A lot of investors use bonds for one simple reason: to generate income with lower volatility than stocks. One of the most common ways to structure this is through a bond ladder.

A basic Treasury bond ladder might look something like this: an investor splits capital evenly across Treasury securities maturing in one, two, three, four and five years. As each rung matures, the proceeds can either be spent or rolled into a new five-year Treasury.

Bond ladders can help match future liabilities or spending needs, such as retirement withdrawals or tuition payments. They can also improve cash-flow planning and liquidity management because investors know exactly when principal is scheduled to return.

The issue is that building a ladder yourself can be cumbersome. For Treasuries, many investors use TreasuryDirect.gov, the U.S. government's platform for buying bonds directly. The website, however, has developed a reputation for its dated interface, clunky navigation and poor user experience.

Some investors may instead seek higher yields through corporate bonds issued by companies rather than the U.S. Treasury Department. While these can be purchased through brokerages, individual bond trading comes with its own challenges.

Unlike stocks, bonds largely trade over the counter rather than on centralized exchanges. Pricing can be opaque, spreads can vary significantly, and retail investors are often dealing with institutional bond desks that have more information. There is also more complexity involved. Looking at the coupon and current market price alone is not enough because bonds can trade above or below their face value.

Investors also need to understand metrics such as yield to maturity, which estimates the annualized return if the bond is held until maturity. Duration is another key concept. It measures interest rate sensitivity. All else equal, rising interest rates hurt bond prices while falling rates help them.

To simplify things, asset managers packaged bonds into exchange-traded funds (ETFs), that benefits such as monthly distributions, diversification and stock-like liquidity with transparent bid and ask pricing throughout the trading day.

Traditional bond ETFs, however, come with one major limitation. Most hold evergreen portfolios designed to maintain a constant maturity profile. As holdings age and fall outside the desired maturity range, they are replaced. That means investors cannot simply hold the ETF to maturity and automatically receive principal back the way they would with an individual bond.

To bridge this gap, ETF issuers launched target maturity bond ETFs. These income-building funds are designed to mature in a specific calendar year, similar to an individual bond, while still retaining the diversification, transparency and liquidity advantages of ETFs.

What is a target maturity bond ETF?

Target maturity bond ETFs are usually easy to identify because the maturity year is included directly in the fund's name. You will commonly see labels such as 2026, 2027, 2030 or 2040.

Unlike traditional bond ETFs, which hold an evergreen portfolio spanning many maturities, target maturity bond ETFs hold bonds designed to mature in the same calendar year. That structure makes them behave more similarly to an individual bond ladder.

When you buy one of these, you still receive the standard benefits of a bond ETF. The fund pays periodic monthly distributions rather than semi-annual coupon payments, and the ETF itself trades throughout the day with a net asset value (NAV) that fluctuates based on the value of the underlying bonds.

The key difference appears as the ETF approaches its maturity year. Instead of continuously replacing bonds to maintain a constant duration profile, the portfolio gradually winds down. The bonds mature, proceeds shift into cash and cash equivalents, and eventually the ETF itself liquidates.

From there, investors receive a final distribution based on the fund's NAV after liabilities. This process is designed to mimic the principal repayment of an individual bond at maturity. For example, according to BlackRock and its iShares iBonds lineup, an investor's total return (represented by yield to maturity) comes from two components:

1. Periodic monthly income distributions; and
2. The final end-date distribution upon ETF's termination.

These two components interact with each other. All else equal, if the ETF distributes more income along the way, the final payout tends to be smaller. Conversely, if periodic distributions are lower, more value remains for the end-date distribution.

For iShares specifically, most iBonds ETFs terminate toward the end of the designated maturity year, typically around October through December. Once the underlying bonds mature and the portfolio transitions to cash, the ETF is liquidated and shareholders receive the remaining NAV.

Importantly, target maturity ETFs can still vary substantially depending on the underlying bonds they hold. Most providers offer lineups for U.S. Treasuries and investment-grade corporate bonds, but some also offer high-yield bonds, municipal bonds and Treasury Inflation-Protected Securities (TIPS).

These categories differ in terms of credit quality, yield and volatility, allowing investors to tailor a bond ladder around their own risk tolerance. Even so, target maturity bond ETFs are still exposed to duration risk. A fund maturing in 2040, for example, will have a higher duration than one maturing in 2027.

That means changes in interest rates can still significantly impact the ETF's price before maturity. Falling rates can boost prices, while rising rates can hurt them. Matching the ETF's maturity profile to your actual time horizon for income needs remains important.

Finally, unlike owning an individual bond directly, you will pay an ongoing expense ratio. This annual fee is deducted from the fund's returns and directly reduces yield and total return over time.

For example, a target maturity ETF charging a 0.50% expense ratio would create roughly $50 in annual fee drag on a $10,000 investment. Since the 30-day SEC yield is quoted after expenses, keeping fees low is especially important for income-focused investors.

How we picked the best target maturity bond ETFs

Bond ladders are composed of multiple bonds with staggered maturities. The same principle applies when building one with target maturity bond ETFs. Because investors will typically need several ETFs rather than just one, it was not really practical to crown a single "best" ETF in this category.

In many cases, the primary distinguishing feature between funds is simply the maturity year itself. Instead, we chose to profile four of the largest providers in the space and focus on the part of each lineup that stood out the most.

1. For iShares, we focused on the iBonds Treasury target maturity bond ETFs.
2. For Invesco, we focused on its BulletShares high-yield target maturity bond ETFs.
3. For State Street, we focused on its MyIncome municipal bond target maturity ETFs.
4. For Vanguard, we focused on its investment-grade corporate bond target maturity ETFs.

For every ETF discussed, we also highlighted key metrics such as the 30-day SEC yield, expense ratio, assets under management and liquidity. For each provider, we also selected a group of ETFs that could hypothetically be combined into a three-year bond ladder suitable for an investor starting today.

Remember, this is simply an illustrative example designed to demonstrate how these ladders can be structured in practice. Actual portfolio construction will vary depending on an investor's time horizon, risk tolerance, income needs and interest rate outlook.

One advantage of this category is that many providers now offer dedicated ladder-building tools. For example, iShares offers an iBonds ladder calculator that helps investors estimate metrics such as weighted average yield to maturity and acquisition yield, while also showing how factors like premium or discount pricing and expense ratios affect expected returns.

iShares iBonds Treasury ETF Ladder

• iShares iBonds Dec 2027 Term Treasury ETF (IBTH)
• iShares iBonds Dec 2028 Term Treasury ETF (IBTI)
• iShares iBonds Dec 2029 Term Treasury ETF (IBTJ)

The Treasury component of the iShares iBonds lineup is notable for its low costs and strong liquidity. All three ETFs charge a 0.07% expense ratio, or $7 per year for every $10,000 invested, and each currently trades with a relatively tight 30-day median bid-ask spread of roughly 0.04% to 0.05%.

The funds are also well capitalized. IBTH currently holds $2.2 billion in assets under management, IBTI about $1.8 billion, and IBTJ roughly $1.3 billion. That scale materially reduces concerns around premature closure due to lack of investor interest. In terms of income, as of June 23, IBTH offered a 3.8% 30-day SEC yield, IBTI 4.0%, and IBTJ 4.0%.

U.S. Treasury securities held by these ETFs remain among the safest fixed-income instruments globally. While U.S. government debt has been downgraded from AAA to AA by some ratings agencies, Treasuries are still generally treated as effectively risk-free in practice from a default perspective.

Treasury interest also receives favorable tax treatment. Income from Treasuries is generally exempt from state and local taxes, whereas corporate bond income is typically taxed as ordinary income at both the federal and state level.

Learn more about IBTH, IBTI and IBTJ at the iShares iBonds provider site.

