There are a lot of good things about being in your twenties, and one of them is that you have a long-term horizon until retirement. This means you have time on your side, giving you the ability to weather short-term market fluctuations to earn long-term returns. This, in turn, means you can be more aggressive with your investments, as growth stocks have generally outperformed value stocks over time.
Exchange-traded funds, or ETFs, are baskets of stocks bundled into a single fund that is traded on major stock exchanges. Each stock represents a stake in the ETF’s total assets and generally tracks a benchmark or sector. They also offer lower expense ratios than a typical actively managed mutual fund. Conclusion: ETFs are a great way to invest in growth stocks. Here are 3 of the best ETFs for investors in their 20s.
1. Fidelity MSCI Information Technology Index ETF
The information technology sector has been the strongest performer throughout this COVID-19 recession, as businesses and people housed in them have relied on technology more than ever during this time of social distancing. . There are several excellent ETFs in the technology sector, but none is better than the loyalty MSCI Information Technology Index ETF ( FTEC 1.59% ). This ETF is based on the MSCI USA Investable Market Index Information Technology, which tracks large, mid and small capitalization IT companies. The ETF has 322 holdings, of which Apple (19.5%) and Microsoft (17.5%) – the two largest holdings by far.
It is the cheapest ETF in the technology sector with an expense ratio of only 0.08%, lower than the Vanguard Information Technology ETF (0.10%) and the Technology Select SPDR Sector ETF ( 0.13%). It also performed on par with those two competitors (which, by the way, would also be good additions to the portfolio). For the year, the Fidelity ETF is up 17.3% with a 1-year return of 29.6%. Over the past 5 years, it has had a total return of 175%, which is much better than the S&P 500’s 52.9% and the IT sector’s 154%.
The tech sector has indeed driven the gains from the stock market over the past decade – and it’s unlikely to slow down over the next 10 years as society continues its digital transformation. The pandemic, through social distancing, has accelerated the growth of the digital economy and will drive more businesses to adopt work-from-home strategies, which will increase the need for IT. There are also emerging technologies like 5G, Internet of Things, Artificial Intelligence, among others that will change the way we live and work. All of these factors will guide the IT industry over the next decade.
2. Vanguard Russell 1000 Growth ETF
the Vanguard Russell 1000 Growth ETF ( VONG 1.25% ) tracks the Russell 1000 Growth Index, which focuses on the largest growth companies in the Russell 1000. The ETF has 438 holdings with 45% of assets in the top 10 positions. Some of the largest holdings are Apple (9.9%), Microsoft (9.9%) and Amazon (8.4%). It is slightly more overweight in technology compared to the Russell 1000 Growth Index and underweight in producer durables and financials.
Among the large-cap growth ETFs, it is one of the best performers. Since the beginning of the year, it has risen by 15.6%, slightly higher than that iShares Russell 1000 Growth ETF, up 15.5%. For a year, it has returned 24.7%, slightly better than its competitor iShares, which is up 23.8%. Over the past 5 years, it has had a total return of 114.5%, compared to iShares’ total return of 113.4%. It also has a better 5-year return than the Schwab US Large-Cap Growth ETF, Vanguard Growth ETFand the SPDR S&P 500 Growth ETF Portfolio.
Aside from yield, what sets this ETF apart is its low expense ratio of just 0.08%, which is well below the average ETF expense ratio of 0.54%.
Currently, 45% of holdings are in the technology sector, which should continue to generate returns over the next 10 years, as shown above. While growth stocks are subject to greater short-term volatility, which long-term investors should ignore, this ETF is well-diversified among large-cap companies, which should help it navigate dips better. .
3. Nuveen ESG Mid-Cap Growth ETF
the Nuveen ESG Mid-Cap Growth ETF (NUMG 1.61% ) is one of the new kids on the block, launched on December 16, 2016. But it’s already made a name for itself. The fund tracks the TIAA ESG USA Mid-Cap Growth Index and invests in only 58 stocks. No holding exceeds 3% of assets, so it is very diversified with only 37% in the 15 largest holdings. It is made up of mid-cap growth companies that meet certain environmental, social and governance (ESG) criteria. The biggest holdings are Splunk, Twilioand Alignment Technology.
ESG investing is one of the fastest growing segments of the market, especially among younger investors, as Millennials and Gen Z investors favor investing in socially responsible companies. As governments and corporations around the world strive to reduce and eliminate carbon emissions, ESG companies that promote sustainability are expected to thrive. And a post-pandemic world should lead to greater corporate and government accountability.
The ETF has also been a strong performer, up around 17.9% year-to-date and 21.6% over the past 12 months. It does not yet have a 5-year performance history but has a total return of 59.8% over the past 3 years. Given the expected growth in ESG investing, this would be a great ETF for investors in their twenties.
These 3 ETFs all have aggressive growth profiles and can fluctuate with market conditions, but over time, whichever is on your side, they should deliver excellent returns.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.