The easiest way for beginner investors to generate wealth is to simply invest in Electronically Traded Funds, or ETFs. Investing in ETFs is less risky and generates a conservative 9-12% every year without you having to do anything. Simply put, you will be making money while you sleep.
The 5 absolute best ETFs for beginners to invest in are the following.
Each one of these ETFs target a certain investment methodology and thesis. This means that each ETF you invest in will grow a certain way over time, perhaps the ETF you invest in is targeted towards tech. Well if the tech sector increases so will your net worth!
Here at Chronohistoria I teach people how to generate above normal market returns. I publish articles that go over individual stocks along with articles on the tips/tricks of the trade. Feel free to sign up for the free newsletter to stay up to date on everything.
Without wasting any time, let’s jump right into the 5 absolute best ETFs for beginners to invest in.
ETF 1: SPY
Website: SPDR S&P 500 ETF Trust
Average yearly performance: 16% (past 10 year average)
If you were going to buy one ETF then SPY is the only one you should buy. This is because it’s literally the perfect ETF for a beginner to own.
The SPY tracks the top 500 companies in the U.S by market cap. These are companies such as Google, Apple, Microsoft, Amazon, and Facebook. As such when you buy 1 share of SPY you are actually buying several smaller fractional shares of these larger companies.
Because of this you are going to get a mixed bag of growth stocks and safe blue-chips. The current top 12 holdings on SPY are shown below.
Further, the SPY has the most liquidity out of any of the ETF’s on this list and provides the best priced options for you to hedge your portfolio against due to lower cost options.
Over the past 10 years SPY has returned an average of 16% per year. That number compounds year over year. The total return on the fund since inception (1993) is around 10% per year. Very few stocks are going to be able to meet or beat this return.
Regarding the total risk present in the SPY. There is some risk inherent in investing in SPDR’s S&P 500, namely in the form of heavy weight being placed on tech companies with very high P/E. This however I would say is normal for the current market, but a potential buyer of the fund needs to be aware that they will be buying a larger chunk of tech stocks then other ETF’s on this list.
ETF 2: VT
Website: Vanguard Total World Stock ETF
Average Yearly Performance: 12% (past 10 years)
The Vanguard Total World Stock Market ETF. Just as the name implies if you buy this ETF you are investing in the entire world’s market.
The overall return is less than what the SPY will give you but you have more diversification with VT. While the SPY only has 500 c0mpanies VT has 9,300 that comprise their total fund.
These 9,300 companies are split across 6 different regions; Emerging markets, Europe, Pacific, Middle East, North America, and Other.
With VT you are only going to get the best performing companies across the entire earth. This diversification across national boundaries also helps to bolster your portfolio against geopolitical issues such as famine, conflict, or destabilization.
Because of this the total risk in VT is very small. The chances of your portfolio declining in value are slim, and as such VT is a great addition to any portfolio.
ETF 3: VUG
Website: Vanguard Growth ETF
Average Yearly Performance: 19.32% (past 10 years)
The Vanguard Growth ETF. This ETF is for beginner investors who want to have the possibility of increased growth.
VUG weighs heavily into tech with a 42.8% exposure to the entire sector. Because of this investors can see their investment skyrocket in value at the end of each quarter when the new earnings are released. The next largest sector investors are exposed to is consumer discretionary with 24%. This acts as both a hedge and also as a growth opportunity.
The top 12 holdings are primarily of tech companies except for Disney, Home Depot, and Tesla. Of which each is starting to delve more into the tech sphere.
Regarding the risk for VUG. There is risk inherent in having a 42% exposure to any sector in a position. The tech sector in the U.S remains one of if not the most profitable sectors in the world and it keeps on performing at alarming rates. However potential beginner investors should be aware of their large exposure and hedge accordingly.
ETF 4: IVOG
Website: Vanguard S&P Mid-Cap ETF
Average Yearly Performance: 14% (past 10 years)
The Vanguard S&P Mid-Cap ETF. It’s no secret that mid-caps are the sweet spot for potential investors to focus on. Small caps are too risky and large caps don’t move fast enough. Mid-caps however are just right with the right amount of risk and potential economic growth.
The only hard part is that often you will have to spend hours searching for the right ones to add to a portfolio. In steps IVOG with their mid-cap ETF. VUG holds 232 mid-cap stocks in its portfolio that Vanguard has identified as having the most economic potential.
Further the top 10 largest holdings for this ETF only make up 12.30% of their total ETF. As such it’s worthless for me to show you a pie chart as any sliver would be too small for you to see. Just know that with each asset making up less than a half percent in the total portfolio you are fairly well protected.
Regarding risk. IVOG does carry a degree of risk in the form of mid-caps. These companies can fail and oftentimes do. However Vanguard has put their name on this line with this ETF and as such I own it as well.
ETF 5: QQQ
Website: Invesco QQQ
Average Yearly Performance: 22% (Past 10 year)
The Triple Q’s or Invesco’s QQQ. This ETF heavily weights the top 100 non-financial companies in the United States. As such the explosion of the tech sector over the past 10 years has tremendously benefited the QQQ.
The QQQ is ideal for a beginner investor who just wants to fire and forget. Investing in QQQ is going to allow you to remain completely hands off and wait for your investment to double or triple over time.
QQQ follows the top 100 non-financial domestic and international companies based on market cap. Essentially these are the most innovative companies that have to remain on the cutting edge in order to operate.
The top 6 holdings alone on QQQ make up for 40.6% of the entire ETF. This is a large allocation but it goes to huge names such as AAPL, MSFT, AMZN, FB, and GOOG/GOOGL.
Regarding risk. Since QQQ has over 40% allocation to only 6 stocks there is a lot of risk in the form of volatility. If the United States ever decided to impose a wealth tax, restructure corporate income tax, or put a tax strictly on large tech companies then QQQ would see a decline. However none of that seems likely.
There you have it, the 5 absolute best ETFs for beginners to invest in. Each of the above ETFs target a specific investment sector or investment thesis. Some of the ETFs carry more risk but offer higher reward while others have less risk and less economic potential.
Regardless, this list is by far the best place for beginner investors to start. People won’t have to learn advanced skills or high level theory, they simply have to have capital and time. Both of which will net a beginner a massive return.
As always here at ChronoHistoria I teach people how to generate above normal market returns (alpha) within their portfolio. I routinely publish articles on stock research and tips/tricks of the trade. Feel free to sign up for the free newsletter.
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Until next time, I wish you the best of luck in your investments.