Exchange-traded funds (ETFs) offer investors a variety of different strategies to prepare for whatever the market throws at them – Federal Reserve moves, election uncertainty, economic instability and just about everything else under the sun. We kept all of these in mind as we built this list of the best ETFs to buy now.
As we approach the second quarter of 2024, we're still left wondering exactly what kind of year it will be. Most economic statistics point to a robust economy. Real GDP (gross domestic product) finished the fourth quarter of last year up 3.2%, following the third quarter's even stronger 4.9%. Unemployment remains near historic lows.
Inflation remains higher than most of us would like, but it's trending lower. And the Federal Reserve is widely expected to start lowering interest rates in the coming months. The consensus estimate is that the Fed makes its first rate cut over the summer.
Yet risks remain. The yield curve has been inverted since July 2022, with short-term interest rates significantly higher than long-term interest rates. This has traditionally been a warning sign of a coming recession. Mortgage rates hover near 20-year highs, which has had the effect of trapping millions of Americans in their homes and putting existing home sales into a deep freeze. It's hard to justify selling a home financed at a sub-3% rate in order to buy one at close to a 7% rate.
Credit card balances topped $1 trillion for the first time last year, and millions of Americans have seen their budgets crimped by the resumption of student loan payments.
And then, of course, there's the elephant in the room: The 2024 presidential election. There are strong feelings and uncertainty surrounding both current President Joe Biden and former President Donald Trump, who are both the front-runners for their respective parties' nominations. This has the potential to spark volatility in the stock and bond markets in the lead up to November, though the good news for investors is that election years tend to be positive for equities.
So, how do you invest in an environment like this?
By sticking with quality.
ETFs loaded with strong companies that have proven their ability to navigate an uncertain market make sense in this environment.
How do you find the best ETFs to buy?
Today we're going to take a look at five of the best ETFs to buy for 2024. But this of course raises the question of what exactly defines a strong ETF and where we should go to look for them?
To start, it's generally a good idea to stick to relatively broad-market ETFs. You don't have to put your entire portfolio in an S&P 500 index fund, of course, though doing so isn't necessarily a bad idea, particularly if your account is modest in size and diversification is difficult.
Sector ETFs and highly specialized single-strategy ETFs can add value under the right set of circumstances, and you may have your reasons for wanting targeted exposure. But it's generally going to make sense to keep those positions relatively small while leaving the bulk of your portfolio in more diversified, broader-market ETFs.
Costs are also a consideration. It's not going to have a major impact on your long-term returns if you hold an ETF with an expense ratio of 0.08% vs 0.10%. Once you reach a certain low-cost threshold, it doesn't move the needle all that much to lower fees by an extra basis point. (A basis point = 0.01%). But every dollar you pay in fees is a dollar you no longer have available to grow and compound. So, all else equal, it makes sense to buy low-cost ETFs rather than those with higher expense ratios.
As for where to look for the best ETFs to buy, we've never had more options. Popular websites such as Yahoo Finance and Morningstar offer simple screeners that allow you to rank ETFs based on the specific criteria you're looking for. Of course, a screener should just be a starting point in your research. You should always take the time to visit the ETF sponsor's website and do a little digging of your own.
Let's take a look at the five best ETFs to buy now. Data is as of March 22. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.
The best ETFs to buy now
| Exchange-traded fund (ticker) | Assets under management | Yield | Expenses |
|---|---|---|---|
| Vanguard 500 Index ETF (VOO) | $431.7 billion | 1.4% | 0.03% |
| Vanguard Dividend Appreciation ETF (VIG) | $78.2 billion | 1.8% | 0.06% |
| Vanguard U.S. Quality Factor ETF (VFQY) | $324.3 million | 1.3% | 0.13% |
| SPDR Gold MiniShares (GLDM) | $6.8 billion | 0.0% | 0.10% |
| iShares 1-3 Year Treasury Bond ETF (SHY) | $24.8 billion | 4.6% | 0.15% |
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Vanguard 500 Index ETF
- Type: Large blend
- Assets under management: $431.7 billion
- Dividend yield: 1.4%
- Expenses: 0.03%, or $3 annually for every $10,000 invested
Any discussion of the best ETFs to buy really has to start with a good S&P 500 index fund. This is where the ETF revolution started, and – decades later – it remains one of the best long-term wealth builders you can buy. As a market cap-weighted collection of 500 of the biggest American companies, the S&P 500 gives you instant access to industry leaders like Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA) and Amazon.com (AMZN). In an uncertain 2024, it makes sense to stick with the biggest and best.
The S&P 500 index is the most common benchmark for mutual funds, ETFs, hedge funds and just about everything else under the sun for a reason: It's exceptionally hard to beat over time. In a report published in 2023, S&P Global found 92% of active large-cap fund managers underperformed the S&P 500 over the last 15 years.
Virtually every major ETF sponsor has an S&P 500 index ETF product, and by definition they are all the same. That's literally the point. They all track the same index.
So, the only way you can really differentiate is by cost. With an expense ratio of just 0.03%, the Vanguard 500 Index ETF (VOO, $479.18), one of the best Vanguard ETFs, might as well be free to own. We're talking about $3 in annual expenses for every $10,000 invested.
The iShares Core S&P 500 ETF (IVV) offers identical exposure at the same expense ratio of 0.03%, while the older SPDR S&P 500 ETF Trust (SPY) charges a slightly higher 0.095%.
Take your pick, but whichever one you choose, you should consider making an S&P 500 index ETF a mainstay in your portfolio in 2024 and beyond.
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Vanguard Dividend Appreciation ETF
- Type: Large blend
- Assets under management: $78.2 billion
- Dividend yield: 1.8%
- Expenses: 0.06%
In an uncertain market environment, it makes sense to focus on quality. And one of the best measuring sticks for a company's quality is a long history of raising its dividend.
