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ETFs

Best ETFs for Your Investment Portfolios

We mixed and matched our 20 favorite exchange-traded funds to create four model portfolios to suit most investors' needs.

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Fund managers wage war against the markets every day, trying to pick stocks or bonds that will push them past their benchmark bogeys. More often than not, the markets win. But investors don’t have to lose out, too. They can choose to invest in exchange-traded funds instead. Broad ETFs can capture nearly all of a market’s returns by passively tracking a benchmark, such as Standard & Poor’s 500-stock index.

Latest Data: The Kiplinger ETF 20

Expense ratios are so low you may pay as little as 0.03% a year—just 30 cents for every $1,000 invested—for an ETF that mirrors the stock market.

Yet with more than 2,000 ETFs now on offer, picking a few good ones can be daunting. More than a dozen funds track versions of the S&P 500 alone. Plus, scores of ETFs aim to beat the markets by carving out certain types of stocks or bonds, or by emphasizing things such as share-price momentum—anything to give them an edge over traditional indexes.

Whatever your goals, the portfolios below can serve as the bedrock of your investment program for years. Each basket features a broad mix of common stocks and bonds, all drawn from the Kiplinger ETF 20.

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Maximum growth

Growth portfolio graphic

If you have at least a decade to go before you need to tap your money, and you can tolerate some swings in the market, consider this growth portfolio. The overall mix of 80% stocks and 20% bonds utilizes a total of 10 of our favorite ETFs. The stock side includes core holdings, such as iShares Core S&P 500 (IVV) and iShares Core S&P Mid-Cap (IJH). But it gets a little oomph from a factor ETF that focuses on stocks with recently rising prices, iShares Edge MSCI USA Momentum Factor (MTUM). For some stability, we added Vanguard Dividend Appreciation (VIG), which invests in companies that have increased their dividend payouts year over year, as well as SPDR DoubleLine Total Return Tactical (TOTL), a core bond holding.

Fewer stocks, more yield

This portfolio, which holds 60% in stocks and 40% in bonds, isn’t too hot or too cold. Many investors with medium-term time frames—between five and 10 years—will find it just right.

If by chance you find this portfolio a little too tame, consider bumping up the exposure to stocks another 5 or 10 percentage points (to 65% or 70%), and trim the bond holdings by an equal amount. If it’s too hot, beef up the fixed income side of the portfolio by 5 or 10 percentage points.

Playing it safe(r)

Investors with short time horizons—fewer than five years—need to pull back on stocks and beef up on bonds. This portfolio does that by holding 60% in bonds and 40% in stocks. On the bond side, two of the ETFs—Pimco Active Bond (BOND) and SPDR DoubleLine Total Return Tactical—are actively managed and focus on intermediate-term debt issued in the U.S. A study by investment research firm Morningstar that compared actively managed funds against their index fund counterparts found that active managers of funds that focus on medium-term, high quality bonds had the best long-term success rate of all the fund categories scrutinized.

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Keeping It Simple

You don’t have to hold a lot of funds to get the job done. Just three ETFs fill this portfolio. We’ve designed it for moderate growth, with 70% in stocks and 30% in bonds, but you can ratchet up the stock exposure up or down, depending on your tolerance for risk or your stage in life. On the stock side, Vanguard Total Stock Market (VTI), which holds nearly all the stocks that trade publicly in the U.S., is paired with Vanguard Total International Stock Market (VXUS), which includes firms in developed and emerging countries. On the bond side, just one fund, SPDR DoubleLine Total Return Tactical, an actively managed ETF that invests in a variety of high-quality bonds.

See Also: 7 Dividend ETFs That Do It Differently