The Three Best ETFs for Beginners to Start Investing
ETFs (exchange-traded funds) provide an easy way to begin investing. With a single ETF, you can own shares in many big companies. This article guides you through the best ETFs for beginners, making it simple and less overwhelming to start your investment journey.
Why ETFs Are Great for Beginners
Every day, many people start investing. In the U.S. alone, about 30 million new retail investors have opened brokerage accounts in the last two years. With online brokerages making the process simpler, many novice investors find themselves easily overwhelmed by all the choices. But there's a solution: ETFs.
ETFs package tens, hundreds, or even thousands of stocks into a single investment, which trades like a stock. This means you can invest in some of the world's best companies through just one ETF. Here are three of the best ETFs for beginners:
1. The SPDR S&P 500 ETF Trust
The SPDR S&P 500 ETF Trust is like the grandparent of ETFs. It started in January 1993 and is now the largest ETF in the U.S. This ETF holds the 500 stocks that make up the S&P 500 Index, which means you're investing in the biggest U.S. companies like Microsoft, NVIDIA, and Apple.
- Historical Performance: Since 1993, it has an average annual return of 10.3%. Over the past 10 years, it has provided an average return of 12.6%.
- Expense Ratio: Very low at 0.09%.
- Year-to-Date Performance: About 15% gain this year.
This ETF offers a great blend of high-performing, stable companies.
2. Invesco QQQ
The Invesco QQQ ETF tracks the Nasdaq 100 Index, focusing mainly on tech and communication stocks. This fund is more concentrated than the S&P 500, and about two-thirds of its stocks are from the tech sector.
- Top Holdings: Includes big names like Microsoft, NVIDIA, and Apple, but with slightly larger positions.
- Historical Performance: Over the last 20 years, it has averaged a 14% annual return. The past decade's average annual return is 18.3%.
- Expense Ratio: Slightly higher at 0.2%.
- Year-to-Date Performance: About 17% gain this year.
This ETF is for those who don’t mind a bit more volatility for potentially higher returns.
3. Invesco S&P MidCap Quality ETF
The Invesco S&P MidCap Quality ETF is different because it focuses on mid-cap stocks, which are companies with moderate market capitalization. It targets "high-quality" mid-cap stocks that generate higher revenue and cash flows.
- Top Holdings: Currently includes Williams-Sonoma, Manhattan Associates, and Carlisle Companies.
- Selection Criteria: Uses factors like return on equity, accruals ratio, and financial leverage ratio.
- Historical Performance: Since its inception in 2006, it has an average return of 9.8% per year. Over the past 10 years, its average return is 12.5%.
- Expense Ratio: 0.25%.
- Year-to-Date Performance: About 17% gain as of June 17.
This ETF provides a balanced mix of robust mid-cap stocks.
Diversifying with the Best ETFs for Beginners
By combining these three ETFs, new investors can enjoy the stability of large-cap companies, the growth potential of tech stocks, and the balance of quality mid-cap companies. Investing in one, two, or all of these ETFs gives you access to hundreds of the world's top stocks with proven success records.
Whether you're fresh out of college or well into your career, these ETFs offer a straightforward pathway to start investing smoothly and securely.
