Best ETFs of 2021

Overwhelmed by the thought of investing? I’ve been there. We all know that we should do it, but it’s easy to put off for another day. Even if you’re not new to investing, exploring new investment avenues can be just as overwhelming. Whether you’re investing for the first time or continuing to build your portfolio, you should consider exchange-traded funds (ETFs).
ETFs are funds that provide a basket of assets that you can buy and sell similarly to how you’d trade stocks on the stock market. As with any investment product, there are a LOT of ETFs out there, but these are a few of the best ones out there that you may want to consider.

Overview of the best ETFs

ETFBest for
Schwab US Large-Cap Growth ETFGrowth stocks
Invesco QQQLong-standing track record
Vanguard Growth ETFLow expense ratio
Breakwave Dry Bulk ShippingUnique foreign market opportunity
Vanguard S&P 500 ETFLong-term investment strategy
Vanguard Dividend Appreciation ETFIncome-investing strategy

Best ETFs

Schwab US Large-Cap Growth ETF

Schwab US Large-Cap Growth ETF is widely considered to be one of the top ETFs to invest in, due in large part to its holdings. League Cap Growth ETFs like this one invest in growth stocks that are thought to have a large market capitalization rate, to the tune of $10 billion at minimum.
This ETF is fairly diverse, although it isn’t the most diverse ETF out there. This ETF in particular typically invests in stocks that are included in the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. Its holdings include Apple Inc. (AAPL), Microsoft Corporation (MSFT), Amazon.com Inc. (AMZN), Tesla Inc. (TSLA), and Alphabet Inc. (GOOG).
The portfolio of this ETF largely focused on the information technology sector, as can be seen by the majority of its top holdings. In fact, 44.20% of its portfolio is made up of this sector. It also includes the consumer discretionary, communication services, health care, industrials, and financials sectors.
All in all, the Schwab US Large-Cap Growth ETF is trending upward, making it a top investment if you’re looking to diversify your portfolio. Its year-to-date (YTD) returns are 4.45%.

Invesco QQQ

Invesco QQQ was established in 1999, making it a long-standing player that remains relevant today. For those who are hesitant to invest in ETFs, going with Invesco QQQ might be a more comfortable option, given its track record that spans over two decades.
This ETF is based on the Nasdaq-100 Index, which is made up of 100 of the largest non-financial companies on the Nasdaq Stock Market, both domestic and international. Financial advisors who manage ETFs adjust the securities in a portfolio occasionally to adjust to the changes in the relative weights of index securities and the changes in the index. You can count on the Fund and the Index being rebalanced quarterly and reconstituted annually.
As expected, this ETF has holdings in top stocks, including Apple Inc. (AAPL), Microsoft Corporation (MSFT), Amazon.com Inc. (AMZN), Alphabet Inc. (GOOG), Facebook Inc. (FB), and Tesla Inc. (TSLA). The fund weighs heavily on the technology sector, as well as other sectors including the communication services, consumer cyclical, financial services, and healthcare sectors.
While this fund does rely heavily on the technology sector — as many do — it offers a fair amount of diversity among its other sectors. Over the past decade, Invesco QQQ has maintained a steady upward trend, with a more steep incline over the past 5 years. The YTD returns are 3.79%

Vanguard Growth ETF

The Vanguard Growth ETF is also relatively long-standing, having been established in 2004. If you’re looking for the potential to see rapid growth and don’t mind a larger amount of risk, this ETF may be right for you.
This ETF tracks and is based on the performance of the CRSP US Large Cap Growth Index. In total, it is made up of 276 stocks across several sectors. Of course, the technology sector makes up 46% of the ETF’s portfolio, but you’ll also see investments across the consumer discretionary, industrials, and health care sectors, among others.
The Vanguard Growth ETF follows a passive management approach. As such, it follows the belief that “the best investing strategy is to invest in index funds, which have historically outperformed the majority of actively managed funds.” It also follows the full replication method. This method is fairly straightforward and results in very little difference between the fund’s return and the performance of the index.
While this ETF does have the potential for rapid growth, it also ranks high on the risk scale. Its top holdings include all of the major players that you’d expect. This includes Apple Inc. (AAPL), Microsoft Corporation (MSFT), Facebook Inc (FB), and Alphabet Inc (GOOG). The Vanguard Growth ETF is also relatively low cost with an expense ratio of 0.04%.

