1 ETF to Buy and Hold for 2026 and 1 to Avoid

You don't have to pick individual growth stocks if you can load up on exchange-traded funds (ETFs) that are built to benefit from promising long-term trends. Fund managers charge their investors annual fees, but usually, those fees are reasonable enough that you won't notice them much, particularly if the funds in question perform well.

However, not every ETF is a winner. Knowing how to distinguish the good picks from the bad can help you keep up with the S&P 500 or even outperform it over many years.

The VanEck Semiconductor ETF is the best way to play the AI boom

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The VanEck Semiconductor ETF (NASDAQ: SMH) has been one of the best ETFs in the stock market over the past decade, with a compound annualized return of 31%. With gains like that, investors won't mind its 0.35% expense ratio.

This ETF only has 25 holdings, and almost all of them are chipmakers. Its top 10 holdings make up 75% of its total value, and among those 10, Nvidia has been its worst performer over the past year with a 33% return. A portfolio has to include a lot of great stocks for its laggard to beat the S&P 500 by a wide margin.

Nvidia represents 17% of the portfolio. Taiwan Semiconductor Manufacturing and Broadcom are the next two largest positions, and they make up a combined 18% of the fund's total assets.

Not every investor will want to buy a fund that goes all-in on artificial intelligence, but you can't argue with the results. Investors who are seeking more diversification can buy broader ETFs in addition to the VanEck Semiconductor ETF.

This gold fund shows the risky side of leverage

With a 90% drop year to date, the Direxion Daily Junior Gold Miners Index Bear 2X Shares ETF (NYSEMKT: JDST) has been one of 2025's worst-performing funds. The fund lets investors enter a 2x leveraged short position against junior gold miners -- in other words, it's betting that their share prices will fall -- and it has several red flags.

The first red flag is that it's a leveraged fund. Most investors shouldn't use leverage due to its risks. Chances are, you don't need to use leverage to achieve your financial goals.

The second red flag is the fund's 0.89% expense ratio. You can still generate solid returns from an ETF with a high expense ratio if it performs like the VanEck Semiconductor ETF. However, that's not the case with this short play. It has a high expense ratio because leveraged ETFs require more active management.

Staying away from leverage plays and sticking with ETFs that have outperformed the S&P 500 over many years are the smarter strategies. There's no need to be fancy.

Marc Guberti has positions in Broadcom. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.