Invesco BulletShares High-Yield ETF Ladder

• Invesco BulletShares 2027 High Yield Corporate Bond ETF (BSJR)
• Invesco BulletShares 2028 High Yield Corporate Bond ETF (BSJS)
• Invesco BulletShares 2029 High Yield Corporate Bond ETF (BSJT)

High-yield corporate bonds, also known as junk bonds or non-investment-grade bonds, are bonds carrying ratings below BBB. Credit ratings are assessed by the three major agencies: S&P Global, Moody's and Fitch Ratings. Within the high-yield market, the highest-rated segment starts at BB, followed by single-B and then CCC or CC-rated securities lower down the spectrum.

These bonds carry materially higher credit risk than investment-grade debt. There is a greater possibility that issuers may fail to make coupon payments or repay principal at maturity. One way to measure this risk is through cumulative default rates.

According to S&P Global, BBB-rated bonds, the lowest rung of investment grade, historically showed a three-year cumulative default rate of just 0.91%. Move down to BB-rated bonds and that figure rises to 4.17%. For single-B bonds, it climbs further to 12.41%. At the CCC/CC level, the three-year cumulative default rate reaches 35.67%.

Investors are compensated for accepting that higher risk through materially higher yields. Currently, the Invesco BulletShares lineup offers sizable 30-day SEC yields: BSJR at 5.6%, BSJS at 5.7%, and BSJT at 6.5%. The longer maturities generally contribute to the higher yields in the later-dated funds.

Investors using the BulletShares high-yield lineup should also pay attention to fees and taxes. These ETFs charge a 0.42% expense ratio, which is reasonable for riskier credit exposure, but notably higher than Treasury or investment-grade target maturity ETFs.

Tax efficiency is another consideration. Because these ETFs hold corporate bonds, distributions are generally taxed as ordinary income at both the federal and state levels. For investors in higher tax brackets, particularly in states such as California and New York, this can materially reduce after-tax yield.

Liquidity is also worth monitoring. Under normal market conditions, these ETFs trade efficiently, but during periods of stress, high-yield corporate bonds can become materially less liquid than Treasuries. Investors should expect wider bid-ask spreads during periods of market turmoil.

Learn more about BSJR, BSJS, and BSJT at the Invesco BulletShares provider site.

State Street MyIncome Municipal ETF Ladder

• SPDR My2027 Municipal Bond ETF (MYMG)
• SPDR My2028 Municipal Bond ETF (MYMH)
• SPDR My2029 Municipal Bond ETF (MYMI)

For some investors, particularly those in higher tax brackets, tax efficiency can matter more than headline yield. Investment-grade corporate bonds are generally the least tax-efficient option discussed so far because their distributions are taxed as ordinary income at both the federal and state levels. Treasury bonds offer some improvement because interest is typically exempt from state and local taxes.

If your goal is avoiding federal income taxes while building a bond ladder, municipal bond ETFs may be more appealing. One option is the State Street MyIncome municipal bond lineup. A simple three-year ladder could be built by allocating evenly across MYMG, MYMH and MYMI.

These ETFs charge a 0.20% expense ratio, placing them roughly midway between the lower-cost iShares Treasury iBonds lineup and the more expensive Invesco BulletShares high-yield ETFs. Liquidity remains reasonable, as all three ETFs currently trade with 30-day median bid-ask spreads of 0.08%.

The funds are relatively new and currently modest in size, with MYMG and MYMH each holding just under $10 million in assets under management, while MYMI sits closer to $14 million. Despite the lower AUM, the risk of liquidation appears limited given State Street's scale, distribution network and brand recognition, which should support future inflows.

Headline 30-day SEC yields currently stand near 3% for all three target maturity bond ETFs. On the surface, those yields may appear lower than taxable Treasury or corporate bond ETFs, but municipal bond investors should instead focus on the tax-equivalent yield.

The tax-equivalent yield estimates the yield a taxable bond ETF would need to generate to match the already tax-free income from a municipal bond ETF. Using the highest marginal federal tax bracket, State Street estimates tax-equivalent yields of 4.8% for MYMG, 4.8% for MYMH, and 4.9% for MYMI.

Learn more about MYMG, MYMH and MYMI at the State Street MyIncome provider site.

Vanguard Target Maturity Corporate ETF Ladder

• Vanguard Target Maturity 2027 Corporate Bond ETF (VBCA)
• Vanguard Target Maturity 2028 Corporate Bond ETF (VBCB)
• Vanguard Target Maturity 2029 Corporate Bond ETF (VBCC)

Vanguard is one of the newest entrants to the target maturity bond ETF space, and so far, its lineup has focused exclusively on investment-grade corporate bonds. These are loans issued by companies rated at least BBB by the major credit agencies.

In practice, however, Vanguard's portfolios also carry substantial allocations to higher-quality A-rated debt, along with smaller allocations to AA and even some AAA-rated securities. Notably, only two U.S. companies currently maintain AAA credit ratings: Microsoft (MSFT) and Johnson & Johnson (JNJ).

In terms of yield, Vanguard's target maturity corporate bond ETFs generally sit between Treasuries and high-yield bonds of similar maturity. Currently, VBCA offers a 4.2% 30-day SEC yield, VBCB yields 4.4%, and VBCC yields 4.6%. The increase in yield across the ladder reflects the additional maturity risk investors take on with the later-dated ETFs.

This segment tends to sit in a "Goldilocks zone" for many investors. Compared to Treasuries, investment-grade corporate bonds provide meaningfully higher income. Compared to high-yield bonds, they carry materially lower default risk. That combination makes them more of a balanced, jack-of-all-trades option for ladder construction.

The trade-off is tax efficiency. Like other corporate bond funds, distributions are generally taxed as ordinary income at both the federal and state levels. While the yields are lower than high-yield bonds, taxation can still meaningfully reduce after-tax income in taxable accounts.

In classic Vanguard fashion, however, the lineup remains very inexpensive. All three ETFs charge a 0.08% expense ratio.

Learn more about VBCA, VBCB and VBCC at the Vanguard Target Maturity provider site.

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Here at Kiplinger, we want to ensure that you have the best financial advice at your fingertips — and that you can understand the specialized terminology often used for complex topics such as investing.

That's why we put together this short quiz to test your knowledge on a handful of key investing terms. Knowing what these words and phrases mean will help you stay a step ahead in those big decisions you have to make about what's in your portfolio and why.

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More on investing from the Kiplinger team:

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• Best Mutual Funds to Buy for 2026 and Beyond
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• What Is an Initial Public Offering (IPO)?
• What Is the Rule of 72 and How Can Investors Use It?
• Investing Jargon, Explained
• How Investors Can Use Cost Basis to Lower Their Tax Bill
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Many bond strategists are cautious about high-yield debt these days. It's fully valued, they say, relative to other pockets of the fixed-income market. But the Pimco 0-5 Year High Yield Corporate Bond ETF (HYS) has been a standout among exchange-traded bond funds in the Kiplinger ETF 20 in recent months.

HYS has held up well since the start of the year, and its 8.8% return over the past 12 months outpaced 59% of its high-yield bond fund peers, as well as the Bloomberg U.S. Aggregate Bond Index. (All returns are through April 30.)

The ETF's tilt toward short-term debt and its robust 6.4% yield helped. Pimco 0-5 Year High Yield boasts a short, two-year duration (a measure of interest rate sensitivity). That has been a plus in recent months as rates have inched up amid a multitude of worries, including the war in Iran and persistent inflation, says comanager David Forgash.

Bond prices and interest rates move in opposite directions; a two-year duration implies that if interest rates rise by one percentage point, the ETF's net asset value will fall by 2%. Sizable exposure to the energy sector, one of the top-performing junk sectors over the past year, has also been a boon.

HYS fund managers have a smart investing strategy

This Pimco ETF is technically an index fund, but its four comanagers combine proprietary quantitative models and the firm's big-picture views to actively select sectors and bonds for the portfolio to outperform the benchmark.

"It's about getting ahead of the market," says Forgash, adding they also "dig in deep," researching the securities they invest in to "avoid potential blowups."

Recently, the managers have been buying selectively in battered industries, including software, which cratered amid artificial-intelligence disruption worries, and building materials, which declined as rising construction costs and affordability concerns weighed on investor confidence in the sector earlier this year.

