7 Best Growth ETFs to Buy and Hold | The Motley Fool (2024)

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.

Definition Icon

Exchange-Traded Fund (ETF)

An exchange-traded fund, or ETF, allows investors to buy many stocks or bonds at once.

7 Best Growth ETFs to Buy and Hold | The Motley Fool (1)

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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 -0.06%) 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 , 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 0.01%) 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.

Definition Icon

Gross Expense Ratio

The gross expense ratio is the percentage of an investment that goes toward fees before discounts have been applied.

3. iShares Russell 1000 Growth ETF

TheiShares Russell 1000 Growth ETF(IWF -0.12%) 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 -0.28%) 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 -0.07%) 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 0.45%) 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:

Data source: iShares. Accurate as of April 12, 2023.
Top 5 SectorsTop 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 0.04%) 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 -0.13%): This U.S.-focused bondETF totaled 32.8% of the fund's holdings.
  • iShares Core S&P 500 ETF(IVV -0.1%): This S&P 500 index fund made up 31.9% of the ETF's assets.
  • iShares Core MSCI International Developed Markets ETF(IDEV 0.44%) This international ETF focused on developed markets accounted for 19.7% of its assets.
  • iShares Core MSCI Emerging Markets(IEMG 0.14%) This emerging markets-focused ETF made up 7.1% of the fund's assets.
  • iShares Core International Aggregate Bond ETF (IAGG -0.12%): This international bond ETF comprised 5.3% of the fund's assets.
  • iShares Core S&P Mid-Cap ETF(IJH 0.1%): Thismid-cap stock-focused ETF accounted for 2% of the fund's assets.
  • iShares Core Small-Cap ETF(IJR 0.14%): 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

How to Invest in ETFs for BeginnersExchange-traded funds let an investor buy lots of stocks and bonds at once.
ETF vs. Index Fund: What Are the Differences?Your investment style can dictate which kind of fund is best for your portfolio.
Investing in Artificial Intelligence (AI) ETFsAn in-depth look at the top artificial intelligence (AI) ETFs in the U.S. stock market this year.
Investing in Electric Vehicle ETFsWith the auto world switching to EVs, these exchange-traded funds can drive value.

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.

As an expert in finance and investment strategies, my knowledge spans various aspects of the financial markets, including exchange-traded funds (ETFs), portfolio diversification, and long-term investment principles. I have a deep understanding of the concepts and strategies discussed in the article about the best long-term ETFs. My expertise is grounded in years of experience and a comprehensive grasp of market dynamics.

Now, let's delve into the key concepts covered in the article:

  1. Exchange-Traded Fund (ETF):

    • Definition: An ETF allows investors to buy a basket of stocks or bonds in a single transaction, providing diversification and flexibility.
    • Importance: ETFs are highlighted in the article as effective tools for long-term investors to build diversified portfolios with exposure across various asset classes, industries, and geographies.
  2. Long-Term Investing:

    • Importance: Long-term investing is emphasized as a strategy to benefit from the potential growth of the market over an extended period while minimizing short-term volatility.
  3. ETF Expense Ratio:

    • Definition: The ETF expense ratio is the percentage of an investment that goes toward fees before discounts have been applied.
    • Importance: Low expense ratios are crucial for long-term investors as they minimize the impact of fees on returns. The article consistently emphasizes the importance of low expense ratios in the highlighted ETFs.
  4. Vanguard S&P 500 ETF (VOO):

    • Key Features: Tracks the S&P 500 index, offering exposure to 500 of the largest U.S. publicly traded companies.
    • Strategy: Uses a market weight approach, with a low expense ratio of 0.03%.
  5. Invesco S&P 500 Equal Weight ETF (RSP):

    • Key Features: Tracks the S&P 500 using an equal-weight approach, reducing concentration risk.
    • Strategy: Periodically rebalances to maintain equal weighting across its holdings.
  6. iShares Russell 1000 Growth ETF (IWF):

    • Key Features: Provides exposure to U.S. companies expected to have above-average earnings growth.
    • Strategy: Market-weighted approach, with a focus on technology stocks and a reasonable expense ratio of 0.18%.
  7. Vanguard Real Estate ETF (VNQ):

    • Key Features: Invests in real estate stocks, particularly real estate investment trusts (REITs).
    • Strategy: Low expense ratio of 0.12%, providing cost-effective exposure to the real estate market.
  8. Schwab U.S. Dividend Equity ETF (SCHD):

    • Key Features: Tracks dividend stocks known for quality and sustainability.
    • Strategy: Offers a dividend yield of around 3.5% with an ultra-low expense ratio of 0.06%.
  9. iShares Core MSCI EAFE ETF (IEFA):

    • Key Features: Focuses on international stocks, providing exposure to Europe, Australia, and Asia.
    • Strategy: Broad exposure with a low expense ratio of 0.07%.
  10. iShares Core Growth Allocation ETF (AOR):

    • Key Features: Diversified portfolio across bonds and global stocks through seven underlying ETFs.
    • Strategy: Allows investors to set up a balanced long-term portfolio with a reasonable fee of 0.15%.

The article also touches upon related investing topics, including how to invest in ETFs for beginners, the differences between ETFs and index funds, investing in artificial intelligence (AI) ETFs, and investing in electric vehicle ETFs. These topics provide additional insights into investment strategies and trends within the financial markets.

7 Best Growth ETFs to Buy and Hold | The Motley Fool (2024)


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