Investing in the stock market can be a daunting endeavor, especially during these volatile times. However, ETFs offer a range of equities in one tidy package.
An exchange-traded fund, or ETF, is a security that contains an array of securities and usually tracks an underlying index, like the NASDAQ (NASDAQ: NDAQ) or the S&P 500 (NYSEARCA: VOO). An ETF can concentrate on a particular sector or can be for different instruments like bonds, currencies, and commodities. It differs from a mutual fund in that it is traded on an exchange and its price can fluctuate throughout the trading day.
There are considerable advantages to trading ETFs, including fewer brokerage commissions, risk management through diversification, and focusing on specific industries or sectors, which is certainly a benefit during these crazy times. We present you with three ETFs that a beginner would be wise to invest in.
1. SPDR S&P 500 ETF Trust
The S&P 500 is a stock market index of 500 large-cap U.S. companies and is used by investors as a benchmark of the overall market. SPDR S&P 500 ETF Trust (NYSEARCA: SPY) is one the ETFs that track it, and as such is exposed to nearly all market sectors including IT, healthcare, financials, industrials, and utilities. If you’re looking for diversity, you cannot do better.
The S&P’s holdings include Facebook (NASDAQ: FB), Johnson & Johnson (NYSE: JNJ), and Visa (NYSE: V); additionally, it holds Advanced Micro Devices (NASDAQ: AMD), Walmart (NYSE: WMT), and Citrix (NASDAQ: CTXS). The S&P has dropped 11.25% since start of year from the market sell off but this only means that it can be snatched up at a discount, like billionaire investor Mark Cuban is doing. This ETF has yielded annual average returns of 8.93% since inception in 1993.
2. NASDAQ-100 Index
Invesco QQQ Trust (NASDAQ: QQQ) is an ETF based on the Nasdaq-100 Index of the largest global non-financial companies listed on the exchange. QQQ’s holdings include Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), and Alphabet (NASDAQ: GOOG). Its average annual total return is 18.54% since 2010 and its price is virtually unchanged since the start of the year — and that’s saying something.
This could have something to do with the fact that the above four companies have combined cash reserves of roughly $400 billion or the fact that they have a bright future in areas like 5G, cloud services, and video games. Perhaps it’s because the Nasdaq isn’t invested in financials and instead is invested in tech. Whatever the reason, this fund has the chops to weather the current pandemic and is poised to grow after the market stabilizes.
3. iShares U.S. Consumer Services
The iShares U.S. Consumer Services ETF (NYSEARCA: IYC) is invested in sectors like retail, media & entertainment, and food & drug through companies like Home Depot (NYSE: HD), Netflix (NASDAQ: NFLX), and Target (NYSE: TGT); it also holds coronavirus-resistant stocks like Walmart, Domino’s Pizza (NYSE: DPZ), and ROKU (NASDAQ: ROKU). However, IYC hasn’t been immune to the pandemic, dropping roughly 13% since the year’s start, so it too is available at a discount. As of March 31, 2020, its average annual return over 10 years is 12.43%.
Reasons to invest in IYC include its exposure to food, drugs, retail, and media, as well as its access to domestic consumer services. U.S. consumer spending reached an all-time high in Q4 of 2019 at roughly $13 trillion and although there may be a bit of a lag due to COVID-19, these numbers will probably return post-pandemic causing IYC to rise.
Investing in the stock market can be quite trepidatious with all the choices available. It can also be expensive to buy multiple stocks, considering all the brokerage commission fees. With an ETF you buy one security that encompasses all the stocks you’re interested in, and as they grow, so does the value of your ETF. Like most stocks, ETFs are discounted now due to the coronavirus selloff and present an enticing opportunity for the savvy investor.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.