Over longer hauls, this short-term high-yield fund outpaces its peers. Its five-year return, 5.1% annualized, beat 92% of its competition.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Exchange-traded funds have been around for more than three decades, but if new fund launches are any clue, growth in the category is still strong. A record 1,490 exchange-traded products opened from the start of 2025 through April 2026 — bumping up the total of listed ETFs in the U.S. today to more than 5,100.

And investors are piling in. More than 15 of the newly minted ETFs each have more than $1 billion in assets already. “For a new fund to get even close to $1 billion in assets in its first year is rare,” says Todd Rosenbluth, head of research at TMX VettaFi, a data research firm that focuses on ETFs. Another 25 new ETFs are well on their way to that mark, with more than $600 million in assets each.

For that reason, we’re taking a closer look at several of the new ETFs that have gathered the most interest and what their launches might portend. To be clear, this story is meant to update you on trends in the ETF industry rather than to supply specific investment recommendations. The short track record of these new funds precludes us from making a call, at least for now. That said, a few show some promise, while others seem unlikely to become Kiplinger favorites. Returns and data are through April 30 unless otherwise noted.

Old strategies, new ETF wrappers.

Mutual-fund-to-ETF conversions are not new. But most have come from big fund firms, including Dimensional Fund Advisors, Fidelity and JPMorgan. Now boutique investment firms are choosing to go down this path. The trend points to the wider acceptance of ETFs as investors’ vehicle of choice.

The growth-stock mutual fund Akre Focus, for instance, fully converted to an ETF in October 2025 and now trades under the symbol AKRE. The mutual fund iteration was once a member of the Kiplinger 25, the list of our favorite actively managed no-load funds. In recent years, its rankings have slipped, and in step with other actively managed mutual funds, Akre Focus has seen a steady march of assets exit the fund.

The conversion was made to offer existing and prospective shareholders all of the benefits that come with an ETF structure: lower capital gains distributions, lower expense ratios and greater transparency. Instead of the mutual fund’s 1.32% expense ratio, for instance, the ETF charges 0.98%. And generally speaking, ETFs tend to be more tax-efficient than mutual funds because of the way ETF sponsors create and redeem shares, exchanging baskets of securities with specialized market makers instead of selling shares for cash. That means, relative to mutual funds, ETFs tend to generate fewer capital gains distributions to existing shareholders. (You still owe taxes on any gains you’ve made in the ETF when you sell your shares.)

Now comes news that venerated asset manager Primecap Management is finally embracing ETFs. The investment firm, which runs six mutual funds (three under the Primecap Odyssey banner and three with Vanguard), filed plans with regulators in early April to launch its first ETF, Primecap Odyssey Discovery. “If there was any doubt about where the puck is headed, consider it settled: Even Primecap is entering the ETF arena,” says Jeff DeMaso, editor of the newsletter The Independent Vanguard Adviser.

The new ETF will invest primarily in midsize-company stocks, according to the filing. The move acknowledges both that investors are shifting to ETFs, says DeMaso, and that “Primecap’s mutual funds have been throwing off capital gains as investors have been pulling their money from the funds. The ETF wrapper solves both problems.” We are awaiting key details about the ETF, including its symbol, expense ratio and who will be managing it.

Meanwhile, Primecap has just applied to regulators to issue ETF share classes of its existing Odyssey-branded mutual funds. We’re big Primecap fans. One of its mutual funds, Primecap Odyssey Growth, is a member of the Kiplinger 25. So we’ll be watching closely.

Primecap’s foray into ETFs comes after Dimensional Fund Advisors received the regulatory okay for DFA U.S. Micro Cap Portfolio ETF Class (DFMC), which was listed in March. It’s the firm’s first ETF share class of an existing mutual fund, in this case the 44-year-old, $7.3 billion mutual fund DFA U.S. Micro Cap Portfolio (DFSCX).

Tapping into money markets.

Better interest rates have attracted yield-starved investors to money market funds lately. It’s little surprise, then, that money market ETFs have recently materialized.

Eight exchange-traded money market funds have launched since February 2025. Among them are iShares Prime Money Market (PMMF), Schwab Government Money Market ETF (SGVT) and State Street Prime Money Market (MMK). These ETFs and their peers charge lower annual expense ratios — 0.21%, on average — than their mutual fund counterparts, which charge an average of 0.53%. And the ETFs yield more, too: 3.5%, on average, compared with 3.2% for the typical government money market mutual fund, according to Morningstar.

So far, demand for these ETFs has been driven by money managers and advisers, especially those that offer ETF-only portfolios, says TMX VettaFi’s Rosenbluth. “I think money market ETFs will gain in popularity,” he says, “but money market mutual funds are highly entrenched.” In other words, the mutual funds are unlikely to shed much in assets over the near term.

What explains, then, the billions of dollars already sitting in two particular new money market ETFs? ProShares GENIUS Money Market ETF (IQMM) has more than $22 billion in assets, and Simplify Government Money Market ETF (SBIL) holds $4.8 billion.

In both cases, the bulk of the assets represents cash positions of other funds run internally at each firm. Roughly 90% of the money in Simplify’s money market, for instance, is the cash sitting in Simplify’s 39 other ETFs. Similarly, the cash positions in ProShares’ 160-odd other ETFs make up a large chunk of the assets in ProShares’ money market ETF. “Instead of each fund managing its own cash holdings, that exposure is centralized in a single, conservative strategy,” says Mo Haghbin, the managing director of strategic products at ProShares.

But individual investors are starting to trickle in to the money market ETFs, too. For example, roughly 10% of the Simplify fund’s assets belong to individual investors, says James England, a Simplify portfolio manager and fixed-income strategist. The draw: a 3.6% yield and a low, 0.15% annual expense ratio. The ProShares money market ETF also charges 0.15% in fees, and it yields 3.5%.

You might be wondering about the “GENIUS” in the ProShares money market ETF name. The ETF is a typical government money market fund, in that it holds high-quality short-term U.S. Treasuries — hence its appeal to some individual investors. But it’s also designed for firms, such as Tether, Circle and Paxos, that issue and manage stablecoins, a type of cryptocurrency that is pegged to a more stable asset, such as the dollar.

Stablecoin issuers must meet certain thresholds for cash in reserve, as detailed in the 2025 GENIUS Act, and this ETF helps stablecoin issuers in that regard. “It’s the first money market ETF built for that purpose and is now the largest money market ETF in the world,” says Haghbin.

A hedge fund for everyone.

The slam-dunk success of a new hedge-fund ETF may point to a new chapter in opening up strategies once reserved for the wealthy to mom-and-pop investors.

State Street Bridgewater All Weather ETF (ALLW) marries State Street’s ETF trading prowess with the asset manager Bridgewater’s “all-weather” investment approach, designed to perform reasonably well in any economic environment.

Bridgewater makes the portfolio-allocation calls, deciding how much to devote to U.S. and foreign stocks, bonds and commodities, and State Street executes them. Over the past 12 months, the fund’s 24% total return outpaced 61% of its tactical-allocation fund peers. That’s a promising start; we’ll keep an eye on it until it has more of a track record.

Plenty of investors aren’t waiting; the fund has gathered $1.2 billion in assets since its March 2025 launch, making it the largest tactical-allocation ETF in the U.S. “A lot of advisers are interested in this product because they know Bridgewater. They’re getting access to a strategy they didn’t have access to earlier,” says Aniket Ullal, head of ETF research at CFRA Research.

Another options-linked option.

Calamos Autocallable Income ETF (CAIE) launched in June 2025 and already has more than $870 million in assets. For a new options-linked ETF strategy “to gather that much money that fast is pretty successful,” says Rosenbluth. The ETF’s distribution rate hovers in the mid-teen percentages, and the fund charges 0.74% in annual expenses.

The fund invests in autocallable yield notes. An autocallable note generates income in a strategy that employs options, typically linked to a market index. The note will pay a high rate of interest (the coupon rate) as long as the market benchmark doesn’t crash. “Think of it like a bond whose income and principal depend on the stock market not falling too far,” says Matt Kaufman, a senior vice president and head of ETFs at Calamos.