Accountants can and do regularly fudge the numbers on earnings. A creative accountant can even fudge the numbers on sales. But dividends don't lie. Dividends are paid in cold, hard cash.
There is no greater sign of management confidence than the raising of a dividend. Every additional dollar paid out in dividends is a dollar no longer available to cover expenses. So, it sends a powerful signal that management expects a lot more cash coming in to replace it.
Furthermore, the payment of a dividend encourages good behavior from management. It shows that they take their investors seriously and like to reward them. And a CEO that is on the hook to pay a dividend is a CEO less likely to blow the company's cash on vanity projects that destroy value.
With all of that as an intro, investors seeking out the best ETFs to buy now will want to take a look at the Vanguard Dividend Appreciation ETF (VIG, $181.26). VIG tracks the S&P U.S. Dividend Growers Index, which includes U.S. companies that have consistently increased their dividends every year for at least 10 consecutive years. The index excludes the top 25% highest-yielding eligible companies from the index in order to avoid "yield traps," or companies at risk of cutting their dividends.
VIG is not one of Wall Street's best high-yield ETFs, with a dividend of just under 2%. But that's ok. The dividend in this case is less about raw yield and more about quality. The ETF is a who's who list of solid American blue chip stocks like Microsoft, Apple and JPMorgan Chase (JPM).
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Vanguard U.S. Quality Factor ETF
- Type: U.S. Equity
- Assets under management: $324.3 million
- Dividend yield: 1.3%
- Expenses: 0.13%
When the world seems a little more chaotic than usual, a focus on quality makes sense. So, let's take a look at one of the best ETFs to buy that's specifically dedicated to identifying quality stocks: The Vanguard U.S. Quality Factor ETF (VFQY, $135.24.
VFQY is a factor exchange-traded fund, what is sometimes referred to as a "smart beta" ETF. Rather than simply choose stocks based on market cap or sector, a factor ETF selects stocks based on fundamental or technical characteristics, such as profitability or momentum.
In the case of VFQY, the fund's investments are chosen based on Vanguard's quantitative assessment of a company's earnings and balance sheet quality.
The Vanguard U.S. Quality Factor ETF has some overlap with the S&P 500 and other major indexes, as giants like Apple and Walmart (WMT) are significant holdings. But the fund's top 10 holdings are dominated by smaller names you might not normally have exposure to such as athleisure apparel and footwear maker Nike (NKE) and engineering software firm Autodesk (ADSK).
And in typical Vanguard style, you won't have to pay much for this access. The ETF has an expense ratio of just 0.13%.
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SPDR Gold MiniShares
- Type: Commodities focused
- Assets under management: $6.8 billion
- Dividend yield: 0.00%
- Expenses: 0.10%
Inflation has proven to be hard to kill. While virtually all measures of inflation continued to cool throughout 2023, the February Consumer Price Index (CPI) and Producer Price Index (PPI) numbers both came in hotter than expected.
Core CPI, which excludes volatile food and energy prices, rose 3.8% in February, led by services inflation that, excluding energy services, is still running well over 5%. And given that services inflation is a direct result of the labor shortage, we probably won't see a quick resolution.
There's no easy escape from inflation, as it has a way of permeating throughout the capital markets. But gold has traditionally been a strong inflation hedge over time.
Gold has also traditionally been a good crisis hedge. And given the geopolitical risks we're facing today, as well as the uncertainty surrounding the 2024 presidential election, having a crisis hedge in your portfolio wouldn't be the worst idea.
Investing in gold is not easy for the average retail investor, though. But an excellent – and simple – way to get exposure to the precious metal is via the SPDR Gold MiniShares (GLDM, $42.91).
GLDM is an exchange-traded fund backed by real, tangible gold bullion, and its share price tracks the price of gold, minus its very modest management fee. This gold ETF is one of the absolute cheapest ways to own the precious metal, as its expense ratio is extremely low at 0.10%.
Having at least a small allocation to gold in your asset allocation makes sense in really any environment. And it makes a lot more sense in a year like 2024. This is why the SPDR Gold MiniShares is on this list of the best ETFs to buy now.
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iShares 1-3 Year Treasury Bond ETF
- Type: Short-term bond
- Assets under management: $24.8 billion
- SEC yield: 4.6%*
- Expenses: 0.15%
One positive development from the Federal Reserve's rate-hike campaign is that for the first time in two decades, owning short-term bonds makes sense again.
When the Fed pegged interest rates at zero (or close to it), short-term fixed income was essentially dead money that did little more than drag down returns. But today, we're able to enjoy yields well in excess of 4%. That may not be get-rich-quick money, but it's enough to keep ahead of headline inflation without the ups and downs of the stock market.
Consider the iShares 1-3 Year Treasury Bond ETF (SHY, $81.76). This ETF does exactly what its name suggests. It holds a portfolio of U.S. government securities maturing in one to three years. And at current prices, it yields 4.6% ... risk free. If you're looking for a safe place to park a little cash, SHY is a solid option.
There are different ways to measure bond risk. The first is credit risk, or the chance the issuer defaults and cannot pay. Well, considering the U.S. government controls the printing presses and has the power to tax us all into oblivion, it's safe to say it can pay its own debts.
Interest-rate risk is also a factor. When market yields rise, bond prices fall, and not by a small amount. Long-terms with maturities of 20 years or more saw worse price declines than the S&P 500 last year.
SHY has no credit risk and, given its short time horizon, very limited interest-rate risk. And at a 4.6% yield, the risk-free return for one of Wall Street's best ETFs to buy isn't too shabby either.
* SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.
Learn more about SHY at the iShares provider site.
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