3 Top ETFs I'm Planning to Buy Hand Over Fist in 2025, Despite All the Cheap Stocks on My Radar

I'm a big fan of investing in individual stocks and truly believe that a well-crafted stock portfolio can outperform the overall stock market. At the same time, there's value in putting some of your investment dollars on autopilot with top-quality index funds.

Index fund ETFs can not only give you diversified exposure to an entire portfolio of stocks in a single investment vehicle, but can also generate some pretty impressive returns over long periods of time. With that in mind, although some of my favorite stocks (especially high-yield dividend stocks) look like excellent values right now, I'm planning to gradually buy shares of three ETFs in particular throughout 2025.

The ETF every investor should own

If I was only allowed to own one investment, it would be the Vanguard S&P 500 ETF (NYSEMKT: VOO). This is Vanguard's flagship S&P 500 index fund. As the name suggests, this ETF tracks the S&P 500 (SNPINDEX: ^GSPC), which is widely considered to be the best benchmark of how the U.S. stock market is performing.

^SPXTR data by YCharts

This ETF has a rock-bottom 0.03% expense ratio, which means that if you have $10,000 invested in the fund, only $3 will go toward annual investment expenses. Over long periods of time, the S&P 500 has produced average total returns of about 10% annualized. For context, this means that a $10,000 investment in the ETF could be worth about $175,000 in 30 years, with no maintenance needed along the way.

My top ETF for 2025

At the beginning of 2024, small-cap stocks were trading at their lowest price-to-book values relative to large caps since the late 1990s. And throughout the year, the valuation gap has widened even further, thanks to the outperformance of large-cap tech stocks and interest rates not falling as much as experts predicted.

Now, the average component of the Russell 2000 small-cap index trades for a price-to-book multiple of 1.9, compared with 4.7 for the typical S&P 500 stock. With interest rates finally starting to fall and a potentially pro-growth environment with the incoming Trump administration, small caps could have some big tailwinds. That's why the Vanguard Russell 2000 ETF (NASDAQ: VTWO) is my top overall ETF pick for 2025.

AI exposure without the company-specific risk

To be perfectly clear, I think artificial intelligence (AI) is a massive opportunity and could end up being the most important technological trend in my lifetime. However, I'm good at evaluating bank stocks, real estate companies, and e-commerce businesses, to name a few. The best AI opportunities are, quite frankly, not in my wheelhouse. Every good investor should know their circle of competence, and AI stocks are a bit outside of mine.

For that reason, I'm planning to start building a position in the Ark Autonomous Technology and Robotics ETF (NYSEMKT: ARKQ), which is run by Cathie Wood's Ark Invest. The fund owns a hand-selected portfolio of stocks that could be big winners of the AI revolution. In addition to household names like Tesla and Nvidia, the fund also owns lesser-known companies like Kratos Defense & Security as well as less-obvious AI plays like Deere.

To be sure, this is by far the highest cost ETF on this list, with a 0.75% expense ratio. However, this is in line with other specialized, actively managed funds.

How am I using these ETFs in my portfolio?

To be clear, the bulk of my portfolio is still made up of individual stocks, and I don't see that changing anytime soon. However, at this point in my investing career (I'm in my mid-40s), I've started to shift my focus a bit toward building a solid "backbone" to my portfolio with some top-quality index funds. For 2025, and for the foreseeable future, I'm planning to allocate half of any new money in my brokerage account to stocks, and the other half to ETFs like these three.

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Matt Frankel has positions in Vanguard Russell 2000 ETF and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Deere & Company , Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.