There’s just too much we want to do in life! Watching the markets, keeping up with news and following earning reports of numerous stocks isn’t something on our list.
Alas, you’ve also heard that you cannot afford not to invest.
But as a busy young adult, it just feels impossible to do everything.
Fret not, you can still put your money to work safely without having to give up too much time!
This article will give you a framework and some of the best ETFs you can buy and hold over the long term that’ll help you grow your money while you go out there and excel in life.
Should you should buy and hold ETFs long term?
Before I jump into the best ETFs to buy and hold, let’s make sure we’re on the same page and that we agree on the following:
- Your investment goal
The reason you’re here is probably because you’re looking for a way to grow your money at a faster rate compared to leaving it in the bank.
So, I’m going to assume that you want a simple investing solution that lets you invest for steady growth, with the least amount of work required.
(If you’re looking to beat the market returns, then you shouldn’t be considering this. Instead, you can learn how to pick stocks with us here.)
- Your time horizon
You’re looking to invest over the long term, for the next 2-3 decades.
- Your Risk Tolerance
I am going to assume that you are looking for a low-risk, “somewhat” set-and-forget approach.
- Your investment capital
This is going to vary widely depending on your income, expenses and debt. However, I’ll assume that you can afford to invest at least $5,000 every 6 months.
How to pick the best ETFs to Buy and Hold?
Now, building a balanced ETF portfolio depends on your investment goals, risk tolerance, and time horizon. Hence, the prescribed assumptions in the section above.
One of the easiest ETF strategies to build is the 3-fund portfolio.
Basically, you’ll build a well balanced ETF portfolio with 3 ETFs that gives you exposure to:
- Domestic stocks
- International Stocks
- Fixed Income
Using this framework, you can easily pick the best ETFs to buy and hold in your portfolio.
To help you get started, here’re some popular options:
Best ETFs to Buy and Hold
Using the 3-fund portfolio as the underlying ETF strategy, here’re the best ETFs to buy and hold:
- Vanguard Total Stock Market ETF (VTI)
- iShares Core S&P 500 ETF (IVV)
- Vanguard Total International Stock ETF (VXUS)
- iShares Core MSCI Total International Stock ETF (IXUS)
- Vanguard Total Bond Market ETF (BND)
- iShares Core U.S. Aggregate Bond ETF (AGG)
Domestic Stocks
- Vanguard Total Stock Market ETF (VTI)
- iShares Core S&P 500 ETF (IVV)
VTI gives you exposure to the entire US stock market while IVV gives you access to the top 500 stocks listed in the US by tracking the S&P 500.
Due to the difference in their investment methodology, VTI has a more diversified domestic portfolio of 3945 stocks while IVV only has 500 holdings.
In the long run, both of their performance is pretty similar as returns tend to be delivered by the top stocks. However, in the short run, there may be slight differences. Here’s a comparison of their 1 year and 10 year performance:
| 1 year performance | 10-year performance | |
| Vanguard Total Stock Market ETF (VTI) | -8.77% | 11.7% |
| iShares Core S&P 500 ETF (IVV) | -7.76% | 12.2% |
International Stocks:
- Vanguard Total International Stock ETF (VXUS)
- iShares Core MSCI Total International Stock ETF (IXUS)
Both VXUS and IXUS are international ETFs that track international developed and emerging markets via different indices, for the same fee of 0.07%.
The key difference is in their underlying index. Due to this difference, VXUS has a larger portfolio of 7976 holdings while IXUS only has 4382 holdings.
VXUS was launched in Jan 2011 while iShares only launched IXUS in Oct 2012. This delayed launch could be the reason why VXUS has a larger AUM (~$56B currently) than IXUS ($31B currently).
Here’s a comparison of their 1 year and 10 year performance:
| 1 year performance | 10-year performance | |
| Vanguard Total International Stock ETF (VXUS) | -4.62% | 4.44% |
| iShares Core MSCI Total International Stock ETF (IXUS) | -4.58% | 4.44% |
Fixed Income:
- Vanguard Total Bond Market ETF (BND)
- iShares Core U.S. Aggregate Bond ETF (AGG)
Both BNB and AGG are ETFs that track the US bond market for the same fee of 0.03%. At the point of writing, BND holds about 10330 investment grade bonds with an average effective maturity of 8.9 years while AGG holds 10919 that would mature within an average of 8.26 years.
Here’s a comparison of their 1 year and 10 year performance:
| 1 year performance | 10-year performance | |
| Vanguard Total Bond Market ETF (BND) | -4.70% | 1.33% |
| iShares Core U.S. Aggregate Bond ETF (AGG) | -4.75% | 1.32% |
I’ve given you the key considerations to picking the best ETFs to buy and hold in the section. Now it’s up to you to pick the best three for your portfolio.
Take some time to do that before moving onto the next section.
How to Buy and Hold ETFs: Execution is key
Now that you have selected the best ETFs for your portfolio, it’s time to build the actual portfolio.
I won’t be covering how to select a broker here, but some popular choices include Interactive Brokers, FSMOne, and many more.
The easiest way is simply to divide your investment capital into three equal portions for each ETF and buy them via your brokerage account.
Buying and holding ETFs as a habit
Putting your initial capital into ETFs for the long term will not make you rich. You’ll need to keep buying the ETFs periodically so that you put even more money to work over time.
As a busy investor, I found it easier to buy ETFs once every 6 months (that’s just twice a year). This frequency allows me to balance between the amount of work required while keeping trading costs low. Of course, if you have more capital and time, you could buy ETFs once a month.
Sidenote: If this sounds too troublesome, you can check if your broker has any automated RSP programs that’ll help you buy the ETFs on a regular basis.
Remember to monitor and rebalance!
Although buying and holding ETFs is a great long term investing strategy for the busy investor, you’ll need to monitor and rebalance your portfolio.
Aim to do this once a year.
Your aim would be to make sure that your ETF portfolio contains the original allocation you started with. This may involve selling any overweighted ETFs or buying a larger proportion of any underweighted ETFs.
All the best!
