4 Simple ETFs Built for Long-Term Buy-and-Hold Investors

Picking the next Nvidia (NVDA -0.03%) or Palantir (PLTR +0.83%) could create enormous wealth. However, the big problem is identifying the company and investing in it before everyone else does.

But instead of trying to pick individual winners, which has proven to be incredibly difficult, investors can choose exchange-traded funds (ETFs) that capture potentially winning themes and markets. For example, instead of trying to find the next SK Hynix (SKHY +0.94%) while it’s tiny, you could choose the Global X Artificial Intelligence and Technology ETF (AIQ +1.43%) and own a basket of stocks operating in the industry. You’ll own some winners and some underperformers, but you will  diversify away a lot of the risk of being wrong.

For investors interested in taking an approach like this, these four ETFs offer great ways to invest in some of the market’s best opportunities.

1. Vanguard Morningstar Total Stock Market ETF

The Vanguard Morningstar Total Stock Market ETF (VTI +0.82%) is my choice for building the foundation of your portfolio. Investing in the S&P 500 (^GSPC +0.86%) has been incredibly popular during the past several years. But it’s become very top-heavy in just a handful of mega-cap tech companies. The Vanguard Total Stock Market ETF includes large-, mid-, and small-cap stocks, more than 3,500 in all, giving you exposure to the entire U.S. stock market.

This ETF isn’t terribly exciting, but it can be effective. It has a mix of large caps, mid caps, and small caps. That means you still own all the large companies that you’re already familiar with. But if small companies outperform as they have during the past 18 months, you will capture that growth as well and likely outperform the S&P 500 in the process. This fund makes for a great core portfolio holding.

2. Schwab U.S. Dividend Equity ETF

The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) targets high-quality, financially healthy, dividend-paying stocks offering above-average yields. If your portfolio is heavy in growth or tech stocks, this ETF provides a nice balance. It focuses on companies that generate significant cash and have demonstrated the ability to withstand varying economic environments.

The Schwab fund evaluates return on equity (ROE), cash flow-to-debt, dividend yield, and dividend growth rate when selecting stocks. It currently has about 41% of its portfolio in consumer staples and healthcare stocks. Like the Vanguard Total Stock Market ETF, it won’t be exciting. But it has a demonstrated track record of strong returns, and income seekers will appreciate the high yield.

3. Vanguard Growth ETF

The Vanguard Growth ETF (VUG +0.93%) offers a great way to invest in companies with higher growth potential than the broader market. Since these companies often demonstrate more volatility, they make ideal long-term buy-and-hold candidates. If you’re willing to hold these stocks for several years or more, the extra risk could come with extra reward.

There are a couple of factors to be aware of with the Vanguard Growth ETF. The first is concentration. Nvidia, Apple (AAPL +1.75%), and Microsoft (MSFT +0.65%) alone account for 35% of the fund. That means you will be heavily exposed to the performance of just a few companies. The second is downside risk. High-growth companies can experience sharper declines if conditions weaken. Considering how well this group has done lately, it could be due for a stretch of lower returns. But over the course of decades, you can ride out that risk.

4. iShares Russell 2000 ETF

The iShares Russell 2000 ETF (IWM +0.41%) is a way to invest in many of the lesser-known undervalued small-cap stocks that could eventually turn into the next S&P 500 components. Some of these companies will probably flame out. But by owning roughly 2,000 of these companies, you limit the risk of any one of them hurting your portfolio while maintaining the long-term higher growth potential.

The iShares Russell 2000 ETF is very interesting right now. Thanks to the artificial intelligence boom, earnings growth is accelerating, and this ETF is offering a better combination of growth and value than the S&P 500. The stocks it holds remain undervalued and could present a great long-term opportunity.