4 Great ETFs to Buy That Are Proven to Pay | Colorful fool (2023)

Over the long term, you'll be hard-pressed to find a better wealth builder than the stock market. Despite the volatility we've seen over the past 16 months, the annual average total return on stocks has outperformed the prices of bank certificates of deposit (CDs), bonds, gold, oil and real estate over the long term.

However,bear marketsit can be unpredictable in the short term and the rate of downward movement can be nothing short of unsettling. This can lead investors to seek avenues of safety in a turbulent trading environment. That's whereexchange traded funds (ETFs)Join the game.

An ETF is a basket of securities held in a single fund managed by experts and traded on a major exchange. There are more than 3,000 different ETFs for investors to choose from, each with their own focus and/or objectives. If you want to own stocks in a specific region of the world, growth or value stocks, dividend stocks or companies of a specific market capitalization or in a specific market sector or sector, chances are there is an ETF for you.

The best thing about ETFs is that they allow you to diversify or concentrate with one click. Because they trade on major US exchanges, they tend to be highly liquid (ie you can buy and sell as needed) and offer relatively lownet expense ratios-- that is, the cost you pay annually as an investor to access the fund. In general, the more active the fund is in buying and selling securities, the higher the net expense ratio.

Even with a possible U.S. recession on the horizon, four excellent proven-profitable ETFs stand out as easy buys right now.

1. i 2. Vanguard S&P 500 Index Fund i SPDR S&P 500 ETF Trust

The first two amazing ETFs begging to be bought areVanguard S&P 500 index fund(LET0,87%)iSPDR S&P 500 ETF Trust (SPY0,87%). The reason I decided to discuss these two funds together is that they are both index funds that attempt to mirror the performance of a benchmark.S&P 500 (^GSPC0,88%).

Something you may not be aware of about the S&P 500 is that the index hassuffered 39 separate double-digit percentage declinessince the early 1950s. This is achieved by a reduction of at least 10%, on average, every 22.5 months.

On the other hand, all the previous S&P 500 index corrections, declines and bear markets have finally been mirrored by a bull market. As long as you let time work its magic, both the Vanguard S&P 500 Index Fund and the SPDR S&P 500 ETF Trust make money over the long term.

Added to the above, the S&P 500 wasin the long run, the closest thing to guaranteed money creation. Market analytics firm Crestmont Research analyzed 20-year rolling total returns, including dividends paid, of the S&P 500 since 1900. This gave Crestmont data for 104 individual trailing years (1919-2022).

What his data set showed was that if an investor, hypothetically, bought an S&P 500 tracker and held that position for at least 20 years, they made money, without fail, for all 104 running 20-year periods. Namely, investors would achieve an average annual total return of between 9% and 17.1% in roughly half of the last 104 years. Investors weren't just weighing on the inflation rate --they often crushed him!

If there's a slight edge between these two index funds, it goes to the Vanguard S&P 500 ETF, which has a net expense ratio of just 0.03%, compared to 0.09% for the SPDR S&P 500 ETF Trust. That means the Vanguard fund will cost just $0.30 in fees for every $1,000 invested. Ultimately, though, both S&P 500 index funds are proven to make money.

3. Vanguard Growth ETF

A third ETF that has been easy for patient investors isVanguard Growth ETF (VUG1,87%). While it doesn't win awards for the originality of its name, this innovation-driven ETF doeshas an average annual return of 9.91% since its inceptionat the end of January 2004, from April 30, 2023.

With the Federal Reserve modeling a mild recession in its forecast for later this year, the idea of ​​putting your money into cyclical tech stocks may not sound pleasant. However, the Vanguard Growth ETF has a few tricks up its sleeve.

First, he tries to reproduce his performanceCRSP US Large Cap Growth Index. In other words, this is a fund that buys some of the biggest and most proven innovators on the planet. At the end of the first quarter, the average capitalization of its shares was almost 300 billion dollars.

Add to the above, the Vanguard Growth ETFhad shares in 241 different securities, as of March 31, 2023. Investors instantly concentrate on leading domestic industries with the highest growth at the click of a button.

Furthermore,stock growththey have a rich history of outperforming when the US economy weakens. Although aamerican bank/A Merrill Lynch study found that value stocks outperformed growth stocks on an annualized return basis over a 90-year period (1926 to 2015), it was growth stocks that outperformed value stocks during periods of turbulence and early bull markets.

The last reason investors can get excited about this excellent ETF is its minimal cost. The Vanguard Growth ETF has a net expense ratio of just 0.04%. That compares to the average growth ETF, which carries a net expense ratio of 0.95%.

4. Schwab U.S. Dividend Equity ETF

ONEthe fourth major ETF that is proven profitablefor patient investors it isSchwab U.S. Dividend Equity ETF (SCHD-0,39%). This fund has a healthy dividend yield of 3.64% and a return of 13.08% per annum since its inception in October 2011.

The first advantage that this fund offers is already in the name itself -- "Dividend". Listed companies that offer a regular dividend are usually profitable, time-tested and have a transparent long-term outlook. Additionally, income stocks have historically revolved around non-dividend paying public companies. That should be enoughdividend stocksan especially smart place to put money to work during stock market corrections and bear markets.

There is also a lot of diversification when buying Schwab U.S. Dividend ETF. As of last weekend, the fund held 104 stocks and sought to show overall performance, including dividends paid,Dow Jones US Index Dividend Index 100. At the end of the first quarter, the weighted average market capitalization per holding was $149 billion, and the average price-to-earnings ratio of 104 holdings was below 14. These are cheap companies with above-average yields, which (again) is ideal for an uncertain economic environment.

To add to the previous point, Schwab U.S. ETF Dividend Equity is also less volatile than the benchmark S&P 500. Based on monthly volatility over the past five years, Schwab U.S. The Dividend Equity ETF is only 80% as volatile as the S&P 500. It's a smart ETF to buy for investors who don't want to deal with volatility.

Cherry on the ice cream for Schwab U.S. Dividend Equity ETF is hisextremely low net expense ratio of 0.06%. The stated yield of 3.64% more than compensated for the nominal loss from fund management fees.