A variety of ETF choices.
Based on the 29% returns for the benchmark S&P 500 index of large U.S. stocks in 2019, chances are that last year was very good to your investments. However, what worked previously on Wall Street often does not continue to work tomorrow. That means it's important to take an objective look at your goals instead of being complacent and sticking with the same holdings. If you're looking to make a change or simply looking to reinforce an existing investment strategy, here are the 10 best exchange-traded funds, or ETFs, for 2020 that collectively offer a wide variety opportunities.
SPDR S&P 500 ETF (ticker: SPY)
Elegantly simple, this iconic fund is one of the best ETFs for 2020 because it is one of the easiest and most cost-effective ways to tap into the U.S. stock market. Benchmarked to the 500 largest publicly traded U.S. corporations that make up the S&P 500, this ETF rounds up top names from all corners of the American economy including tech like Apple (AAPL), banks like JPMorgan Chase & Co. (JPM) and health care companies like Johnson & Johnson (JNJ). With more than $300 billion in total assets and a trading history that dates to 1993, investors are hard pressed to find an ETF that is more established than the SPY.
iShares Russell 1000 Growth ETF (IWF)
If you want a little more upside potential in your investment strategy, an easy step is to bias your portfolio toward stocks that are seeing faster growing profits and sales than their peers instead of simply moving with the herd. That's what IWF provides, by taking a list of the 1,000 largest U.S. stocks and then screening out the bottom half using quantitative metrics such as measuring earnings growth rates. As a result, the IWF portfolio has about one-third of its total assets in technology stocks and nothing in utility companies. A focus on growth over balanced diversification clearly connects with some investors, as IWF boasts total assets of roughly $50 billion at present.
Vanguard Value ETF (VTV)
The flip side of a growth-oriented strategy is to focus on investments that are theoretically more stable because they exhibit characteristics that imply a high intrinsic value rather than the hopes of big-time growth that may not pan out. Think stocks with a strong credit rating, lots of assets to back up their operations and long-term relationships with customers. VTV, then, has a very different makeup than the prior IWF growth fund. Tech stocks represent just 8% or so of the portfolio, with big financial firms like Bank of America Corp. (BAC) and health care companies like insurer UnitedHealth Group (UNH) representing much of the portfolio. However, it's equally popular with some $55 billion in assets.
Schwab U.S. Dividend Equity ETF (SCHD)
The natural next step for many investors looking for stable value investments is to seek firms that have a commitment to sharing their steady cash flow with investors over the long term. That's what this Schwab dividend fund does, with an average yield of about 3% across its portfolio of roughly 100 top U.S. stocks. The fund is full of stable names you'll recognize like chipmaker Intel Corp. (INTC) and retailer Home Depot (HD). But SCHD has picked these companies based on their payout potential and not just their size, meaning investors can tap into an above-average income strategy while focusing on America's top corporations.
iShares Edge MSCI Minimum Volatility USA ETF (USMV)
Though it may appear the most complicated fund on this list, USMV is fairly straightforward when you take its long name one step at a time. This ETF is benchmarked to an MSCI index of low-volatility U.S. stocks -- meaning it seeks out stocks that may rise a bit slower when the market is soaring, but also decline a lot less in times of trouble. This idea appeals to low-risk investors who care as much about capital preservation as growth. Holdings like Verizon Communications (VZ) and garbage giant Waste Management (WM) focus on less glamorous but more stable companies that will protect your nest egg if you're worried about a downturn.
Vanguard FTSE Developed Markets ETF (VEA)
So far, this list has focused on U.S. equities. But it's a great big world, and the reality of the global economy is that many stocks headquartered overseas make a lot of revenue and employ a lot of people in America. If you want to add some geographic diversification to your portfolio, then consider this VEA fund that looks only at major developed markets like Europe and Japan to build its portfolio. Though foreign companies, you'll surely recognize top holdings like Swiss consumer giant Nestle (NSRGY) or Korean electronics firm Samsung (SSNLF). This Vanguard fund makes it easy to gain a foothold overseas with a portfolio of roughly 3,900 different stocks.
Vanguard FTSE Emerging Markets ETF (VWO)
For investors who are a bit more adventurous, this sister fund from Vanguard offers a focus on emerging markets like China, India, Brazil, Russia and Mexico. These markets come with a bit more risk, but they also are likely to see bigger potential growth in the year ahead thanks to consumer and technology trends. Top holdings in this fund may already be familiar to you, like Asian tech powerhouse Alibaba Group Holding (BABA) and Brazilian energy giant Petrobras (PBR). If you really want to look abroad for investing opportunities, this broad Vanguard fund offers access to 5,000 emerging market stocks in just one holding.
iShares Core U.S. Aggregate Bond ETF (AGG)
Thus far, all the ETFs on this list have covered stocks. However, bonds are an important part of any portfolio -- even for aggressive investors who want to have most of their money in stocks. That's what makes AGG one of the best ETFs for 2020. This diversified bond fund covers all corners of the bond market, including corporate bonds and government bonds of all stripes. The only requirement is that these bonds qualify for the higher investment grade ranking, meaning a low likelihood of default. With rock bottom fees, a low risk profile and a wide-ranging portfolio, AGG is a one-stop shop for bond exposure.
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
This fund cuts out government debt to focus only on investment-grade corporate bonds. LQD omits low-risk but low-yield government debts in favor of high-quality corporate loans to the likes of Goldman Sachs (GS), Comcast Corp. (CMCSA) and AT&T (T). While these companies aren't quite as secure as the U.S. government, it's a pretty sure thing these companies will be around in the next few years to pay their debts and drive performance of the LQD bond fund. And in exchange for that minor increase in risk, investors get a yield of about 3.2% in this ETF based on the last 12 months of payouts.
SPDR Gold Trust (GLD)
Given the uncertainty to start the year, some investors are also interested in safe-haven investments in 2020. That's what GLD offers with an exchange-traded investment that consists entirely of gold bullion whose performance is benchmarked to the precious metal. There are drawbacks to investing in gold, since this commodity can be volatile and doesn't play by the same rules as the stock market because it has no profits or revenue to speak of. However, gold is a fundamentally uncorrelated asset, which means it has the ability to move separately of the stock market. If you're worried the stock market may go in a direction other than straight up, GLD is worth a look.
Best ETFs to buy for 2020:
-- SPDR S&P 500 ETF (SPY)
-- iShares Russell 1000 Growth ETF (IWF)
-- Vanguard Value ETF (VTV)
-- Schwab U.S. Dividend Equity ETF (SCHD)
-- iShares Edge MSCI Minimum Volatility USA ETF (USMV)
-- Vanguard FTSE Developed Markets ETF (VEA)
-- Vanguard FTSE Emerging Markets ETF (VWO)
-- iShares Core U.S. Aggregate Bond ETF (AGG)
-- iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
-- SPDR Gold Trust (GLD)