But there are conditions. If the stock index plummets below a certain threshold, you’ll lose the monthly coupon payments until the bogey recovers, surpassing the threshold on the way up. If, after a set period, the benchmark outstrips its starting value, the note is “autocalled” and paid off early, with your principal returned.

But in the Calamos fund, multiple notes with varying maturities help smooth out this dynamic; any returned principal is automatically reinvested. The fund invests in a weekly ladder of at least 52 autocallable yield notes, each expiring in five years. “Every week, you’re issuing a new note. The fund’s coupon rate can’t go to zero,” Kaufman says.

In a steeper, prolonged market decline, your principal is at risk, but again, the fund holds multiple notes, and the stock market loss would have to be sizable, says Kaufman — akin to the Global Financial Crisis, when the S&P 500 lost 57% in price from peak to trough.

It’s early days. The Calamos ETF is a compelling income strategy, but it’s a complex one for individual investors. There are six other listed autocallable ETFs, and more are likely to come. We’ll be watching from the sidelines for now.

A basket of crypto.

Finally, for those with a speculative streak and a sky-high tolerance for risk: Instead of pinning your star toa fund that holds just a single cryptocurrency, you can buy an ETF of multiple cryptocurrencies and thus potentially lower the risk that comes with investing in just one of these notoriously volatile digital assets.

“These multi-coin ETFs represent the natural evolution of the crypto-ETF universe,” says CFRA’s Ullal, and offer investors the opportunity to move beyond bitcoin and ethereum.

Well, kind of. Take Bitwise 10 Crypto Index (BITW), new in ETF form since December 2025 (it was previously a closed-end trust). It holds the 10 largest cryptos weighted by market value, as determined by Bitwise. But it’s heavy in bitcoin (78% of assets) and ethereum (14%). Other multi-coin ETFs exist, but after Bitwise 10, which has $756 million in assets at last report, the next-largest multi-crypto ETF is Hashdex Nasdaq Crypto Index US ETF (NCIQ), with $109 million in assets.

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A practical way to think about artificial intelligence (AI) investing is to break down the value chain and identify bottlenecks, when demand exceeds available capacity.

These imbalances matter because companies controlling the constrained part of the ecosystem often gain pricing power and experience surging demand.

If you're an investor, you probably know by now about several bottlenecks emerging from the AI boom. Electricity demand, for example, has turned utility stocks into indirect AI plays because they generate and transmit the electricity that powers data centers.

Data-center demand leads data center supply right now, too, a trade expressed through certain real estate investment trusts (REITs) that own and lease these facilities to hyperscalers and enterprise customers.

The most obvious bottleneck, however, remains semiconductors. Modern computing is built on them, and AI systems require enormous quantities of advanced chips capable of handling parallel processing and large-scale data movement.

That said, the semiconductor industry itself is highly diverse. Some companies design chips, others manufacture them, while others focus on fabrication equipment, memory, networking or analog components.

Depending on which type of semiconductor company you own, you might be exposed to very different risks, ranging from geopolitical tensions and manufacturing bottlenecks to cyclical swings in consumer electronics demand.

If you're looking to capitalize on the broad drivers behind AI infrastructure spending, semiconductor ETFs can simplify the process of establishing more concentrated but still efficient exposure to chipmakers.

The types of semiconductor stocks

The semiconductor industry is a broad category with big variations between business models, risks and sources of revenue.

One of the most recognizable groups are chip designers, which develop architecture and intellectual property but often outsource manufacturing to third-party foundries. Examples include Nvidia (NVDA), Advanced Micro Devices (AMD) and Broadcom (AVGO).

Fabrication companies, or "fabs," manufacture chips at extraordinarily expensive and technology demanding foundries. Taiwan Semiconductor Manufacturing (TSM) is the dominant pure-play foundry, while Intel (INTC) both designs and manufactures chips through its integrated model.

Memory semiconductor companies specialize in products such as DRAM and NAND flash memory, critical for servers, AI accelerators, smartphones and data centers. Examples include SK Hynix and Micron Technology (MU).

Semiconductor equipment companies, which make the specialized tools and machinery needed to fabricate chips, sit even higher up the value chain. The standout company here is ASML Holding (ASML).

How we chose the best semiconductor ETFs

We began by excluding ETFs tied to single stocks, including leveraged long and inverse ETFs linked to companies such as Nvidia, along with covered call income variants advertising double-digit yields.

These products are ultimately tied to the fortunes of one company rather than the semiconductor industry, they cost more, they're more volatile and they're more complex, making them less suitable for the average long-term investor.

We also excluded leveraged, inverse and income-oriented semiconductor ETFs tied to the broader industry itself because of concerns around volatility, leverage decay and elevated fees.

That screening process narrowed the universe down to traditional semiconductor ETFs, either actively managed or index-tracking. From there, we imposed a maximum expense ratio of 0.35%.

We also applied several practical filters designed to improve the investor experience. First, we required ETFs to hold at least $100 million in assets under management.

Second, we screened for liquidity by focusing on each ETF's 30-day median bid-ask spread. To qualify, spreads needed to remain at or below 0.15%. This helps reduce implicit transaction costs when buying or selling shares.

The end result was a smaller group of semiconductor ETFs that combined broad industry exposure, reasonable fees, sufficient scale and adequate trading liquidity.

VanEck Semiconductor ETF

• Assets under management: $67.9 billion
• Expense ratio: 0.35%
• 30-day median bid-ask spread: 0.02%
• One-year annual return: 137.4%

By assets under management, the VanEck Semiconductor ETF (SMH) is the largest and most widely used semiconductor ETF on the market. Since debuting in December 2011, it's also been one of the strongest-performing ETFs, including a 36.9% annualized total return over the trailing 10 years.

SMH tracks the MVIS US Listed Semiconductor 25 Index, which focuses on the largest and most liquid semiconductor companies. The portfolio uses a market cap-weighted methodology, meaning larger companies receive larger allocations.

Historically, this approach has worked well for SMH. By allowing dominant large-cap stocks to appreciate without aggressively capping their weights, the ETF has fully benefited from the outsize gains generated by the industry's biggest winners.

That dynamic is most visible with Nvidia. The leader of the AI revolution accounts for more than 15% of SMH's portfolio. While this concentration has materially boosted returns, it also creates a meaningful degree of single-stock risk for new investors entering today.

Risk is another important consideration. Relative to the S&P 500, SMH carries a three-year beta of 1.93 and a three-year standard deviation of 30.5%. In practical terms, that means the ETF has historically been substantially more volatile than the broader stock market.

Still, for investors primarily seeking exposure to the largest and most influential semiconductor companies, and who are comfortable with a sizable NVDA allocation, SMH remains one of the purest and most liquid ways to express that view.

Learn more about SMH at the VanEck provider site.

VanEck Fabless Semiconductor ETF

• Assets under management: $280.5 million
• Expense ratio: 0.35%
• 30-day median bid-ask spread: 0.10%
• One-year annual return: 118.5%

The VanEck Fabless Semiconductor ETF (SMHX) exists because some semiconductor investors are uncomfortable with fabrication-related supply chain and geopolitical risk. Much of this concern is about Taiwan Semiconductor Manufacturing.

Taiwan's political status remains disputed under China's reunification policy, and investors periodically worry that geopolitical tensions in the region could disrupt semiconductor supply chains. Since many leading chip designers depend heavily on TSM fabrication capacity, this concentration risk has become an increasingly important consideration for the industry.

Fabrication businesses also tend to be highly asset intensive. Building and maintaining fabs requires enormous upfront capital expenditures, ongoing equipment upgrades and substantial energy and water usage. This can create margin pressure during downturns and increase operational risk.

To address investor demand for fabless exposure, SMHX focuses specifically on semiconductor companies that design chips but outsource manufacturing.

Compared with SMH, the portfolio composition looks materially different. According to ETF Research Center data, the overlap between SMHX and SMH is roughly 45% by weight across 10 holdings.

