Most new investors can feel overwhelmed by the options available. Investing in individual stocks means adding a dozen or more companies to ensure your investment portfolio is properly diversified. Many investors choose ETFs because they help with diversification. However, with thousands of ETFs to choose from, deciding which to use can be stressful.
If you want to build an investment portfolio that offers broad diversification at a low cost, these are four ETFs that financial advisors believe are all you’ll really need.
iShares Core Dividend ETF (DIVB)
Many investors favor dividend-paying companies because even when the market is volatile, they know they’ll receive dividend income. One ETF worth considering is the iShares Core Dividend ETF.
This fund has a slightly different focus than other dividend funds. Instead of targeting companies with the highest overall dividend yield, it focuses on those with strong fundamentals and a long history of paying dividends. This means the companies are well-positioned for growth and provide steady income to investors.
“When I review portfolios, they are typically concentrated in S&P 500 and [Magnificent 7] names,” said Jon Zetlmaier, Founder at Zetlmaier Wealth Management. “There may be a global fund, growth fund, blend, and sometimes value oriented fund. Oftentimes, they all have the same top holdings, leaving investors very exposed to the Mag 7. This fund tracks the Morningstar Dividend and Buyback Index. It’s a low-cost fund with good performance, and it doesn’t have one Mag 7 name in its top holdings.”
Vanguard Total Stock Market ETF (VTI)
The Vanguard Total Stock Market ETF is widely recommended by financial advisors because it gives investors access to a majority of the U.S. stock market. With thousands of small-, mid- and large-cap stocks included, it offers significant diversification. Plus, like many other Vanguard funds, this fund has a low expense ratio of just 0.03%.
“Rather than trying to determine which sector or segment of the market will outperform next, investors get exposure to essentially the entire U.S. equity market in one low-cost investment,” said Alex Papadopoulos, CSRIC™, CRPS®, President and Senior Financial Advisor at Egéa Wealth Management. “With an expense ratio of just 0.03%, it is an efficient way to build a diversified core for a long-term portfolio.”
iShares MSCI USA Equal Weighted ETF
Funds that track the S&P 500 are popular for their simplicity and diversification. However, these funds are heavily weighted toward the performance of the Mag 7 stocks. If you would prefer to invest outside these tech stocks, many advisors recommend an ETF such as the iShares MSCI USA Equal Weighted ETF.
