a new or experienced investor. Unlike index mutual funds, most ETFs can be traded throughout the day. This means you can use your ETF shares for intraday trading, much like you would with stocks.
The bottom line
Now that you know why you should invest in ETFs, there’s no better time than now to get started! The misconception that investing is only for people with a large amount of capital has been around for far too long, and that’s simply not the case. ETFs are a great way to add diversity to your portfolio without spending a lot of money trying to diversify it.
So, which ETF should you invest in? That depends. You should consider the marketing strategy you feel comfortable with and your investment goals. Some important things to consider are whether you want to invest for the long-term, invest in a way that can bring in some extra income, or both.
Additionally, even though you don’t need a large amount of capital, you will need to consider the amount you’re willing and able to invest. While there are certainly ETFs out there that are top performers, you’ll need to compare ETFs using your criteria to find the best one for you.
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Ashley Hart is a lead copywriter and digital marketing expert covering finance, law, real estate, music, entertainment, health and wellness.
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