That means investors are either underweight or entirely excluding companies such as TSM, Intel, Micron, Texas Instruments (TXN), Analog Devices (ADI) and Lam Research (LRCX). In exchange, the ETF leans more heavily into designers and intellectual property-focused firms such as Broadcom, Arm Holdings (ARM) and Lattice Semiconductor (LSCC).

Since launch, SMHX has trailed SMH because fabrication-related companies have generally outperformed during the recent AI-driven semiconductor boom. Investors should still expect concentration risk, however. Nvidia remains roughly 13.9% of the ETF's assets, followed by Broadcom at 10.8%.

Learn more about SMHX at the VanEck provider site.

iShares Semiconductor ETF

• Assets under management: $39.0 billion
• Expense ratio: 0.35%
• 30-day median bid-ask spread: 0.02%
• One-year return: 164.6%

Most semiconductor ETFs are going to have substantial overlap because the industry itself is only so large. However, the weightings can differ materially depending on the benchmark index each ETF tracks.

That distinction becomes very apparent with the iShares Semiconductor ETF (SOXX), which competes directly against SMH while charging the exact same 0.35% expense ratio. SOXX is the older product, debuting in July 2001, though it remains somewhat smaller than SMH despite still managing tens of billions in assets.

The ETF tracks the NYSE Semiconductor Index, which holds 30 U.S.-listed semiconductor companies screened for liquidity and size. The major difference comes down to weighting methodology. Compared with SMH, SOXX spreads allocations more evenly across its largest holdings.

Instead of a very large overweight to Nvidia, the top positions are distributed more broadly among companies such as Micron Technology, Advanced Micro Devices, Broadcom, Intel and Nvidia itself. The portfolio is still concentrated overall, but the weighting structure reduces the risk of a single company completely dominating performance.

Another reason some investors might prefer SOXX relates to tax-loss harvesting. Because SOXX and SMH have similar historical performance, comparable fees and overlapping holdings, investors can potentially swap between them to realize capital losses without materially changing exposure.

Because the ETFs track different indices, an investor could theoretically sell one and immediately purchase the other without triggering the wash sale rule, avoiding the need to wait 31 days out of the market.

Learn more about SOXX at the iShares provider site.

State Street SPDR S&P Semiconductor ETF

• Assets under management: $3.4 billion
• Expense ratio: 0.35%
• 30-day median bid-ask spread: 0.15%
• One-year total return: 154.2%

The preceding semiconductor ETFs all use some variation of market-cap weighting, sometimes with additional adjustments for liquidity and free float. That approach has historically worked well in semiconductors because the industry exhibits a very large degree of performance dispersion.

Being able to identify the winner and allow it to compound into a larger position can materially boost returns. The downside is concentration risk.

Investors entering near the later stages of a semiconductor bull market can find themselves heavily exposed to a small number of companies. During downturns, that same concentration can amplify losses. A more balanced approach can be expressed through the State Street SPDR S&P Semiconductor ETF (XSD).

This ETF tracks the S&P Semiconductor Select Industry Index, an equal-weighted benchmark currently composed of 44 holdings. Equal weighting means each company receives roughly the same allocation regardless of whether it's a small-cap, midcap or large-cap semiconductor stock.

The portfolio is rebalanced quarterly, which systematically trims outperformers and reallocates capital toward laggards. In practice, this creates a "sell high, buy low" mechanism, and XSD's largest holdings are often the hottest chip stocks.

However, those weights aren't permanent. At the next quarterly rebalance, stronger-performing holdings will be trimmed back toward equal allocations, while laggards will be added to.

This structure can appeal to investors seeking lower concentration risk and broader exposure across the semiconductor ecosystem. The trade-off is that it limits the ability of major winners to compound into outsized positions.

Over the trailing 10-year period, XSD still delivered an impressive 29.8% annualized total return, though it lagged more concentrated ETFs such as SMH because the largest winners weren't allowed to run.

Still, past performance doesn't predict future results. For investors more concerned about excessive dependence on a handful of megacap chipmakers, XSD might be a more balanced way to gain semiconductor exposure.

Learn more about XSD at the State Street Investment Management provider site.

Invesco PHLX Semiconductor ETF

• Assets under management: $2.5 billion
• Expense ratio: 0.19%
• 30-day median bid-ask spread: 0.03%
• One-year total return: 157.4%

Investors might have noticed that most of the previous semiconductor ETFs charge a 0.35% expense ratio. That's largely a function of how industry-specific ETFs have historically been priced.

A major reason for this is the influence of State Street Investment Management, which built one of the largest lineups of industry ETFs in the market. Over time, 0.35% effectively became the standard pricing level investors grew accustomed to paying for specialized industry exposure.

Some ETF providers, however, have attempted to compete more aggressively on fees. In semiconductors, one of the lowest-cost options currently available is the Invesco PHLX Semiconductor ETF (SOXQ), which charges a 0.19% expense ratio.

For a $10,000 investment, that translates into roughly $19 annually in fee drag vs approximately $35 for many competing semiconductor ETFs.

SOXQ tracks the PHLX Semiconductor Sector Index, which holds 30 of the largest U.S.-listed semiconductor companies. The index is rebalanced quarterly in March, June, September and December, with a full annual reconstitution each September.

Rebalancing and reconstitution are related but different processes. Rebalancing adjusts the weights of existing holdings back toward the index methodology, while reconstitution determines which companies are added to or removed from the index entirely based on eligibility rules.

Like SOXX, SOXQ is materially less concentrated than SMH, but it achieves this without relying on the equal-weighted structure used by XSD. The portfolio's largest holdings include Nvidia, Micron Technology, Broadcom and Intel, with each remaining at or below roughly a 10% portfolio allocation.

Learn more about SOXQ at the Invesco provider site.

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2026 could be the biggest year ever for initial public offerings (IPOs), with high-profile private companies SpaceX, Anthropic and Databricks among numerous super-sized upcoming IPOs expected to hit the markets over the coming months.

If you're a stock investor looking for fresh meat to sink your teeth into, 2026 is a veritable Fogo de Chão.

But even if most or all of your money is wrapped up in low-cost index funds and you have no real hunger for these shares, you still might be digesting a considerable slice of some of these and other potential mega-cap IPOs.

And depending on which funds you own, that day might be coming sooner rather than later.

How index funds pick stocks

Index investing is a simple concept. An index is a hypothetical portfolio of stocks built by a set of rules. And an index fund "tracks" that index by owning the same companies in the same weights as that index dictates.

But the rules can be complex and numerous — not just in niche indexes that carve up far-flung corners of the market, but even in ubiquitous indexes such as the S&P 500.

A common misconception is that the S&P 500 represents the 500 largest U.S. companies. Not so. It's 500 of the largest companies, all of which have met a much more exhaustive set of selection criteria than most people realize. Here's what the S&P 500 looks for in prospective components:

On that final point: the S&P 500 ultimately is not 100% governed by a set of rules. A selection committee ultimately makes calls on which stocks enter and exit the indexes.

Which stocks are eligible are determined by the rules, but the U.S. Index Committee can and does review those stocks, and can even make exceptions for stocks that otherwise wouldn't make the cut. This isn't specific to the S&P 500, either — this applies to a host of S&P Dow Jones indexes.

The U.S. Index Committee can also choose to revise index rules over time, so yesterday's rules might not necessarily apply tomorrow. For instance, they've raised the minimum market cap several times throughout the S&P 500's history.

Most other fund providers don't employ an individual-stock level of human review in their index funds. But they absolutely can use index rule changes to give them the flexibility they need to own mega-cap IPOs … and several have done just that ahead of the SpaceX IPO.

Will SpaceX be in your index fund? Well …

Elon Musk's SpaceX (SPCX) is expected to join the public markets later this week in what will likely be the biggest IPO ever. And many believe that its offering will value the aerospace manufacturing company at $1.75 trillion.

If the SpaceX IPO were most other offerings, we wouldn't expect it to show up in the low-cost funds in your portfolio for at least a couple of months. That's because many indexes have seasoning rules like the S&P 500's that prohibit companies from quickly joining.

