Finding the best long-term ETFs can help reward you for buying and holding, allowing you to build your money over time. Even small differences in returns, just a few percent per year, can make an astonishing improvement in your overall wealth. But an important aspect of this process is ‘buy and hold’, where you let the market work for you rather than trying to time your purchases and sales.
Below are some of the best long-term ETFs if you’re looking to solidify your path to wealth.
How to find the best long-term ETFs
If you’re looking for the best ETFs for the long term, the best place to start is by looking at the long-term returns of funds. A fund’s long-term return will be the best indicator, even if not perfect, of what it could deliver in the future. Of course, past performance is no indication of future returns, but winners tend to keep winning, so this is a good place to start. And then we can use a rule of thumb to gauge which funds could do even better in the future.
In general, you want to have an overview of a fund’s returns for as long as possible. View the return of a fund over 10 years. These returns are usually easy to find and give you a clear indication of how a fund may perform over the long term. Long-term returns help filter out the years when money flooded the fund and drove up prices, and the years when returns weren’t as high.
It is important to avoid what the market finds attractive in the short term. Investing fads come and go, but if you’re looking for the best ETFs for the long term, you need something that has real staying power. That’s why you look for ten-year returns – for the clearest picture of what a fund could do over time.
So should you completely ignore a fund’s one-year returns? No. For at least two reasons.
- A fund’s short-term returns provide a measure of how popular a sector or market is currently.
- You can then use this measure to see how attractive a fund’s returns are likely to be in the short term.
For example, you’ll likely do better if you invest in a fund with high long-term returns that has performed poorly over the past year. Why? Because if you buy after a period of poor returns, the fund will likely outperform in the short term to catch up to its long-term average. It’s what investment experts call “mean reversion”: the fund returns to its average return over time. In other words: you achieve an above-average return while the fund catches up with its average.
Of course the opposite is true. Funds that have outperformed their long-term returns by a wide margin over the past year are likely to underperform in the short term as they revert to their mean.
While it’s important to look for funds with a strong long-term record, it’s also crucial to think about recent performance to get a sense of how much above or below trend they are performing. If a fund is performing well below trend, you can buy it more aggressively than you would otherwise. Likewise, if the ETF is popular, you can use dollar-cost averaging more carefully to qualify.
Best ETFs for the Long Term
With that in mind, below are some of the best ETF returns from a screen on ETF.com, with data as of April 11, 2024. The screening criteria are as follows:
- Top performers with a 10-year return of approximately 12 percent annually
- No leveraged ETFs or inverse ETFs
-
Expense ratio below 0.5 percent
These criteria show that ETFs have delivered excellent returns at a low cost, while avoiding risky funds such as leveraged ETFs, which use options to generate returns. The list includes some of the best long-term and longer-term performers that haven’t done so well so far.
VanEck Semiconductor ETF (SMH)
This fund tracks the performance of the MVIS US Listed Semiconductor 25 Index, which includes companies involved in semiconductor manufacturing and equipment.
- 1 year return: 74.4%
- Return over 10 years: 27.3%
- Cost ratio: 0.35%
Vanguard Information Technology ETF (VGT)
This ETF uses a passive investment strategy to track the MSCI US Investable Market Information Technology 25/50 Index, which includes information technology stocks.
- 1 year return: 36.4%
- Return over 10 years: 20.5%
- Cost ratio: 0.10%
Technology Select Sector SPDR Fund (XLK)
This passively managed fund tracks companies classified as information technology companies in the GICS classification system, including companies in Internet software and services, IT consulting services, semiconductor equipment, computers and peripherals.
- 1 year return: 38.5%
- Return over 10 years: 20.7%
- Cost ratio: 0.09%
Invesco QQQ Trust (QQQ)
This passive fund tracks the Nasdaq-100 index, which includes the 100 largest non-financial companies trading on the Nasdaq by market capitalization.
- 1 year return: 38.8%
- Return over 10 years: 18.8%
- Cost ratio: 0.20%
iShares Russell Top 200 Growth ETF (IWY)
This ETF tracks the performance of the largest stocks in the Russell Top 200 Growth Index, particularly those with higher growth and higher price-to-book valuations.
- 1 year return: 40.5%
- Return over 10 years: 17.1%
- Cost ratio: 0.20%
iShares US Healthcare Providers ETF (IHF)
This fund tracks the Dow Jones US Select Health Care Providers Index, which includes companies of all sizes that own and operate hospitals and clinics, healthcare maintenance organizations, and rehabilitation and retirement centers.
- 1 year return: 0.15%
- Return over 10 years: 11.3%
- Cost ratio: 0.40%
iShares US Medical Devices ETF (IHI)
This fund tracks the Dow Jones US Select Medical Equipment Index, which includes companies of all sizes that are manufacturers and distributors of medical devices and other non-disposable medical devices.
- 1 year return: 5.9%
- Return over 10 years: 14.1%
- Cost ratio: 0.40%
In short
Finding the best ETFs for buy-and-hold investing can really help you generate excellent long-term returns, but an important part of that equation is the buy and hold element. You won’t generate these returns unless you commit to holding your investment for the long term, which can help you grow your wealth and also avoid taxes.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
