Exchange-traded funds (ETFs) are an easy entry point into investing. They provide quick, broad exposure to the financial markets. Even better, ETFs are far easier to manage than a diversified portfolio of individual assets.
If ETF investing is on your list of New Year's resolutions, you're in the right place. Below you'll find an introduction to the benefits of ETFs plus 10 top funds to research and tips on using them to get wealthier in 2024 and beyond.
The Appeal Of ETFs
Over the past three years, the number of ETFs available to U.S. investors has grown 46%. The growth is demand-driven—apparently, investors love ETFs. It's not surprising, given the perks ETFs offer: instant diversification, easy portfolio management, an abundance of low-fee options and better liquidity and price transparency vs. mutual funds.
Diversification
To diversify a stock portfolio sufficiently, you'd need to own 20 or more individual stocks.
On the other hand, you could gain exposure to hundreds or thousands of positions in a single ETF. You can also find ETFs that fulfill nearly any investing strategy, from full-market plays to niche assets. Some ETFs even maintain asset allocation portfolios that are designed to be the only position you own.
Portfolio Management
Every position you own requires a time investment for research, monitoring and rebalancing. Your total time commitment is far less when your portfolio consists of five ETFs vs. 20 individual stocks.
Low Fee Options
Fees are a drawback of ETF investing vs. buying stocks directly. Fortunately, there are many low-fee fund options available. Straightforward index funds, for example, can have near-zero expense ratios. Funds with specialized approaches, frequent rebalancing and international exposure will have somewhat higher expenses.
Liquidity And Price Transparency
ETFs trade throughout the day like stocks, while mutual funds settle and reprice once daily. When you buy or sell a mutual fund, you don't know the transaction price until after the stock market closes. This unknown won't make or break your long-term investment performance, but it can be disconcerting.
The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download one of Forbes' most popular and widely anticipated reports, 12 Best Stocks To Buy for 2024.
Methodology Used For These Picks
To identify the 10 best ETFs for 2024, I looked at expense ratios, industry diversification, number of holdings in the portfolio, performance history and trading volume.
Expense ratio
Lower expense ratios are associated with higher shareholder returns. The ratio represents how much of your investment is used annually to cover fund expenses. Lower is better. Every ETF in the list below has an expense ratio of less than 0.50%.
Industry diversification
Big tech companies dominate ETF portfolios. That's to be expected since those companies have generated billions in investor wealth in recent years. But the popularity of Apple
To help you manage the overlap of big tech stocks, the ETFs below do have industry diversification. One has 36% of its holdings in technology, while the rest are below 30%.
Number of holdings
Instant diversification is one of the main advantages of ETF investing. That advantage wanes with funds that are overly specialized. All the ETFs on this list have 50 or more stocks in their portfolios.
Performance history
Every ETF below has delivered positive average annual returns over the past five years. Returns vary by investing approach, but each shows competitive performance relative to peers.
Trading volume
Trading volume is a liquidity indicator. Higher volume signals more buyers and sellers for that fund. This in turn indicates that trades can be completed quickly with minimal impact on the market price. The top ETFs listed here all have reasonable trading volumes given their niche.
The 10 Best ETFs For 2024
The table below includes 10 low-fee ETFs with varying investment strategies. A closer look into each fund follows in the next section.
1. SPDR Portfolio S&P 500 ETF SPLG
- Assets under management: $25 billion
- ETF price: $55.49
- Expense ratio: 0.02%
- Number of holdings: 503
- 5-year average annual return: 12.6%
- Dividend yield: 1.4%
Fund Overview
SPLG tracks the S&P 500, a large-cap index that includes 500 of the most established and successful stocks in the U.S. To be included in the index, companies must meet profitability, capitalization and share liquidity requirements. Like all index funds, SPLG seeks to produce returns that mirror its underlying index before fees and expenses.
Why SPLG Is A Top Pick
It's tough not to include an S&P 500 fund in this list. The index, which includes the largest and most successful public companies in the U.S., has produced double-digit average returns before taxes over the long-term.
SPLG gets the nod as one of my best ETFs for its low expense ratio and high trading volume.
2. Invesco S&P 500 Equal Weight ETF RSP
- Assets under management: $48 billion
- ETF price: $156.41
- Expense ratio: 0.20%
- Number of holdings: 504
- 5-year average annual return: 10%
- Dividend yield: 1.8%
Fund Overview
RSP tracks an index comprised of S&P 500 stocks in equal weights. The standard S&P 500 index weights holdings by market capitalization. In that structure, bigger companies like Apple and Microsoft have greater influence over the index as a whole.
Why RSP Is A Top Pick
RSP is a top pick because it's the largest equal-weight S&P 500 fund and it has a tidy expense ratio of 0.20%. Note that expense ratios for equal-weight funds can be higher than those of cap-weighted funds. This is mainly an outcome of the extra rebalancing required to keep the targeted allocation.