This gives IPO companies time to meet liquidity and float thresholds. It also ensures index fund shareholders don't suffer if insiders sell shares in droves when the company's lockup period expires, which is usually 90 to 180 days after the IPO.

But most index providers have "fast-track" or "fast-entry" rules that allow them to waive that requirement, typically for massive IPOs where demand is expected to be high regardless of the risk.

"Fast-entry rules are important because they allow rules-based passive ETFs to keep pace with the market," says Tejas Dessai, director of Thematic Research at Global X, whose Global X NYSE 100 ETF (NYSX), a mega-cap fund, and Global X Space Tech ETF (ORBX), a space fund, have fast-track allowances. "When a major private company becomes public, investors should not necessarily have to wait months for that exposure to appear in a relevant ETF."

Importantly, SpaceX and other offerings would have to meet those indexes' other eligibility rules, Dessai says.

Among the major index makers with fast-track rules?

• Nasdaq recently changed its rules to allow IPOs to join an index as soon as 15 days after listing. That's expected to allow SpaceX to join the Nasdaq-100 Index — the largest 100 non-financial companies on the Nasdaq exchange. If so, owners of Invesco QQQ ETF (QQQ) and its smaller, more cost-effective cousin, Invesco Nasdaq 100 ETF (QQQM), would own a slice of SPCX.
• FTSE Russell updated its methodology to allow companies to join some of its indexes after just five trading days. Funds like the iShares Russell 1000 ETF (IWB) and iShares Russell 1000 Growth ETF (IWF), then, could add shares quickly.
• The Center for Research in Security Prices (CRSP), which already had fast-track rules in place, recently relaxed its float requirement, and new IPOs are eligible for inclusion after just five trading days. That puts the likes of Vanguard Total Stock Market Index Fund ETF (VTI) and Vanguard Growth ETF (VUG) into play.

But far more noteworthy is where S&P Dow Jones Indices didn't loosen up the rules: the S&P 500.

SpaceX is only making a sliver of its overall shares available in its public offering; its float is expected to be about 4% of shares outstanding, which is well below the S&P 500's threshold. SpaceX is also deeply unprofitable, posting a net loss of $4.3 billion during Q1 2026. Add in the 12-month IPO seasoning period, and that's a clear strikeout.

S&P Dow Jones Indices recently reviewed potential changes to several of its indices. It actually let through a few — it relaxed the float rules on a few products with fast-track allowances, most notably the S&P Total Market Index, which anchors the iShares Core S&P Total U.S. Stock Market ETF (ITOT).

However, it kept its float, profitability and seasoning criteria in place for the S&P 500, as well as the S&P MidCap 400, S&P SmallCap 600, and S&P Composite 1500.

That means if you hold any of the S&P 500 ETFs — Vanguard S&P 500 ETF (VOO), iShares Core S&P 500 ETF (IVV), State Street SPDR S&P 500 ETF Trust (SPY), State Street SPDR Portfolio S&P 500 ETF (SPYM) — you won't be holding any fraction of SpaceX stock for at least a year.

The same goes if you own S&P 500 tracking index mutual funds, or even funds that are indirectly tethered to the S&P 500, such as State Street's sector funds.

And we can expect similar fates for Anthropic, OpenAI and other mega-cap listings that are expected to offer small slivers of their total outstanding shares in their IPOs.

How much SpaceX am I about to own?

The good news — at least for anyone worried about the prospects of SpaceX taking over their portfolio — is that in many cases, SPCX might not enjoy a significant weight in your fund.

Not right away, anyway.

Again, SpaceX is expected to fetch a $1.75 trillion valuation. For perspective, $1.9 trillion chipmaker Broadcom (AVGO) is a top-10 holding in Vanguard's VTI, accounting for almost 3% of the index's weight. That's a massive amount of influence relative to all but a handful of VTI's 3,500 components — and by pure market cap alone, SpaceX would qualify for pretty similar treatment.

However, many index funds (including VTI) are "float-adjusted," which means weights aren't assigned based on total market cap, but the market cap based on the float.

So even though SpaceX would be a $1.75 trillion company, many index funds that include it would have to treat it like a $70 billion company. In Vanguard's total-market ETF, then, SPCX would enjoy a similar weight as $73 billion retailer Ross Stores (ROST) — currently the 157th-largest stock in VTI, accounting for about 0.1% of its assets.

That could change. Morningstar's Dan Lefkovitz points out that "by the end of the lockup period, it's typical for a company's free float to rise to 50% to 60% of its overall value. As the float increases, so will the stock's weighting in the indexes." Which means in a few months, your fund could end up owning a greater share of SPCX … even if the company's value shrinks.

And remember: Different funds have different weighting methodologies. So, whether you're concerned or excited about the prospect of owning SpaceX and/or other mega-cap IPOs in your index fund, now's a good reminder to go to the fund's provider page and look at its fact sheet and prospectus.

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Mutual funds are steadily losing ground to exchange-traded funds (ETFs). But one category has remained surprisingly resilient: money market funds. It's basically about stability and liquidity.

Still, one corner of the ETF market has increasingly begun to challenge the traditional money market fund moat: ultra-short bond ETFs.

Prices of ultra-short bond ETFs fluctuate modestly based on changes in interest rates and the underlying value of their holdings.

But they remain among the most conservative categories in the ETF universe due to their focus on short-duration, high-quality fixed-income securities.

These ETFs can also offer advantages in intraday liquidity and portfolio transparency, as well as fees and yields.

At the same time, differences in expense ratios, credit quality, duration and portfolio construction can materially affect both risk and return.

What is an ultra-short bond ETF?

An ultra-short bond ETF is a publicly traded investment vehicle whose underlying portfolio comprises fixed-income securities with very low interest rate sensitivity.

That sensitivity is measured through duration, which is a metric that estimates how much a bond ETF's net asset value (NAV) will change in response to movements in interest rates, all else being equal.

Ultra-short bond ETFs don't maintain a fixed $1 NAV as money market funds do, so there's still some principal risk. In practice, price fluctuations tend to be modest.

Duration is an important factor to consider amid persistent uncertainty about inflation. When inflation surged in 2022 and central banks rapidly raised rates, many investors discovered that long-duration bond funds could experience large losses.

The exact definition of "ultra short" varies among providers, but generally refers to bond ETFs maintaining an average effective duration of under one year.

Many ultra-short bond ETFs focus on investment-grade securities, while others venture into non-investment-grade or high-yield bonds, also known as junk bonds, to generate higher yields. Some focus on Treasuries.

These differences matter because the issuer type and credit quality of the underlying bonds directly affect both yield and tax efficiency.

In general, corporate bonds yield more than government bonds of comparable maturity because investors demand additional compensation for accepting higher default risk.

However, corporate bond income is generally taxed as ordinary income at both the federal and state level, whereas Treasury interest is typically exempt from state and local taxes.

These two variables, duration and credit quality, are the two main levers managers pull to adjust risk and return. Even with just those two inputs, there are a surprising number of combinations possible.

How we picked the best ultra-short bond ETFs

To ensure we were truly evaluating ultra-short bond funds, we screened all candidates to confirm they maintained an average portfolio duration of one year or less.

From there, we focused heavily on fees. Most ultra-short bond ETFs will produce returns somewhere around prevailing short-term interest rates, perhaps with a modest premium depending on how much credit risk the manager is willing to assume.

That makes fees particularly important. Remember, 30-day SEC yields are quoted after deducting the expense ratio. Every additional basis point charged reduces investor returns.

As a result, we imposed a maximum expense ratio of 0.25% annually. For a $10,000 investment, that works out to no more than roughly $25 per year in fee drag.

We also considered fund size. The ultra-short bond ETF category has become increasingly crowded in recent years, and not every product launched will survive long term. We required every ETF to maintain at least $1 billion in assets under management.

Finally, we required all eligible ETFs to maintain a 30-day SEC yield above the current range for the federal funds rate of 3.50% to 3.75%.

