Stock investing can be time-consuming and difficult, requiring you to spend hours reading about lots of companies, evaluating their financial statements, and deciding which ones to invest in and when to buy -- and eventually, sell -- the shares. Thus, many people turn to professionally and actively managed mutual funds, or to the typically far less costly yet arguably better index funds, which come in mutual fund and exchange-traded fund (ETF) forms. ETFs have been growing in popularity due to how easy it is to get in and out of the stock-like funds.
So... can you get by in your investing life sticking mainly or entirely to ETFs? You sure can -- and they can even help you retire a millionaire. Read on.
What are ETFs?
There's a lot to like about ETFs. They're technically funds (thus the "F" in their acronym), but they trade like stocks on exchanges such as the New York Stock Exchange or the Nasdaq. As funds, each share will distribute your money across multiple assets -- perhaps hundreds or thousands of stocks -- offering easy diversification.
Unlike mutual funds, which might require you to spend a minimum of several hundred or thousand dollars on their shares, you can buy as little as a single share of an ETF. Indeed, you may even be able to buy a fraction of a share, via some good brokerages.
Consider index-fund ETFs
Many ETFs are index funds, tracking the performance of a particular index (such as the S&P 500) by owning most or all of what the index contains, in similar proportions. For most of us, it's hard to beat index funds as investments, because good, low-cost index funds are an easy way to invest in stocks and enjoy solid returns over the long run.
The long-term average annual return of the stock market is close to 9% or 10%, and a broad index fund that tracks the overall market will deliver returns roughly the same as the market. The table below shows how you might arrive at millionairehood earning an average rate of 8% over long periods:
Growing at 8% for
$10,000 Invested Annually
$15,000 Invested Annually
$20,000 Invested Annually
What are some good ETFs to consider?
Here are some good low-cost index-fund ETFs:
Vanguard S&P 500 ETF (VOO)
The 500 large-cap companies in the S&P 500
Vanguard Large-Cap ETF (VV)
Schwab U.S. Large-Cap ETF (SCHX)
Vanguard Mid-Cap ETF (VO)
Schwab U.S. Mid-Cap ETF (SCHM)
Vanguard Small-Cap ETF (VB)
iShares Core S&P Small-Cap ETF (IJR)
Schwab U.S. Broad Market (SCHB)
The U.S. stock market
iShares Core S&P Total US Stock Market (ITOT)
The total U.S. stock market
Vanguard Total Stock Market ETF (VTI)
The total U.S. stock market
Vanguard Total World Stock Market ETF (VT)
The total world stock market
Vanguard FTSE All-World ex-US ETF (VEU)
The total world stock market -- excluding U.S. stocks
Note that there is a wide variety of index funds out there, and that the ones above are a small (but respectable) selection. Some will have your money focused mainly on small companies, which are able to grow more quickly (though they don't always do so), while others focus only on large companies, which can be more stable and can offer meaningful dividend yields (though they don't always do so). You might distribute your money across a handful of funds, or you could do perfectly well with just one or two very broad-focused ones.
Vanguard Real Estate ETF (VNQ)
Schwab U.S. Aggregate Bond ETF (SCHZ)
The U.S. bond market
Vanguard Dividend Appreciation ETF (VIG)
Companies with growing dividend payouts
Vanguard Growth ETF (VUG)
Vanguard Value ETF (VTV)
Invesco QQQ Trust ETF (QQQ)
The Nasdaq 100 Index of 100 non-financial (and largely tech) stocks
However you go about it, consider including some or many ETFs in your portfolio -- they can definitely help you become a millionaire by retirement.
10 stocks we like better than Invesco QQQ Trust
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Invesco QQQ Trust wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of August 9, 2021
Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Vanguard Dividend Appreciation ETF, Vanguard Growth ETF, Vanguard Mid-Cap ETF, Vanguard REIT ETF, Vanguard S&P 500 ETF, Vanguard Small-Cap ETF, Vanguard Total Stock Market ETF, Vanguard Value ETF, and iShares S&P SmallCap 600 Index. The Motley Fool has a disclosure policy.