While no one's complaining about the S&P 500's market-cap weighted performance this year, there are good arguments for an equal-weighted fund like RSP. Equal weighting provides more balanced diversification and has the potential for better returns. For one, it allows growth in smaller stocks to be more influential. And, the regular fund rebalancing incorporates profit-taking to reinvest in stocks with more room to grow.
3. Schwab U.S. Dividend ETF SCHD
- Assets under management: $51 billion
- ETF price: $75.45
- Expense ratio: 0.06%
- Number of holdings: 104
- 5-year average annual return: 10.6%
- Dividend yield: 3.7%
Fund Overview
SCHD tracks the performance of the Dow Jones U.S. Dividend 100 Index. The index includes blue-chip stocks that pay consistent and competitive dividends.
Why SCHD Is A Top Pick
SCHD is a solid choice among dividend ETFs. The fund invests in financially stable companies with long histories of dividend payments. The yield of 3.7% is impressive, especially given the quality of the holdings. Additionally, SCHD has consistently produced appreciation returns alongside the dividend yield. Splitting returns across growth and income is more tax-efficient than, say, a bond portfolio that solely produces income.
4. Nasdaq-100 Equal Weighted Index Shares (QQQE)
- Total assets under management: $911 million
- ETF price: $83.63
- Expense ratio: 0.35%
- Number of holdings: 101
- 5-year average annual return: 13.7%
- Dividend yield: 0.8%
Fund Overview
Direxion's QQQE includes the constituents of the Nasdaq-100 in an equal-weight allocation. The fund is rebalanced quarterly to adjust for market fluctuations.
Why QQQE Is A Top Pick
The equal-weight format is interesting for the tech-heavy Nasdaq-100, which includes the top 100 stocks on the Nasdaq exchange. There is a lot of growth potential in the second tier of Nasdaq-100 stocks, behind Apple, Microsoft, Amazon, Tesla and Nvidia. QQQE gives you greater access to that potential and more balanced sector exposure.
For context, the Nasdaq-100 in its modified cap-weighted form is 49% in technology. Direxion's QQQE fund has tech exposure of 36%.
5. iShares MSCI ACWIex-U.S. ETF ACWX
- Assets under management: $4.5 billion
- ETF price: $50.39
- Expense ratio: 0.34%
- Number of holdings: 1,894
- 5-year average annual return: 2.3%
- Dividend yield: 2.5%
Fund Overview
ACWX invests in large- and mid-cap stocks across developed and emerging market countries. The fund does not include U.S. stocks.
Why ACWX Is A Top Pick
ACWX provides international growth exposure without overlapping any U.S. stocks you already own. For an international and emerging market fund, it has a reasonable expense ratio and dividend yield of 0.34% and 2.5%, respectively.
The portfolio is broadly diversified across more than 1,800 stocks and 46 countries. Many of the stocks are names you will recognize, such as Taiwan Semiconductor, Nestle, Samsung and Astrazeneca. The largest sector exposure is 21% in financials.
The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download one of Forbes' most popular and widely anticipated reports, 12 Best Stocks To Buy for 2024.
6. iShares Core S&P Mid-Cap ETF IJH
- Total assets under management: $77 billion
- ETF price: $274.59
- Expense ratio: 0.05%
- Number of holdings: 405
- 5-year average annual return: 6%
- Dividend yield: 1.6%
Fund Overview
IJH tracks the S&P Mid-Cap 400 index, which includes 400 companies that have market values between $5.2 billion and $14.5 billion. Index constituents must also be profitable and meet minimum trading volume requirements.
Why IJH Is A Top Pick
iShares' IJH fund provides low-cost exposure to high-quality, mid-cap stocks. Mid-caps deliver a nice balance of risk and reward. They're generally more stable than smaller companies and have good growth potential. Many are on the trajectory to grow into large caps or become acquisition targets for large caps. Either outcome is a win for investors.
7. Pacer U.S. Cash Cows 100 ETF COWZ
- Total assets under management: $17 billion
- ETF price: $52.09
- Expense ratio: 0.49%
- Number of holdings: 100
- 5-year average annual return: 12.3%
- Dividend yield: 2.2%
Fund Overview
COWZ invests in 100 Russell 1000 stocks that produce the highest free cash flow (FCF) yield. FCF yield is FCF per share divided by the stock price. The stocks in the COWZ portfolio are weighted by FCF but capped at 2%. Rebalancing happens quarterly.
Why COWZ Is A Top Pick
The fund's strategy of investing in companies that produce excess cash creates a portfolio that's heavy on value. As of the most recent rebalance, COWZ assets cumulatively produced 9% FCF yield and had a P/E ratio of 9.1. The same metrics for the Russell 1000 are somewhat less compelling: 3.1% FCF yield and 24.5 P/E ratio.
The drawback of this fund is its high expense ratio of 0.49%. High expense ratios limit the returns of underlying assets that flow through to investors. In COWZ’s case, the fund's five-year returns of 12.3% are still competitive, despite high expenses.
