Top 3 ETFs for long-term investors

If you are an investor who likes to buy and hold strategies that allow carefully scrutinized investments to accumulate meaningful returns over time, then index-based exchange-traded funds (ETFs) may be the right tool for you . Even investment icon Warren Buffett knows that it is difficult to beat index funds, which is why he famously asked for 90% of the money he left with his wife to be invested in S&P 500 index funds.

Of course, you don’t have to store all your cash in an index fund like Buffett. But with the development of long-term investment, these tools are an attractive and usually lower-cost option for both large and small investors.

What is an ETF?

Like mutual funds, ETFs are pools of funds that invest in stocks, commodities, bonds, or a basket of other assets. Unlike mutual funds, ETF stocks are traded on the exchange in the same way as common stocks. At the same time, index funds aim to track the performance of benchmarks such as the Standard & Poor’s 500 Index.

Key points

  • The ETF owns the relevant assets and divides the ownership of these assets into stocks, and investors can buy and sell stocks through a brokerage company.
  • Index funds are designed to reflect the performance of popular indexes such as the Standard & Poor’s 500 Index or the Dow Jones Industrial Average.
  • Vanguard Total Stock Market ETF and SPDR 500 Trust are two low-cost index ETFs that investors can buy to participate in the performance of the US stock market.
  • Investors seeking to venture into markets outside of North America may consider investing in the iShares Core MSCI EAFE Fund (IEFA).

If you are a long-term investor planning an investment portfolio and looking to add index funds to the portfolio, there are many options.Below are the three best indicators based on assets under management (AUM), long-term performance and expense ratios

Vanguard Total Stock Market ETF (VTI)

  • Publisher: Pioneer
  • Assets under management: US$823 billion
  • One-year performance: 9.00%
  • Expense rate: 0.03%

If you are not sure which index to follow, or if you want to invest in various industries and market capitalization, this may be your best choice. As the name suggests, Total Stock Market ETF covers the entire domestic stock market in the United States, tracking the CRSP United States Total Stock Market Index.

VTI is a balanced fund with a healthy portfolio of small-cap stocks, mid-cap stocks and blue chip stocks. VTI is an efficient fund with low expense ratio. The scale of asset management is also impressive, exceeding US$800 billion.

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SPDR Standard & Poor’s 500 ETF (SPY)

  • Issuer: State Street Global Advisors
  • Assets under management: $262 billion
  • One-year performance: 10.15%
  • Expense rate: 0.09%

First to go public, this mature ETF has attracted a lot of attention from tactical traders and buy-and-hold investors. The fund tracks the Standard & Poor’s 500 Index, which is a group of stocks listed on the American Stock Exchange—mainly large-cap stocks. Technically speaking, the SPDR 500 ETF is a unit investment trust (UIT), which means it cannot reinvest cash dividends between distributions. This small detail may cause the fund’s performance to differ slightly from the index on which it is based. The fund has a solid one-year performance of more than 10%.

Top 3 ETFs

Funds are selected based on a combination of performance over a period of time, expense ratio and asset management scale. All data are the latest data as of September 12, 2019.

iShares Core MSCI EAFE ETF (IEFA)

  • Publisher: iShares
  • Assets under management: $63 billion
  • One-year performance: 0.15%
  • Expense rate: 0.07%

IEFA provides exposure to European and Asian developed market stocks, excluding domestic and Canadian stocks. Its benchmark index MSCI EAFE covers approximately 98% of the global stock market outside of North America. In addition, it includes small-cap stocks that are proportional to the market—competitive funds are usually not included. Japan and the United Kingdom rank among the top two in the fund’s portfolio.

IEFA contains nearly 3,000 stocks and is a diversified fund with low cost of ownership, making it the first choice for short-term and long-term investors seeking market exposure outside of North America. This fund is newer than the other funds mentioned in this article, and its establishment date is October 18, 2012. In the past year, the price of ETFs has fluctuated greatly, but not much progress has been made yet. Nonetheless, it has an annual return of 2.6% in the past five years and an annual return of 6.5% since its inception.

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