ETFs
Want $1 million in retirement? 2 ETFs to Buy Now and Hold for Decades
Want to retire as a millionaire? ETF, or exchange traded funds, are a great way to do this. These funds were created to track almost any investment category you might be interested in, from oil and precious metals to software stocks and emerging markets.
Both ETFs featured here have a proven track record of generating returns that can convert your regular small-scale investments into millions over the long term.
Start with a profitable and stable ETF like this
One of my favorite ETFs of all time is the Vanguard Utilities ETF (NYSEMKT:VPU). This ETF simply doesn’t get enough respect for what it has delivered to shareholders over the decades.
For starters, it’s a Vanguard ETF. This means that investors can expect minimal fees. Funds spending rate is only 0.10%. This means you keep 99.9% of your money from year to year – almost as good as it gets. For what it’s worth, Vanguard calculates the average expense ratio of competing funds at 0.99%. For what it does, the Vanguard Utilities ETF is a great option.
But what exactly does the Vanguard Utilities ETF provide? As the name suggests, this ETF includes a basket of utility stocks like NextEra Energy And Southern Society. These companies are known for their reliability and sell recession-resistant products like natural gas, electricity and water. Many of these companies are rate-regulated, meaning their profits are almost guaranteed from year to year. This regulation caps the total increase but provides a solid floor in the event of a downturn. In 2022, for example, the S&P500 lost around 18% of its value. The Vanguard Utilities ETF, meanwhile, gained 1.1% in value.
This ETF is not entirely bullish. It tends to lag during strong bull markets, like the one we’re in now. But it’s a great option for those just starting out or for those who can’t afford to lose big if a bear market happens tomorrow.
Want more growth? This ETF is at the top of the list
If you want an ETF that’s a little more aggressive than the Vanguard Utilities ETF, try the Vanguard Healthcare ETF (NYSEMKT:VHT). Like the rest of Vanguard’s ETFs, this one is very profitable, with an expense ratio of just 0.10%. Vanguard estimates the average expense ratio of competing funds in this category to be around 1.02%.
As its name suggests, this ETF is dominated by companies in the healthcare sector. His three largest holdings are Elie Lilly, UnitedHealth GroupAnd Johnson & Johnson. Health care companies can demonstrate some resilience to downturns. In 2022, for example, this ETF lost 5.6% of its value while the S&P 500 lost 18%. But long-term growth in healthcare spending has also supported the ETF over the long term. Since the fund’s inception in 2004, the ETF has compounded growth of approximately 9.85% per year. It also showed less volatility than the broader market, with a beta of 0.64. This means that for every 1% change in the market, this ETF should only change 0.64%.
The story continues
Health spending is not expected to increase in the years and decades to come. For the decade 2022 to 2031, U.S. health care spending is expected to increase by 5.4%, outpacing expected annual GDP growth of 4.6%. For long-term investors looking toward retirement, this remains one of my favorite ETF picks. Don’t forget to diversify your portfolio with other ETFs exposed to different sectors and geographies.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool ranks and recommends NextEra Energy. The Motley Fool recommends Johnson & Johnson and UnitedHealth Group. The Mad Motley has a disclosure policy.
Want $1 million in retirement? 2 ETFs to Buy Now and Hold for Decades was originally published by The Motley Fool