8. iShares Morningstar Mid-Cap Value (IMCV)
- Total assets under management: $593 million
- ETF price: $67.69
- Expense ratio: 0.06%
- Number of holdings: 310
- 5-year average annual return: 5%
- Dividend yield: 2.6%
Fund Overview
IMCV invests in mid-cap stocks that look to be undervalued by the market. The fund tracks the Morningstar mid-cap broad value index, which is cap weighted.
Why IMCV Is A Top Pick
IMCV provides cost-efficient exposure to more than 300 mid-cap value stocks. The mid-cap value space tends to be overlooked by investors, many of whom gravitate towards the stability of large companies or the excitement of small ones. That means there are deals to be had for the mid-cap investor who's in for the long term.
To be clear, value stocks had a tough 2023. IMCV specifically is down 0.62% in the 12 months prior to November 20, 2023. But historically, value stocks do outperform their growth-oriented counterparts over the long-term.
9. Invesco FTSE RAFI U.S. 1500 Small-Mid ETF PRFZ
- Net asset value (NAV): $2 billion
- ETF price: $36.83
- Expense ratio: 0.39%
- Number of holdings: 1,450
- 5-year average annual return: 7%
- Dividend yield: 1.2%
Fund Overview
PRFZ tracks the FTSE RAFI U.S. 1500 small-mid index. Index constituents are the 1,500 stocks behind the top 1,000 stocks according to RAFI fundamentals. Those fundamentals include dividends, book value, sales and cash flow.
Why PRFZ Is A Top Pick
PRFZ delivers small- and mid-cap exposure that's weighted by performance metrics, rather than market value. This protects investors from over-concentration prompted by excessive investor enthusiasm. A quick stock price rise can easily result in overvaluation, which adds risk to your portfolio.
Also, regular rebalancing of PRFZ trims higher-priced stocks and builds lower-priced ones. That follows a contrarian strategy of buying low and selling high.
10. iShares Core U.S. Aggregate Bond ETF AGG
- Total assets under management: $99 billion
- ETF price: $98.68
- Expense ratio: 0.03%
- Number of holdings: 11,282
- 5-year average annual return: 0.08%
- Dividend yield: 4.3%
Fund Overview
AGG invests in U.S. investment-grade bonds. The portfolio is mainly comprised of U.S. Treasury debt, mortgage-backed securities and corporate debt from industrial, financial and utility companies. Maturities are also diversified but weighted towards seven to 10-year durations.
Why AGG Is A Top Pick
A bond ETF like AGG provides stability and income. And now's a good time to add those qualities to your portfolio, since the bond market is broadly expected to be positive in 2024.
AGG invests across the entire U.S. investment-grade debt market and maintains a low expense ratio of 0.03%. Since the portfolio is diversified across issuers, debt types, sectors and maturities, it can fulfill your U.S. fixed-income allocation requirement on its own.
Investing Strategies For Long-Term Success
ETF investing is a time-efficient way to invest, but it isn't hands-free. You will need a plan in place to get the best results. Look to the five steps below as a roadmap to support the long-term success of your ETF strategy.
1. Define A Target Asset Allocation
Asset allocation is the composition of your portfolio across various asset types. This composition is a primary determinant of risk. Before you invest in ETFs, design an asset allocation that aligns with your risk tolerance and investment timeline. That allocation should then guide your ETF research and trade decisions.
2. Know Your Strategy
Put some thought into your own investment philosophy so you can choose ETFs that match your mindset. As an example, do you prefer to hold stocks that outperform or take profits and reinvest elsewhere? The answer can tell you whether you're a better fit for a standard S&P 500 fund or an equal-weighted S&P 500 fund.
3. Review Fund Holdings
With ETFs, it's easy to get overweighted in certain stocks accidentally. Go beyond reviewing an ETF's investment strategy and dive into its specific holdings. Compare those holdings to other ETFs you already own or are considering. Taking that extra step will help you remain appropriately diversified.
4. Look Past Returns
Returns are important, but within the context of the market segment. A diversified portfolio should have assets that perform well when others perform poorly and vice versa. These offsetting behaviors keep your portfolio volatility in check.
5. Revisit Your Allocation
Your investing timeline and risk tolerance will change over time. Make a note in your calendar to revisit your target asset allocation annually—ideally before you rebalance. The usual practice is to shift towards a more conservative allocation as you near retirement.
Bottom Line
ETFs can provide a quick path to a diversified, wealth-generating portfolio that's easy to manage. Spend the time upfront to research and choose funds that align with your investment philosophy and goals. Then revisit your ETF portfolio annually and adjust as needed.
Stay on that program for the long haul and you can look forward to wealth and prosperity in the years ahead.
Read Next
- 10 Best Stocks For 2024
- 4 Best Mutual Funds For 2024
- Index Funds Vs. Mutual Funds: Understanding The Key Differences
The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download one of Forbes' most popular and widely anticipated reports, 12 Best Stocks To Buy for 2024.