Note that these are pre-tax yields. Because many ultra-short bond ETFs hold corporate paper, after-tax returns might be materially lower depending on your income bracket and state of residence.

Vanguard Ultra-Short Bond ETF

• Assets under management: $8.3 billion
• Average duration: 1.0 years
• Expense ratio: 0.10%
• 30-day SEC yield: 4.3%

The Vanguard Ultra-Short Bond ETF (VUSB) is one of Vanguard's few actively managed ETFs. While Vanguard is best known for low-cost passive indexing, the firm has made significant inroads into active fixed-income management.

Fixed income is one area where active management can potentially add more value than in equities because the bond market is more fragmented, less transparent and largely traded over the counter rather than through centralized exchanges.

Active managers can potentially exploit pricing inefficiencies, liquidity dislocations and relative value opportunities.

VUSB's mandate is to maintain a dollar-weighted average maturity between zero and two years while investing in a diversified portfolio of high-quality short-term bonds. The portfolio includes asset-backed securities, Treasurys and investment-grade corporate bonds.

Vanguard currently rates the ETF a "one out of five" on its internal risk and reward scale. Even so, the firm emphasizes that VUSB shouldn't be viewed as a direct substitute for a money market fund because the ETF still carries some degree of principal risk.

In practice, however, that volatility has historically remained fairly limited when viewed over longer periods. The combination of short-duration and high-quality underlying securities has helped keep price fluctuations relatively modest.

Learn more about VUSB at the Vanguard provider site.

iShares Ultra Short Duration Bond Active ETF

• Assets under management: $7.5 billion
• Average duration: 0.8 years
• Expense ratio: 0.08%
• 30-day SEC yield: 4.1%

The iShares Ultra Short Duration Bond Active ETF (ICSH) is one of the primary competitors to VUSB. Its issuer, BlackRock, ranks alongside Vanguard among the two largest ETF providers globally by total assets.

Like VUSB, ICSH is actively managed and designed to provide relatively conservative short-duration fixed-income exposure. BlackRock has undercut Vanguard on fees in this category by two basis points.

The portfolio spans 242 bonds and maintains an investment-grade mandate. In practice, roughly 45% of the portfolio is allocated to A-rated bonds, while AA-rated securities represent the second-largest allocation at 36.8%. This differs somewhat from VUSB, which maintains somewhat greater exposure to BBB-rated securities.

The higher average credit quality of ICSH helps reduce credit risk, but it also modestly lowers yield potential. Even so, because the ETF still maintains meaningful exposure to corporate paper, its yield remains comfortably above the upper end of the current range for the federal funds rate.

Learn more about ICSH at the iShares provider site.

PGIM Ultra Short Bond ETF

• Assets under management: $16.2 billion
• Average duration: 0.4 years
• Expense ratio: 0.15%
• 30-day SEC yield: 4.2%

Investors willing to look beyond the large providers such as Vanguard and BlackRock might find compelling alternatives in the ultra-short bond space, including PGIM Ultra Short Bond ETF (PULS).

PULS follows a fairly straightforward strategy. Like VUSB and ICSH, it's actively managed and seeks to outperform the ICE Bank of America (BofA) U.S. Three-Month Treasury Bill Index. Historically, it's generally been able to do this because, unlike the benchmark, PULS is not confined solely to Treasurys.

The portfolio spans a range of short-duration fixed-income instruments. Corporate paper currently makes up a substantial portion of holdings, but the ETF also allocates meaningfully to asset-backed securities, commercial paper, floating-rate corporate notes, mortgage-backed securities, collateralized mortgage obligations and even foreign certificates of deposit.

Despite these somewhat exotic exposures, overall credit quality remains fairly strong. The ETF's largest allocation currently sits in AAA-rated securities at roughly 34% of assets, while the remainder is relatively evenly distributed among AA-, A- and BBB-rated holdings.

Morningstar has also viewed the ETF favorably, awarding it a Gold Medalist Rating. This rating reflects Morningstar's forward-looking assessment of a fund's likelihood of outperforming peers on a risk-adjusted basis over time.

Learn more about PULS at the PGIM provider site.

JPMorgan Ultra-Short Income ETF

• Assets under management: $38.1 billion
• Average duration: 0.8 years
• Expense ratio: 0.18%
• 30-day SEC yield: 4.1%

JPMorgan Asset Management is perhaps best known among ETF investors for its derivative-income products and actively managed equity strategies. However, the firm also offers several tools geared toward more conservative investors.

Chief among them is the JPMorgan Ultra-Short Income ETF (JPST), which has accumulated more assets under management than both VUSB and ICSH combined.

JPST is also actively managed. The portfolio includes just under 800 bonds, concentrated in investment-grade corporate debt, with some exposure to certificates of deposit and asset-backed securities. Credit quality is concentrated in A- and BBB-rated issues, with AAA-rated securities representing the third-largest allocation.

JPST is more expensive than VUSB, ICSH and PULS, though the difference remains fairly modest in absolute terms.

As it has for PULS, Morningstar has assigned JPST a Gold Medalist Rating, reflecting its conviction that the ETF is well positioned to outperform peers on a risk-adjusted basis over the long term.

Learn more about JPST at the JPMorgan provider site.

Invesco Ultra Short Duration ETF

• Assets under management: $3.5 billion
• Average duration: 0.6 years
• Expense ratio: 0.22%
• 30-day SEC yield: 4.2%

By now, the general structure of ultra-short bond ETFs should look familiar. Most tend to be actively managed, maintain investment-grade mandates and possess broad flexibility to allocate across different types of short-duration fixed-income securities.

The Invesco Ultra Short Duration ETF (GSY) is a good example of this structure in practice. The ETF currently holds just under 400 securities. Roughly 43% of the portfolio is allocated to A-rated bonds, with the remainder spread relatively evenly across BBB-, AA- and AAA-rated securities.

Invesco also provides detailed sector breakdowns for the portfolio. One thing investors will notice is that many of the underlying bonds are issued by companies in the financial and industrial sectors, alongside additional exposure to asset-backed and mortgage-backed securities.

One factor holding GSY back is cost. While the ETF is not excessively expensive in absolute terms, its 0.22% expense ratio is nearly three times higher than ICSH and more than double that of VUSB. That difference matters in the ultra-short bond category because yields are already relatively modest to begin with. Every additional basis point of fees directly reduces investor income.

Still, despite the higher fee structure, GSY's 30-day SEC yield remains broadly competitive with many of the other ultra-short bond ETFs profiled here. For investors seeking another actively managed option with diversified short-duration exposure, it remains a viable alternative.

Learn more about GSY at the Invesco provider site.

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Market volatility is the norm in 2026, with political uncertainty and inflationary pressures defining price moves in the first half of the year. History shows that long-term wealth is not built by reacting to these short-term headlines; rather, it's built by maintaining disciplined exposure to high-quality assets that can grow your nest egg over time.

Instead of choosing assets based on your prediction of where the price action might go next, the wiser approach for long-term investors is to seek out those with a history of durable growth and stability regardless of the market environment.

The following investments include a mix of stocks and exchange-traded funds (ETFs) that stand out as compelling options for investors wanting to navigate the current market turbulence and build a portfolio that's positioned for long-term success.

Vanguard S&P 500 ETF

• Type: Domestic index fund
• Assets under management: $1.60 trillion
• 10-year average annual total return: 15.6%

The Vanguard S&P 500 ETF (VOO) is a simple but incredibly effective buy-and-hold investment. Like other S&P 500 ETFs, the VOO tracks the performance of the broad-market index, giving investors low-cost exposure to 500 of the largest publicly traded U.S. companies.

This broad diversification allows investors to participate in the long-term growth of the U.S. economy without having to buy individual stocks. The large-cap nature of the S&P 500 also ensures there are no risky start-ups included in VOO's holdings, and all are established companies with sizeable operations.

With an ultra-low expense ratio of just 0.03%, or $3 on every $10,000 invested, investors don't have to worry about sacrificing gains to management fees. Since the stock market always trends up when you measure in years and decades instead of weeks or months, there's a strong likelihood that this fund will ride out the noise and deliver gains no matter what happens in the second half of 2026 and beyond.

