20 ETF Picks to Fill the Gaps in Your Portfolio
Two decades after the first exchange-traded fund debuted in the U.S., the field is crowded with some 1,500 ETFs holding $1.8 trillion. You don’t need most of them. For example, WisdomTree Japan Interest Rate Strategy ETF, which tracks the performance of U.S. Treasury bills relative to Japanese government bonds, isn’t exactly essential.
See Also: 7 ETFs to Hold Forever
But the right ETFs can be perfect for filling gaps in your portfolio. Do you need to beef up on foreign stocks? Want to make a bet on companies that will benefit from an improving economy? Looking for more income? We’ll guide you to solid funds for meeting your goals.
Begin with the basics
Use “total” ETFs to build a diversified portfolio with just a few low-cost funds. Start with Vanguard Total Stock Market ETF (VTI), which holds large, midsize and small U.S. companies. Then add Vanguard Total International Stock ETF (VXUS), which holds more than 5,000 stocks in developed and emerging countries. Throw in Vanguard Total Bond Market ETF (BND) and Vanguard Total International Bond ETF (BNDX), and you have everything you need. Well, almost everything. (Annual expenses for the Vanguard ETFs range from 0.05% to 0.20%.)
If you just need to fill in a few missing pieces, other ETFs will fit the bill. For tracking stocks of big companies, buy Schwab U.S. Large-Cap ETF (SCHX). It charges a rock-bottom annual fee of 0.04%. For midsize companies, a solid choice is iShares Russell Mid-cap ETF (IWR). Finally, Vanguard Small Cap ETF (VB) wins our vote for small-company fund. Its 0.09% annual expense ratio is less than one-third that of its typical peer.
For foreign stocks, the cheapest ETFs are iShares Core MSCI EAFE ETF (IEFA), for developed markets, and iShares Core MSCI Emerging Markets ETF (IEMG), for developing markets. For a little more oomph, check out iShares International Select Dividend ETF (IDV), which owns dividend-paying foreign stocks. It boasts a generous yield of 3.6%.
Boost your income
You don’t collect much interest from garden-variety bonds these days. For instance, Vanguard Total Bond Market, which tracks the investment-grade segment of the U.S. bond market, yields just 2.1%. But other categories offer better payouts.
Real estate investment trusts must pay 90% of their profits to shareholders in the form of dividends. A superb way to invest in the group is to buy Vanguard REIT ETF (VNQ), which tracks a broad index of mall, hotel and apartment stocks. It charges a scant 0.10% per year and yields 3.8%.
Junk bonds (those rated below investment grade) pay higher yields because they come with greater risk of default. But default rates are at historical lows. Our favorite high-yield ETF is SPDR Barclays High Yield Bond ETF (JNK). The fund, which yields 4.7% and charges 0.40% per year, invests mostly in the better-quality end of junk territory; only 18% of its assets are devoted to bonds rated below B. If you want a fatter yield—and you’re willing to assume more credit risk—explore AdvisorShares Peritus High Yield ETF (HYLD). This actively managed ETF yields 8.0%, despite a high 1.25% annual expense ratio.