An exchange-traded fund (ETF) is a collection of securities that trade on an exchange like a single stock. Investors can choose from a wide range of available ETFs such as equity ETFs, index ETFs, commodity ETFs, Bond ETFs, and currency ETFs. In all cases, this provides a cost-effective way to gain exposure to a large number of securities or financial assets by buying a single ETF instead of buying the individual securities.
Here we explore the best ETFs that can provide you with long-term returns.
Where Can I Trade Long-Term ETFs?
Many online brokers let you trade long-term ETFs with zero or low trading commissions. We have reviewed various online brokers that offer the best services to traders, provide advanced trading platforms, and follow regulatory requirements.
What is a Long-Term ETF?
A long-term ETF is an exchange-traded fund that is suitable for long-term investment, meaning more than a year. Because of their composition, these ETFs are not recommended for short-term traders looking for quick returns.
Long-term ETFs generally include a large number of stocks from an index, sector, industry, or market. By investing in an S&P 500 ETF, for example, investors can get a return similar to that of the S&P 500 index without having to buy all 500 stocks individually.
Depending on the investment objective, an ETF portfolio manager can create a long-term ETF using any stock selection criteria suitable for generating long-term returns. For example, the ETF might include technology stocks from different stock market indices that are appropriate for providing long-term returns to investors.
Invest in Long-Term ETFs in 3 Steps
Open a Trading Account
To trade ETFs, you will have to open a trading account with an online broker. Opening a trading account is a quick and easy process of filling out an online form with your name, phone number, country of residence, and email address. To fulfill the know-your-customer (KYC) regulatory requirements of your broker, you may have to provide some identification.
Select a Long-Term ETF
Your broker will provide access to the online trading platform that you can use to trade ETFs. Most trading platforms provide price charts and technical analysis tools for the ETFs you can trade. Simply select your chosen ETF from the list(s) provided on the platform.
Place Your Trade
Next, you’ll place your trade to buy the ETF at the current market price or a maximum price via a “limit order” that ensures you don’t pay more than you want to.
Best Long-Term ETFs to Buy Now
Based on our research, we have created a list of the best long-term ETFs that have the potential to generate returns if you hold them for more than a year:
- SPDR S&P 500 ETF Trust (SPY)
- Vanguard High Dividend Yield ETF (VYM)
- Invesco QQQ
- iShares Core MSCI Emerging Markets ETF (IEMG)
- iShares MSCI EAFE ETF (EFA)
- Schwab U.S. Large-Cap Growth ETF (SCHG)
- Vanguard Growth ETF (VUG)
- iShares China Large-Cap ETF (FXI)
- Vanguard Information Technology ETF (VGT)
- iShares MSCI EAFE Growth ETF (EFG)
1. SPDR S&P 500 ETF Trust (SPY)
The largest ETF by market capitalization, SPDR S&P 500 ETF Trust (SPY), tracks the returns of the S&P 500 index. The index generated a return of around 18% for the year 2020 despite pressures from coronavirus-induced lockdowns, which shows the resilience of the companies in the index even during testing times. Investing in SPDR S&P 500 ETF could continue posting reasonable gains as the negative effects of the pandemic ease as a result of the vaccination drive. The S&P 500 ETF not only provides investors an opportunity to derive long-term gains but also provides diversification.
2. Vanguard High Dividend Yield ETF (VYM)
Vanguard High Dividend Yield ETF (VYM) consists of stocks that have historically distributed stable and sizable dividends. The ETF’s performance is measured against FTSE High Dividend Yield Index, the benchmark index that includes high dividend-paying stocks. The VYM ETF could be a good choice for long-term investors because provides stable dividends with little volatility in the unit price of the ETF.
3. Invesco QQQ Trust (QQQ)
Invesco QQQ Trust (QQQ) aims to mimic the returns of the tech-heavy Nasdaq-100 index through a combination of tech, large-cap, and growth stocks. More than 30% of the fund’s holdings are big companies such as Apple, Microsoft, and Amazon. The fund has significantly outperformed the S&P 500 index because of a mix of large-cap, growth, and tech stocks. It is one of the most heavily traded ETFs and is the fifth-largest ETF in terms of market capitalization. Like the SPY ETF, Invesco QQQ Trust ETF is appropriate for long-term investors.
4. iShares Core MSCI Emerging Markets ETF (IEMG)
The IEMG ETF goes beyond the equities of developed markets and includes stocks of emerging markets like China, Taiwan, Brazil, India, and South Korea. The ETF has more than 2500 holdings with roughly 79% exposure to companies based in Asian countries. This ETF relieves investors from manually selecting overseas stocks as investors can now get exposure to the emerging markets and diversify their portfolios by investing in a single ETF. The emerging markets provide long-term investors with exposure to growing economies such as China, India, and South Korea.
5. iShares MSCI EAFE ETF (EFA)
The iShares MSCI EAFE ETF aims to track the returns of mid and large-cap stocks in developed markets of Europe, Australasia, and the Far East. The ETF excludes US and Canadian equities, so it is suitable for investors who already have exposure to US equities and are seeking diversified long-term returns. The EFA ETF has more than 900 holdings in the stocks of Japanese, British, French, and German companies.
Expert Tip on Investing in Long-term ETFs“ Investors who have a long-term investment horizon should choose less volatile ETFs that provide stable long-term returns. Growth funds, high dividend yield funds, and index funds are excellent choices for investors who want to hold ETFs for the long term. If you are a risk-averse investor and don’t want to invest aggressively, you can choose high-dividend yield funds (for stable dividends) or index funds (for diversification). ”- Mauricio Carillo
Why Trade Long-Term ETFs?
As the name suggests, long-term ETFs should be held for a longer period to generate returns. Although traders could trade the day-to-day volatility of these investment vehicles, you should bear in mind that long-term ETFs are created to match the returns of the benchmark index or fund in the long run.
The ETFs we have identified should have the potential to generate long-term returns for investors who intend to buy and hold.
Frequently Asked Questions
An ETF is a collection of securities or financial instruments that can be traded on an exchange as a single security just like a stock.
To trade an ETF, you must have an equity brokerage account with an online broker. You can open your account online after filling out a form on your broker’s website.
Long-term ETFs are suitable for long-term investors who like to hold their investments indefinitely.
ETFs issuers carefully select stocks and create funds for achieving the fund’s objectives. The returns generated are based on the market conditions and the performance of the underlying stocks. Investments are subject to market risks, and the investment cannot be guaranteed to generate long-term returns.
An index fund aims to replicate the returns of a stock market index and contains the stocks in the same proportion as the index. For example, an S&P 500 index fund contains the stocks in the same proportion as the S&P 500 index so that the returns can be replicated.
Index funds, growth funds, high dividend yield funds, international funds, can be suitable for long-term investment as these funds invest in diversified, growing, and stable companies.