Let’s face it. Stock picking is difficult, especially if you don’t just sit around your holdings for years and let time do the heavy lifting. There is a good chance that any investor speculating on price fluctuations occurring over a short period of time has ended up regretting at least one of these transactions.
Do not abandon ! Despite all its risks and gusts of wind, the stock market is still the best way for ordinary people to build up a nest egg that exceeds inflation. You might just want to switch tactics, move to larger sectors, regions and themes instead of betting on individual names. Here’s a closer look at three exchange-traded funds (ETFs) that might make more sense as the top holdings in your particular portfolio.
IShares Global Clean Energy ETF
Just because you’re looking to reduce the volatility of your holdings doesn’t mean your portfolio has to be boring. You can – and should – take advantage of the opportunities presented by the inevitable changes in the way the world works.
To that end, it has become clear that clean alternative energy is the future. Despite the challenges of last year’s pandemic, the world managed to add 280 gigawatts of power generation capacity, according to the International Energy Agency (IEA), 45% more than 2019. The IEA suggests that this pace of wind, solar and other renewable energy installations is the new global norm for the foreseeable future. Closer to home, the US Energy Information Administration (EIA) predicts that the proportion of household electricity produced by renewables will double from 21% last year to 42% by 2050.
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There are all kinds of ways to take advantage of this opportunity, even limiting your prospect universe to ETFs. Among all these choices, however, the IShares Global Clean Energy ETF (NASDAQ: ICLN) is ideal for most. It is not only the most liquid clean energy fund, but it is also well diversified. Wind, solar and natural gas are all well represented within the iShares Global Clean Energy ETF, and there is a lot of geographic diversity built in to boot. Perhaps best of all, this fund holds foreign stocks that are difficult, if not impossible, for US investors to buy.
Invesco S&P 500 Low Volatility ETF
An exchange-traded fund based on alternative energy is still not stable enough for you (at least on its own)? Eliminate the big swings even more with the Invesco S&P 500 Low Volatility ETF (NYSEMKT: SPLV).
The fund does exactly what its name suggests. Designed to mirror the low volatility S&P 500 Index, this ETF primarily holds the 100 constituents of the S&P 500 with the least explosive price movements over the past twelve months. This list of 100 stocks changes a bit from year to year, but rarely changes much. Its main holdings include Colgate-Palmolive, Procter & Gamble, Verizon, and PepsiCo – the kind of big pillars that stay relatively stable, especially because investors know their respective businesses are hard to disrupt. Their customers are quite loyal, endlessly filling their closets and cupboards with the same brands.
However, that is not what makes this particular ETF such a great option. Interestingly, the boring nature of the Invesco S&P 500 Low Volatility ETF does not significantly hamper its long-term performance. Over the past ten years, the fund’s average annual gain of 12.1% is lower than the S&P 500’s average of 14.4%. That’s a small price to pay for being able to sleep well at night, however.
Also, be aware that almost all of this difference in performance over the past decade has only materialized since market lows in March, shortly after the COVID-19 pandemic made landfall in the United States. United. This rebound abnormally favored more volatile growth stocks. If this leadership of growth names takes place, it actually favors the value-driven names that make up the low volatility S&P 500 Index.
Vanguard Real Estate ETF
Finally, add the Vanguard Real Estate ETF (NYSEMKT: VNQ) to your watchlist for exchange traded funds that may be better choices for you than individual stocks.
The Vanguard Real Estate ETF aims to mirror the MSCI US Investable Market Real Estate 25/50 Index, which includes everything from hotel properties to residential buildings to industrial land and more. In other words, it is a way to invest in non-market assets without engaging in outright personal purchase of land and / or buildings.
For most investors, however, this is the best way to venture out of the stock market without the usual headaches. Like stocks and real estate investment trusts (FPI), ETFs made up of REITs can be bought and sold in seconds, while it can take months or even years to buy and sell real estate, which takes time and capital.
One of the main advantages of owning assets like real estate is diversification.
While stocks and land values globally can move along with economic ebbs and flows, real estate and REIT prices are not too closely tied to the stock market. That is, they both have their bullish and bearish times, but they’re not necessarily the same times.
However, that’s not the only reason to take a look at the highly diversified Vanguard Real Estate ETF. In the same way that an owner generates recurring income on owned property, REIT-based ETFs produce recurring income in the form of dividends, while the underlying asset also (hopefully) experiences appreciation. prices. You may find higher returns than the 3.2% return currently offered by VNQ. As is the case with so many Vanguard funds, however, the expense ratio of this one is very cheap at 0.12%. You’d be hard pressed to find one that gives you so much net return for so little input.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