Breakwave Dry Bulk Shipping ETF

If the name sounds a bit strange to you, you’re not alone. This ETF exclusively focuses on dry bulk shipping and is the first (and only) of its kind. This foreign stock ETF has seen considerable growth in the past year, making it a great option if you’re looking to break into foreign markets.
The Benchmark Portfolio of this ETF only maintains long positions in Freight Futures. As an investor, it can uniquely diversify your portfolio by providing exposure to the daily change in the price of dry bulk freight futures. It does this by tracking the performance of a portfolio that is made up of exchange-cleared futures contracts on the cost of shipping dry bulk freight in three-month increments.
As a foreign investment product, you may be wondering what this ETF bases its investments on. It’s based on the Baltic Dry Index, which is a shipping and trade index that was created by the Baltic Exchange. This index measures the changes in the cost of transporting raw materials across 22 worldwide shipping routes. Some of the raw materials considered in this shipping calculation are coal and steel.
While the Breakwave Dry Bulk Shipping ETF may not be right for everybody, it is a desirable addition to an investment portfolio if you can handle the risk. It is an especially good investment if you know the bulk commodities industry, as you may be in a better position to accurately predict the supply and demand of raw materials.

Vanguard S&P 500 ETF

As its name may suggest, this ETF invests in stocks that are in the Standard & Poor’s (S&P) 500 Index. This Index represents 500 of the largest companies in the U.S., allowing you to invest in a large blend of top companies across a variety of industries. The S&P Index is a “market-capitalization-weighted index of the 500 largest publicly-traded companies in the U.S.” It is also widely known as the benchmark of the U.S. stock market performance. This ETF tracks the prices and yield performance of the Index and aims to hold each component with about the same weight as the S&P Index.
Since it invests in so many companies, this ETF offers more diversification than other ETFs that are based on different Indexes. For example, most domestic ETFs on this list have a portfolio that is made up of over 40% of the information technology sector. Comparatively, the information technology sector only makes up 26.70% of the Vanguard S&P 500 ETF’s portfolio. This allows more room for investments in other key sectors, such as communication services, financials, and health care.
One downfall of this ETF is that the S&P does not provide a list of all 500 companies within its Index. So if you invest in this ETF, you won’t be able to see every single stock that is included in the investment. However, the top 10 holdings include the major players in the information technology sector, including Apple Inc., Microsoft Corporation, and Alphabet Inc. It also includes financial and pharmaceutical companies, such as JP Morgan Chase & Co. and Johnson & Johnson.

Vanguard Dividend Appreciation ETF

Vanguard is a top player among ETFs, and this dividend ETF is no exception. The Vanguard Dividend Appreciation ETF holds around 180 of the U.S.’s top dividend stocks, making it the largest dividend ETF on the market.
With so many ETFs available, you may be wondering why you should consider a dividend ETF. The Vanguard Dividend Appreciation ETF is perfect for investors who want to pursue an income-investing strategy. The stocks that make up this ETF are the ones that have a record of increasing dividends over a period of time. As such, investing in this ETF means that, in theory, you can expect your dividend yield to increase over time. However, in the investing world, things don’t always go as planned, so there is an element of risk here that shouldn’t be understated.
This ETF works by tracking the performance of the NASDAQ US Dividend Achievers Select Index. By doing this, it can track the performance of company stocks that have a record of dividend growth from year to year. Like the Vanguard Growth ETF, this ETF follows a passively managed, full-replication approach.
Unlike some of the other ETFs on this list, the Vanguard Dividend Appreciation ETF’s portfolio’s top sectors are almost evenly split among a few different industries. There isn’t a large focus on the technology sector here, and the financial services, healthcare, industrials, and consumer defensive sectors make up a larger portion of the portfolio.

