The Best ETFs to Invest in Right Now

I’ll never stop shouting from the mountain tops about how effective exchange-traded funds (ETFs) are for the average investor. They remove a lot of the thought process that comes with choosing individual stocks, and they often provide instant diversification.

There are thousands of ETFs available on the market, ranging from those based on company size, industry, geographic location, and other characteristics. If you’re looking for great ETFs to add to your portfolio, the following three options are worth considering. They each have a different focus and can work together to be great complementary pieces in a portfolio.

1. Schwab U.S. Dividend Equity ETF

As the name hints, the Schwab U.S. Dividend Equity ETF (SCHD -0.39%) is a dividend-focused ETF. Unlike some dividend ETFs, which concentrate solely on high dividend yields, SCHD has strict criteria that ensure it includes high-quality companies that have proven their dividend is sustainable.

Some notable blue chip dividend stocks included in SCHD’s top holdings are Coca-Cola, Altria, Chevron, PepsiCo, and Target. With the exception of Chevron, all of those are Dividend Kings — companies with at least 50 consecutive years of dividend increases.

At the time of this writing, SCHD’s dividend yield is 3.8%, which is a bit higher than its average over the past decade.

SCHD Dividend Yield data by YCharts

The yield will inevitably fluctuate with its stock price movements, but at 3.8%, a $1,000 investment could pay out $38 annually. That might not be enough to go yacht shopping, but reinvesting these dividends can pay off huge down the road.

SCHD isn’t an investment you make expecting consistent market-beating returns, but it can be a great addition to your portfolio if you’re looking for consistent and reliable income.

2. Vanguard S&P 500 ETF

The Vanguard S&P 500 ETF (VOO 0.23%) is an ETF that I’ll always recommend. It mirrors the S&P 500, an index that tracks 500 of the largest American companies on the market. The S&P 500 is the most widely followed stock market index, and for good reason. It’s the trifecta: diversification, plenty of blue chip stocks, and cheap.

The S&P 500 isn’t as diversified as it historically has been because megacap tech stocks have exploded in valuations in the past few years. However, it still covers every major sector in the U.S. economy. If you’re looking to cover a lot of ground, VOO does a good job of doing so.

Since VOO’s inception, it has averaged around 12.6% annual returns. In the past five years, the returns have been higher at around 15%.

VOO data by YCharts

I wouldn’t invest expecting consistent 12% to 14% average annual returns, but even at the S&P 500’s historical average of 10%, consistent investments can compound quite nicely. If we assume VOO averages 10% annual returns over 20 years, $500 monthly investments could grow to over $343,000, while only personally investing $120,000 in that time.

3. Vanguard Total International Stock ETF

The Vanguard Total International Stock ETF (VXUS 0.49%) is a bit different than the other two ETFs because its focus is solely on international companies. This is a great way to hedge against any down or stagnant periods in the U.S. economy.

VXUS data by YCharts

I like VXUS as an international ETF because it contains over 8,600 companies from both developed and emerging markets. This can be the best of both worlds. You get the relative stability that comes from companies in developed markets, along with the high-growth opportunities that often come with companies in emerging markets. There are exceptions to each rule, but that’s the general pattern.

Around 38.9% of companies come from Europe, 26.9% from emerging markets, 25.7% from the Pacific, 7.8% from North America, and 0.7% from the Middle East. Notable companies in the ETF are Taiwan Semiconductor Manufacturing, Alibaba, and Nestlé.

With a 0.05% expense ratio, VXUS is an effective and cost-efficient way to gain exposure to international markets.