You’ve probably seen articles touting “the best Black Friday deals we’ve found” and so forth.
What follows is a bit like that — but much more worth your time. These deals aren’t fads; they aren’t going away; and they can benefit you for a lifetime.
For investors at Fidelity, Vanguard and Charles Schwab, I’m going to recommend the best equity exchange-traded funds (ETFs) for the strategies we recommend.
Our top picks are available to buy and sell without commissions. And at Fidelity, investors can trade partial shares, a big advantage for smaller accounts.
However, these recommendations aren’t the most important part of your investment plan.
Imagine you are in your kitchen. If you want to make a wonderful stew, you need the right recipe and the right ingredients. But as any experienced cook will tell you, even with the perfect ingredients, a lousy recipe puts you on a fast track to disappointing results.
After spending many long hours looking at thousands of ETFs, Chris Pedersen, research director of the Merriman Financial Education Foundation, said it this way:
“In the end, it’s probably more important that you have an investment strategy you believe in and can stick with than you have exactly the right funds for that strategy.”
How we choose
From the tens of thousands of ETFs available, Chris narrowed our picks to a manageable level.
For each asset class, he chose one, which we have labeled “best in class” or BIC, plus several worthy alternatives for situations where the BIC choice is not available.
We look first for ETFs that closely track the asset classes we recommend. That rules out thousands of ETFs that track things like sector funds, country-specific funds, leveraged funds, commodity funds and target-date retirement funds.
We further limit ourselves to passively managed ETFs. That eliminates actively managed offerings from companies like Franklin Templeton, Capital Group, Goldman SachsGS, -0.25%and many others.
From this more manageable universe of potential candidates, we look for low expenses and other important details of ETF portfolios, and of course availability at Fidelity, Vanguard and Charles Schwab.
Our choices are based on the results of extensive academic research that indicates higher long-term returns from portfolios of companies with higher value orientation, smaller average company size, and higher profitability.
We recognize that such holdings often have higher volatility, but when multiple funds are combined in a portfolio of asset classes that don’t move in lockstep with one another, it’s often possible to achieve a higher return at a given level of risk.
Our best in class ETFs are listed below — along with runners-up in each asset class for investors in employee retirement programs or who otherwise may not have access to our top picks.
The boring best
If you’re looking for a “hot ticket” to quick and exciting investment success, you won’t find it here.
The following list is made up of passively managed index funds that — by design — are pretty boring. And that’s a good thing. These are funds to buy and hold for the long term.
U.S. large-cap blend stocks: Avantis U.S. EquityAVUS, -0.34%
Runners up:
- Vanguard 500 Index FundVOO, -0.30%
- Vanguard Total Stock Market Index FundVTI, -0.89%
- iShares Core S&P 500IVV, -0.29%
- SPDR Portfolio S&P 500SPLG, -0.28%
- Schwab U.S. Large-CapSCHX, -0.34%
- U.S. large-cap value stocks: Invesco S&P 500 Pure ValueRPV, -0.98%
Runners up:
- Vanguard Russel 1000 Value Index FundVONV, -0.19%
- iShares Core S&P U.S. ValueIUSV, -0.28%
- SPDR Portfolio S&P 500 ValueSPYV, -0.24%
- Schwab U.S. Large-Cap ValueSCHV, -0.27%U.S. small-cap blend stocks: iShares Core S&P Small-CapIJR, -0.46%
Runners up:
- Vanguard S&P Small-Cap 600 Index FundVIOO, -0.29%
- iShares Micro-CapIWC, -0.81%
- Schwab U.S. Small-CapSCHA, -0.50%
- SPDR Portfolio S&P 600 Small CapSPSM, -0.44%
- U.S. Small-cap value stocks: Avantis U.S. Small Cap ValueAVUV, -0.30%
Runners up:
- Vanguard S&P Small-Cap 600 Value Index FundVIOV, -0.44%
- SPDR 600 Small Cap ValueSLYV, -0.31%
- iShares S&P Small-Cap 600 ValueIJS, -0.42%
- Invesco S&P SmallCap 600 Pure ValueRZV, -0.73%
- U.S. real-estate investment trusts: Vanguard Real Estate Index FundVNQ, -0.28%
Runners up:
- Fidelity MSCI Real Estate IndexFREL, -0.16%
- iShares Core U.S. REITUSRT, 0.06%
- Schwab U.S. REITSCHH, -0.15%
International large-cap blend stocks: Avantis International EquityAVDE, -0.37%
Runners up:
- Vanguard Developed Markets Index FundVEA, -0.36%
- iShares Core MSCI EAFEIEFA, -0.38%
- SPDR Portfolio Developed World ex-USSPDW, -0.38%
- Schwab International EquitySCHF, -0.29%
- International large-cap value stocks: Dimensional International ValueDFIV, -0.33%
Runners up:
- Vanguard International High Dividend Yield FundVYMI, -0.26%
- Avantis International Large Cap ValueAVIV, -0.33%
- iShares MSCI EAFE ValueEVF, -0.53%
- Fidelity International Value FactorFIVA, -0.48%
- SPDR S&P International DividendDWX, 0.04%
- International small-cap blend stocks: Schwab Fundamental International Small Company IndexFNDC, -0.58%
Runners up:
- Vanguard FTSE All-World ex-US Small Cap IndexVSS, -0.44%
- iShares MSCI EAFE Small-CapSCZ, -0.71%
- SPDR S&P International Small CapGWX, -0.64%
- Schwab International Small-Cap EquitySCHC, -0.66%\International small-cap value stocks: Avantis International Small Cap ValueAVDV, -0.46%
Runners up:
- Dimensional International Small Cap ValueDISV, -0.70%
- WisdomTree International SmallCap Dividend FundDLS, -0.60%
- Emerging markets stocks: Avantis Emerging Markets EquityAVEM, 0.13%
Runners up:
- Vanguard Emerging Markets Stock Index FundVWO, 0.20%
- iShares Core MSCI Emerging MarketsIEMG, 0.00%
- SPDR Portfolio Emerging MarketsSPEM, 0.15%
- Schwab Emerging Markets EquitySCHE, 0.16%
Putting this information to work
As I said, these picks work best when they are thoughtfully put together to create a portfolio. For example, you could combine equal percentages of AVUS, RPV, IJR and AVUV to build the excellentU.S. Four Fund Combo. Or use any other of ourrecommended ETF portfolios.
If you already own one of our runners-up, should you sell it and switch to our best-in-class pick?
Maybe, but maybe not.
- In an IRA or employee retirement plan, if you can make the switch without incurring a fee, such a move is likely to be beneficial in the long run.
- However, if switching would incur a taxable capital gain, it’s probably not worth the swap.
You can find the full best-in-class ETF discussionhere. For still more on this topic,here’s a videothat Chris Pedersen and I recorded.
Richard Buck contributed to this article.
Paul Merriman and Richard Buck are the authors of “We’re Talking Millions! 12 Simple Ways to Supercharge Your Retirement.”Get your free copy.
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