3 Top ETFs to Buy and Hold Forever
September 2, 2021
If you’re just starting out investing then exchange-traded funds (ETFs) should be one of your first ports of call.
That’s because they offer investors instant diversification, the ability to buy in small amounts and, perhaps most importantly, all at a very low cost.
But besides the ease of buying ETFs, the next challenge for investors is (of course) exactly what ETFs they should buy.
Not all ETFs are created equal and, obviously, various ones will give investors exposure to not only different sectors of a stock market but also entirely different stock markets, based on geography.
So, with that in mind, here are three top ETFs that any long-term investor can buy and hold forever.
1. Vanguard Total World Stock Index Fund ETF
If you want a truly diversified, as well as global, ETF in your portfolio then the Vanguard Total World Stock Index ETF (NYSE: VT) is a great option.
While it has around 61% of its assets in US stocks – reflecting the heft of the US in the makeup of global markets – it also has over 15% in Europe and 10% in Emerging Markets.
While its top 10 holdings are all familiar names, such as Apple Inc (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT) and Amazon.com Inc (NASDAQ: AMZN), it also has an Asian chip giant in Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM) (TPE: 2330), also known as TSMC, among its top holdings.
With an annualised return of 11.5% over the past decade, and a super low expense ratio of just 0.08%, the Vanguard Total World ETF offers investors a cheap way to be global when investing.
2. ARK Innovation ETF
If you think of the Vanguard Total World ETF as a solid foundation, then the ARK Innovation ETF (NYSE: ARKK) can be your way of tapping into explosive growth opportunities in emerging technologies.
Run by famed investor Cathie Wood, ARK Invest runs a series of what’s called “active ETFs” where the ETF is traded like a stock but is instead actively managed by a fund manager and their investment team.
Ark Innovation’s objective states that it seeks long-term growth of capital by investing in companies that are relevant to “disruptive innovation”.
If you take a look at the fund’s top holdings, you’ll immediately see the types of companies you’ll gain exposure to.
Among the top 10, by weighting, is electric vehicle maker Tesla Inc (NASDAQ: TSLA), virtual healthcare specialist Teladoc Health (NYSE: TDOC), digital storefront and software provider Shopify Inc (NYSE: SHOP) and fintech company Square Inc (NYSE: SQ).
Given the fund’s five-year annualised return of 48.4%, the higher expense ratio of 0.75% seems reasonable if it can continue to deliver.
However so far in 2021 the fund is only up 5.1%, trailing the S&P 500 Index, but if you believe in the future of disruptive technology then the Ark Innovation ETF is an ideal choice.
3. Invesco China Technology ETF
Finally, while it’s been impossible to escape news of the crackdown on China’s technology giants, that doesn’t mean that investors shouldn’t have exposure to the massive China market.
That’s what the Invesco China Technology ETF (NYSE: CQQQ) offers investors but its holdings lean more towards Mainland China’s A-shares market.
As my colleague Say Boon Lim noted in his Big Money column here, you just need to be focused on the right sectors and companies in China.
So, that means less of the consumer-facing tech companies like Tencent Holdings Ltd (SEHK: 700) and Meituan Dianping (SEHK: 3690).
While the Invesco China ETF does hold some of these names, it also has more exposure to “hard tech”, such as optical devices manufacturer Sunny Optical Technology Group Co Ltd (SEHK: 2382) and advanced solar panel manufacturer LONGi Green Energy Technology Co Ltd (SHA: 601012), than other similar China ETFs.
While the fund is down 12.4% so far in 2021, it has delivered an impressive 11.1% annualised return over the past decade.
It should be noted that it has a slightly higher expense ratio of 0.7% versus traditional low-cost ETFs that access more liquid markets such as the US.
Hold for the long term
As with any investment, it’s important for individuals to remember that investing is a “long game”. It requires us to filter out the noise of financial media and scaremongers calling for an impending crash.
With these three ETFs, investors can buy and hold for the long term given the large opportunity set that exists across the US, disruptive innovation themes and China.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Teladoc Health, Shopify Inc, Square Inc and LONGi Green Energy Technology Co Ltd.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.