ETFs
Missed the Bull Market Resumption? 3 ETFs to Help You Build Wealth for Decades
The market’s rebound from the 2022 bear market was not only unexpected. It was also bigger than expected. S&P 500 The stock price is up 60% from the bear market low, despite no clear signs at the time that such a rally was in the works. Chances are you missed at least part of this current rally.
If so, don’t be discouraged: you’re in good company. You’re also far from financially ruined. While you can’t go back and make up for the missed opportunity, for long-term investors, the growth potential is much greater.
If you want to make sure you don’t miss the next big bull run, you might want to tweak your strategy a bit. This time around, you might try buying fewer stocks and focusing more on exchange traded funds (or ETFs), which are often easier to hold when things get tough for the overall market.
With that in mind, here’s a closer look at three very different ETFs to consider buying that could – collectively – complement your portfolio brilliantly.
Let’s start with the basics: dividend growth
Most investors naturally favor growth, choosing growth stocks to achieve that goal. And the strategy usually works. However, most long-term investors may not realize that they can get the same type of net return with boring dividend stocks like the ones held in the portfolio. Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) which reflects the S&P US Dividend Growth Index.
As the name suggests, this Vanguard fund and its underlying index hold stocks that not only pay consistent dividends, but also have a history of consistently increasing dividends. To be included in the S&P US Dividend Growers Index, a company must have increased its dividend every year for at least the past 10 years. In most cases, however, they have been doing so for much longer.
The ETF’s current dividend yield of just under 1.8% isn’t exactly exciting. In fact, it’s so low that investors might wonder how this fund is keeping up with the broader market, let alone growth stocks. What’s being grossly underestimated here is the sheer magnitude of these stocks. dividend growthOver the past 10 years, its dividend per share has nearly doubled, and more than tripled from 15 years ago.
The reason is that solid dividend stocks generally outperform their non-dividend-paying counterparts. Calculations by mutual fund firm Hartford indicate that since 1973, S&P 500 stocks with a long history of dividend growth have averaged a single-digit annual return, compared with a much more modest 4.3% annual gain for non-dividend-paying stocks, and an average annual return of just 7.7% for an equal-weighted version of the S&P 500. The numbers confirm that there’s a lot to be said for reliable, consistent income.
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Then add capital appreciation through technology
That said, there’s no particular reason why your portfolio can’t also hold something a little more volatile than a dividend-focused holding. If you can stomach the volatility that’s sure to continue, take a stake in the Invesco QQQ Trust (NASDAQ: QQQ).
This Invesco ETF (often called the “cubes” or the triple-Q) is based on the Nasdaq-100 index. Typically, this index consists of 100 of the Nasdaq Composite IndexThe index is one of the largest non-financial indices at any given time. It is updated quarterly, although extreme imbalance situations may result in unplanned rebalancing of the index.
That’s not what makes this fund a must-have for many investors, though. It turns out that most high-growth tech companies choose to list their shares through the Nasdaq Sotck exchange rather than other exchanges like the New York Stock Exchange or the American Stock ExchangeNames like Apple, MicrosoftAnd Nvidia are not only Nasdaq-listed securities. They are also the top holdings of this ETF, with Amazon, Meta-platformsand Google’s parent company AlphabetThese are of course some of the highest-yielding stocks on the market in recent years.
This won’t always be the case. Just as companies like Nvidia and Apple have squeezed other names out of the index to make room for their stocks, these current names could also be replaced by other names (although it will likely be a while before that happens). It’s the proverbial life cycle of the market.
This shift, however, will likely be driven by technology companies that are offering revolutionary products and services. Owning a stake in the Invesco QQQ Trust is a simple, low-cost way to ensure you’re invested in at least most of their stocks at the perfect time.
Don’t forget indexing, but try a different approach
Finally, while Triple-Q and Vanguard Dividend Appreciation funds are smart ways to diversify your portfolio over the long term, the good old indexing strategy still works. In other words, rather than risk underperforming the market by trying to beat it, stick to tracking the long-term performance of a broad stock index.
Most investors will opt for something like the SPDR S&P 500 Exchange Traded Fund (NYSEMKT:SPY), which of course mirrors the large-cap S&P 500 index. And if you already own one, great: stick with it.
If and when you have some spare cash to put to good use, consider starting a mid-cap funds as the iShares Core S&P Mid-Cap ETF (NYSEMKT: IJH) instead. Why? Because you’ll likely get better results with this ETF than you will with large-cap index funds. Over the past 30 years, S&P 400 Mid-Cap Index significantly outperformed the S&P 500.
^MID Chart
The disparate degree of gains actually makes sense. While no one disputes the solid foundations on which most S&P 500 companies are built, they are in many ways victims of their own size: It’s hard to get bigger when you’re already big. This is in contrast to the mid-cap companies that make up the S&P 400 Mid Cap Index. These organizations have moved past their rocky, shaky early years and are just entering their era of high growth. Not all of them will survive this phase, but companies like Advanced microsystems And Super microcomputer Those that survive end up being incredibly rewarding to their patient shareholders.
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John Mackey, former CEO of Amazon’s Whole Foods Market, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Vanguard Specialized Funds – Vanguard Dividend Appreciation ETF. The Motley Fool recommends Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a position in Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Vanguard Specialized Funds – Vanguard Dividend Appreciation ETF. The Motley Fool recommends Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. disclosure policy.
Missed the Bull Market Resumption? 3 ETFs to Help You Build Wealth for Decades was originally published by The Motley Fool