4 Set-and-Forget ETFs Built to Reward Patient Investors

Investors spend a lot of time picking out stocks and ETFs to own now. The market and the media focus on the latest economic numbers, earnings reports, or signals.

In reality, your overall asset allocation explains more of your portfolio’s returns and risk profile. You can complicate things by owning a half-dozen different funds with different target markets or themes. But the odds are good that you can achieve pretty similar returns over the long term by buying the S&P 500 and letting it grow over time.

That usually saves you a lot of headaches. There’s no need to trade your brokerage account or watch the news every day. Just buy, hold, and let the U.S. economy do the work for you. If you’re patient and have a long-term focus, these four ETFs can help you become wealthy.

Just own the market and be done with it

The Vanguard Morningstar Total Stock Market ETF (VTI -0.07%) is perhaps the simplest long-term investing solution you’ll find. It owns the entire investable U.S. stock universe, roughly 3,500 stocks in all, and covers every sector, theme, and market cap there is. And with an expense ratio of just 0.03%, it costs next to nothing to own. Virtually all long-term growth belongs to you.

I prefer this fund to the Vanguard S&P 500 ETF (VOO +0.03%), although both work as core portfolio holdings. In reality, the Vanguard Morningstar Total Stock Market ETF has an 88% overlap, so both ETFs’ performance and behavior will be very similar, but I like adding the long-term potential of small caps as well.

The long-term power of dividend growth

Dividend stocks aren’t nearly as exciting as tech or artificial intelligence (AI) stocks. But as a balance of capital growth, dividend income, and risk mitigation, they’re ideal as a long-term investment. The Vanguard Dividend Appreciation ETF (VIG +0.48%) targets companies with 10-plus years of consecutive annual dividend growth, thereby emphasizing durability and quality.

The Vanguard Dividend Appreciation ETF is unique in that it eliminates the top 25% of dividend yields right off the top to help avoid riskier stocks, and its market cap weighting methodology is currently giving greater weight to megacap tech stocks that you might not find in other similar funds. For long-term investors, however, that gives it a nice balance between growth and income.

Focus on quality within smaller stocks

With the domination of large-cap tech and growth stocks over the past several years, it might be easy to forget that similar opportunities also exist in smaller stocks. But you’ll probably want to be a little more selective, as small- and mid-sized companies generally carry more risk. The Invesco S&P Midcap Quality ETF (XMHQ +0.17%) targets this group but considers only stocks backed by fundamental balance-sheet strength.

Midcaps sit as a nice midpoint on the market cap spectrum to consider for your portfolio. They’re more established than the riskier small-cap stocks that are often unprofitable. But they also have the potential to grow into the next large-cap S&P 500 component. You’ll need time for those stories to play out, which is why they fit nicely in a long-term portfolio.

Overseas companies also have potential

International stocks have gotten a bum rap over the past 10 to 15 years because of their lower earnings growth profile and below-average performance relative to the S&P 500. Historically, however, U.S. stocks and international stocks have traded leadership in multi-year cycles. With the S&P 500 having outperformed for most of the past 15 years, a rotation is overdue.

The Vanguard Total International Stock ETF (VXUS +0.40%) offers the broadest possible exposure to overseas markets, covering both developed and emerging markets. These markets have different economic exposures, sector compositions, and relative valuations compared to U.S. stocks. That makes them a nice portfolio diversifier with additional upside potential.