Exchange-traded funds (ETFs) offer investors a variety of different strategies to prepare for whatever the market throws at them – Federal Reserve moves, election uncertainty, economic instability and just about everything else under the sun. We kept all of these in mind as we built this list of the best ETFs to buy now.
As we approach the second quarter of 2024, we're still left wondering exactly what kind of year it will be. Most economic statistics point to a robust economy. Real GDP (gross domestic product) finished the fourth quarter of last year up 3.3%, following the third quarter's even stronger 4.9%. Unemployment remains near historic lows.
Inflation remains higher than most of us would like, but it's continuing to trend lower. And the Federal Reserve is widely expected to start lowering interest rates in the coming months. The consensus estimate is that the Fed makes its first rate cut over the summer.
Yet risks remain. The yield curve has been inverted since July 2022, with short-term interest rates significantly higher than long-term interest rates. This has traditionally been a warning sign of a coming recession. Mortgage rates hover near 20-year highs, which has had the effect of trapping millions of Americans in their homes and putting existing home sales into a deep freeze. It's hard to justify selling a home financed at a sub-3% rate in order to buy one at close to a 7% rate.
Credit card balances topped $1 trillion for the first time last year, and millions of Americans have seen their budgets crimped by the resumption of student loan payments.
And then, of course, there's the elephant in the room: The 2024 presidential election. There are strong feelings and uncertainty surrounding both current President Joe Biden and former President Donald Trump, who are both the front-runners for their respective parties' nominations. This has the potential to spark volatility in the stock and bond markets in the lead up to November, though the good news for investors is that election years tend to be positive for equities.
So, how do you invest in an environment like this?
By sticking with quality.
ETFs loaded with strong companies that have proven their ability to navigate an uncertain market make sense in this environment.
How do you find the best ETFs to buy?
Today we're going to take a look at five of the best ETFs to buy for 2024. But this of course raises the question of what exactly defines a strong ETF and where we should go to look for them?
To start, it's generally a good idea to stick to relatively broad-market ETFs. You don't have to put your entire portfolio in an S&P 500 index fund, of course, though doing so isn't necessarily a bad idea, particularly if your account is modest in size and diversification is difficult.
Sector ETFs and highly specialized single-strategy ETFs can add value under the right set of circ*mstances, and you may have your reasons for wanting targeted exposure. But it's generally going to make sense to keep those positions relatively small while leaving the bulk of your portfolio in more diversified, broader-market ETFs.
Costs are also a consideration. It's not going to have a major impact on your long-term returns if you hold an ETF with an expense ratio of 0.08% vs 0.10%. Once you reach a certain low-cost threshold, it doesn't move the needle all that much to lower fees by an extra basis point. (A basis point = 0.01%). But every dollar you pay in fees is a dollar you no longer have available to grow and compound. So, all else equal, it makes sense to buy low-cost ETFs rather than those with higher expense ratios.
As for where to look for the best ETFs to buy, we've never had more options. Popular websites such as Yahoo Finance and Morningstar offer simple screeners that allow you to rank ETFs based on the specific criteria you're looking for. Of course, a screener should just be a starting point in your research. You should always take the time to visit the ETF sponsor's website and do a little digging of your own.
Let's take a look at the five best ETFs to buy now. Data is as of February 16. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.
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Wall Street