Summary table

ETFTop Holdings IncludeYear to Date (YTD) ReturnBidAsk
Schwab US Large-Cap Growth ETFAAPL, MSFT, AMZN, FB, GOOGL, GOOG, TSLA, UNH, V, HD4.45%$130.07$1,000
Invesco QQQAAPL, MSFT, AMZN, GOOG, FB, TSLA, GOOGL, NVDA, PYPL, CMCSA3.79%$324.93$324.94
Vanguard Growth ETFAAPL, MSFT, FB, GOOGL, GOOG, TSLA, V, HD, MA4.59%$262.88$265.19
Breakwave Dry Bulk Shipping ETFFXFXX221.24%$26.00$26.95
Vanguard S&P 500 ETFAAPL, MSFT, AMZN, FB, GOOGL, GOOG, TSLA, BRK.B, JPM, JNJ11.10%$380.31$380.38
Vanguard Dividend Appreciation ETFJPM, JNJ, MSFT, WMT, UNH, V, PG, HD, CMCSA, KO9.85%$154.00$155.08

FAQs

What’s the difference between large-cap and small-cap?
When you’re exploring ETFs, you may notice that they’re categorized by phrases such as large-cap and small-cap ETF. This refers to the size of the company or companies, based on its market capitalization. Market capitalization is calculated by multiplying a company’s share price by the number of shares outstanding. The dollar amount that results from this calculation is the company’s market cap. As you might expect, large-cap refers to larger market capitalizations, and small-cap refers to smaller capitalizations. You may also see mid-cap, which encompasses companies that fall somewhere between large-cap and small-cap.
Should I be worried about stock market volatility?
Volatility might seem like a scary and complex concept that’s only talked about by the professionals on Wall Street, but it’s pretty simple. Volatility refers to how much or how little the price of a security has changed over a period of time. If the price hasn’t changed all that much over that time, the security has low volatility. Securities that change in price erratically or have large swings between highs and lows are considered to be highly volatile. Volatility should certainly be considered when choosing your investments, but you don’t necessarily need to stay away from highly volatile securities. Securities with low volatility may carry less risk, but you also aren’t likely to receive a large total return from it. It all depends on the level of risk that you’re comfortable with and whether you’re looking to make short-term gains.
What is the difference between Dow Jones and NYSE?
Even if you’ve never invested before, you’ve probably heard of the Dow Jones and the New York Stock Exchange (NYSE). So let’s break down exactly what they are. The Dow Jones is an index that indicates how the market is doing by averaging the 30 top blue-chip stocks of the economy. Blue-chip stocks are stocks from well-known and established companies that have a strong performance history. The NYSE is an exchange, meaning that this is where people can actually buy and sell stocks. It is the largest exchange in the world and you’ll find companies that are included in the Dow here, as well as thousands of other companies.

Here’s why you should invest in ETFs

With all of the investment products out there, you might be asking yourself why you should bother with ETFs. For beginning investors or any investor who is using small amounts of capital, ETFs are a great way to build a diversified portfolio at a relatively low cost. In fact, you may even be able to find an online broker that offers commission-free ETFs.
ETFs have come a long way since they were first established a few decades ago. Today, there are sector ETFs for just about anything that you can imagine. So if you want to invest in a real estate or clean energy ETF, you can do so! If you’re interested in using your investments for social good, you’ll be happy to know that some newer ETFs focus specifically on companies that follow specific Environmental, Social, and Governance (ESG) criteria.
There are also ETFs for a variety of asset classes to diversify even further, from a short-term bond ETF to an equity ETF. You can even invest specifically in an ETF for a broad market or emerging markets. For those who are comfortable taking on some risks, you can consider a leveraged ETF. This comparison tool from iShares is a great way to start exploring the variety of ETFs that are available to you.
The liquidity of ETFs also makes them an attractive investment, whether you’re a new or experienced investor. Unlike index mutual funds, most ETFs can be traded throughout the day. This means that you can use your ETF shares for intraday trading, much like you would with stocks.

The bottom line

Now that you know the reasons why you should invest in ETFs, there’s no better time than now to get started! The misconception that investing is only for people with a large amount of capital has been around for far too long, and that’s simply not the case. ETFs are a great way to add diversity to your portfolio without spending a large amount of money trying to diversify it on your own.
So, which ETF should you invest in? That depends. You should consider the marketing strategy that you feel comfortable with, as long as your investment goals. Some important things to think about are whether you want to invest for the long-term, invest in a way that can bring in some extra income, or both.
Additionally, even though you don’t need a large amount of capital, you will need to consider the amount that you’re willing and able to invest. While there are certainly ETFs out there that are top performers, you’ll need to compare ETFs using your criteria to find the best one for you.

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