5 Simple ETFs to Buy With $1,000 and Hold for a Lifetime
Key Points
You likely already own at least one of these names.
The others, however, are often underrepresented within most U.S. investors’ portfolios.
Count on different kinds of ETFs performing better than others at different times, dialing back your overall net volatility.
- 10 stocks we like better than Vanguard S&P 500 ETF ›
Are you looking for a simple "set it and forget it" portfolio? It's fine if you are. A simpler and more passive investing approach often ends up performing better than a more aggressive and actively traded portfolio anyway. And exchange-traded funds (or ETFs) are arguably the smartest, easiest way to establish positions you can comfortably hold for a lifetime.
With that as the backdrop, here's a well-diversified five-holding ETF portfolio you can build for $1,000 -- or any other amount of money -- and feel good about leaving alone forever.
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1. Vanguard S&P 500 ETF
Always start with a well-proven foundational holding that gives you into the majority of the United States economy by plugging you into the companies that collectively make up more than 80% of the nation's total market capitalization. That's the Vanguard S&P 500 ETF (NYSEMKT: VOO), which is cost-effective with its annual expense ratio of only 0.03%. As an alternative, the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) would do just as well.
Both of these funds are meant to mirror the performance of the S&P 500 (SNPINDEX: ^GSPC), which boasts an average annual return of 10% over the course of the past few decades.
2. iShares Russell 2000 ETF
Although the Russell 2000 Small Cap Index has underperformed large caps of late with its average annual gain of less than 10% over the past 10 years (versus the S&P 500's comparison of more than 15%), this is a bit unusual.
Usually small caps at least keep up with their large cap counterparts, if not outperform them, leveraging their greater nimbleness. They also often perform well at different times than large caps, providing your portfolio with forward progress you may not be getting from holdings like SPY or VOO.
The iShares Russell 2000 ETF (NYSEMKT: IWM) is a smart way to garner exposure to small caps. Holding it will only cost you about 0.2% of your position's value per year.
3. iShares Core MSCI Total International Stock ETF
While most U.S. investors are comfortable sticking with stocks of American companies, this can be a mistake -- particularly right now.
See, although the United States' economy and stock market have been stronger performers than foreign counterparts for a while, this leadership is cyclical. Indeed, Bank of America's Chief Global Strategist Michael Hartnett says foreign stocks are apt to outperform U.S. stocks for the next several years because the advent of artificial intelligence favors manufacturing-focused economies while actually undermining service-focused ones like the United States.
The iShares Core MSCI Total International Stock ETF (NASDAQ: IXUS) is a great option to fill this role in your portfolio.
4. Vanguard FTSE Emerging Markets ETF
At first blush, a position in IXUS would seemingly be enough exposure to foreign stocks. There's something else to consider, though. Emerging market's stocks also perform separately from names from more developed parts of the world, often because their economies operate so independently.
With an annual expense ratio of only 0.06%, the Vanguard FTSE Emerging Markets ETF (NYSEMKT: VWO) is an unusually affordable way to add this dimension to your portfolio.
5. iShares Core U.S. Aggregate Bond ETF
Finally, add the iShares Core U.S. Aggregate Bond ETF (NYSEMKT: AGG) to your list of funds to consider buying to round out your lifetime ETF portfolio.
The purpose here is clear; this position provides income and stability. If nothing else, owning bonds allows you to remain patient with your other assets, giving them the time they need to recover rather than bailing out of them at the wrong time. Owing this fund will only cost you 0.03% of your position's size every year.
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Bank of America is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard FTSE Emerging Markets ETF and Vanguard S&P 500 ETF and is short shares of Vanguard FTSE Emerging Markets ETF. The Motley Fool has a disclosure policy.
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