Vanguard Total International Stock ETF

• Type: International Index fund
• Assets under management: $606.0 billion
• 10-year average annual total return: 9.8%

While many U.S. investors maintain an outsize allocation to domestic assets, international exposure remains an important component of a well-balanced long-term portfolio.

That's particularly true now when it seems that America's global leadership is shifting as a result of weakening relationships with traditional allies and the rise of China as a world economic superpower.

The Vanguard Total International Stock ETF (VXUS) provides exposure to roughly 8,800 companies across developed and emerging markets — and no holdings within the U.S. This makes VXUS a valuable buy-and-hold investment for investors looking for an alternative to domestic stocks, as well as for those who want to layer on some geographical diversification via a single holding.

VXUS is a member of the Kiplinger ETF 20, our favorite exchange-traded funds.

Japan is the current country leader in VXUS with about 15% of assets, followed by the U.K. and Canada at around 8% of assets apiece. Asia is also well represented, with top holdings that include Taiwan's Taiwan Semiconductor Manufacturing (TSM) and South Korea's Samsung Electronics (SSNLF).

This broad exposure provides peace of mind for investors who don't want to place bets on which local economy is in favor, with VXUS providing access to the entire world of global stocks.

Health Care Select Sector SPDR Fund

• Type: Healthcare sector fund
• Assets under management: $606.0 billion
• 10-year average annual total return: 9.8%

Healthcare has long been regarded as one of the market's most defensive and dependable sectors, particularly during periods of economic uncertainty. People will keep buying medication or visiting the hospital regardless of broader spending trends or inflationary pressures.

Demographic trends also strengthen the long-term investment case for healthcare. Aging populations will create increased demand for medical services for decades, and leading companies are chasing a wide range of innovations such as cancer therapies and heart disease treatments to meet the growth opportunities within the sector.

The Health Care Select Sector SPDR Fund (XLV), another Kip ETF 20 member, is the largest exchange-traded fund tied to this critical sector of the U.S. economy. XLV offers investors targeted exposure to the largest and most financially stable companies in the pharmaceuticals, medical devices and healthcare services industries.

About 60 healthcare stocks make up the XLV portfolio, led by Big Pharma giant Eli Lilly (LLY) and Dow Jones stock Johnson & Johnson (JNJ).

Apple

• Type: Large-cap technology stock
• Market cap: $4.57 trillion
• 10-year average annual total return: 29.9%

It's hard to predict what the future looks like and which companies will be thriving in 10 or 20 years. But Apple (AAPL) remains one of the strongest buy-and-hold investments in global markets, and its odds of long-term success are strong regardless of any short-term volatility.

Just a few things that create stability for Apple are its massive scale, including its distinction as the first U.S. company to surpass a $1 trillion market capitalization in 2018.

It also has about $45 billion in cash on its balance sheet — which surges to about $132 billion total when you include marketable securities that can be converted to cash relatively easily. That's enough to buy a company the size of Starbucks (SBUX) outright.

This financial stability is built on unmatched brand loyalty, which generates significant cash even without selling new devices. Apple has successfully grown its high-margin Services division to a business that rakes in more than $100 billion in annual revenue through the App Store, Apple Pay, iCloud, Apple TV and other offerings.

There's no such thing as a sure thing on Wall Street. But with deep pockets, a history of success and a tremendous future revenue stream, AAPL seems to be one of the best stocks to buy for the long run.

iShares Gold Trust

• Type: U.S. commodities-focused fund
• Assets under management: $68.5 billion
• 10-year average annual total return: 13.7%

Commodities don't have any fundamentals — a pile of metal can't develop a new product or improve profit margins. But what physical commodities, including gold, do have is a real-world value that cannot be disputed. Unlike popular trends such as AI or blockchain, there's no debate as to what gold will become in the years ahead.

Because of its tangible and unchangeable nature, gold has re-emerged as an important portfolio diversifier amid heightened economic uncertainty, inflation concerns and ongoing market volatility.

The iShares Gold Trust (IAU) provides investors with direct exposure to the price of gold without the hassle of buying physical gold, storing it in a safe, then trying to sell it. IAU is one of the largest and most cost-effective gold ETFs available, and is tied directly to the movements of gold bullion. The trust owns gold bars stored in vaults, primarily in London, and each share in this fund represents fractional ownership of the trust's total holdings.

If you're looking for a buy-and-hold investment with peace of mind, the commodity-backed IAU is one of the most solid investments out there — in more ways than one.

Related content

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• 5 ETFs to Hedge Your Inflation Risk
• Why Invest In Mutual Funds When ETFs Exist?

"Buy an S&P 500 ETF" is maybe the most ubiquitous advice in the modern investing world. Financial advisers tell you to do it. I tell you to do it. And we even provide descriptions of the best index funds to buy.

For the most part, investors listen. Dozens of ETFs are tethered to the S&P 500 in various ways, but only four directly track the index. And they’re among the most popular funds on the planet:

The iShares Core S&P 500 ETF (IVV) has assets under management of $821.8 billion. The Vanguard S&P 500 ETF (VOO) has $817.5 billion, the State Street SPDR S&P 500 ETF Trust (SPY) $751.5 billion. And the State Street SPDR Portfolio S&P 500 ETF (SPYM) has $140.8 billion.

That's right: These four funds collectively command a wild $2.5 trillion in assets. More telling still? IVV, VOO and SPY are the three largest ETFs by assets in the U.S.

Perhaps the most convincing S&P 500 salesman of all is still none other than Warren Buffett. The erstwhile CEO and still-active chairman of Berkshire Hathaway (BRK.B) has long pounded the table for cheap-index ownership.

"Over the years, I’ve often been asked for investment advice, and in the process of answering I’ve learned a good deal about human behavior," Buffett wrote in Berkshire's 2017 letter to shareholders. "My regular recommendation has been a low-cost S&P 500 index fund."

He said the same thing in an interview that year. He wrote it in his 2013 shareholder letter. He said it during the 2019 annual meeting. Before any of that, in 2007 he openly challenged the whole hedge fund industry, saying an S&P 500 tracker would take down costlier, actively managed hedge funds.

One man, Protégé Partners co-founder Ted Seides, answered the call and took the other side of a $1 million bet. His quintet of hedge funds trailed so badly that he conceded defeat a few months early.

After learning all that, you might ask yourself, "Why would I ever invest in anything but an S&P 500 ETF?"

And I'd answer, "For a lot of reasons, actually."

1. You want to beat the market

The first reason is the worst reason, at least where probability is concerned: You think you can do better. That's what Ted thought. Look what happened to him.

Or look at what routinely happens to people whose stated objective is to beat the S&P 500. From the year-end 2025 S&P Indices Versus Active (SPIVA) report by S&P Dow Jones Indices:

"In our largest and most closely watched comparison, 79% of all active large-cap U.S. equity funds underperformed the S&P 500, worse than the 65% rate observed in 2024 and the fourth-worst year for active large-cap managers over the 25-year history of our SPIVA Scorecards."

That's no fluke. Over the past 10 years, only about 14% of active large-cap funds topped the index. Over the past 15 years, that number dips to 10%.

Other asset classes altogether have had a poor time of it, too. Gold returned less than half of what the S&P 500 did between 1976 and 2025, according to NYU Stern School of Business data. Corporate bonds trailed. Ten-year Treasury bonds trailed. Real estate trailed by a mile.

Did you notice something, though? Most of those assets are considered less risky than large-cap stocks and thus wouldn’t be expected to grind out better yardage (more on that idea in a minute).

However, a more adventurous investment – small-cap stocks – did indeed have "the juice." Stocks in the bottom decile of market cap delivered an average annual return of 8.2% to the S&P 500's 8.0% over that same time period, albeit with far more vicious swings.

As Ted Lasso would've reminded Coach Beard, all people are different people. Your investment goals and hunger for risk aren’t the same as everyone else's.

And that's the central theme to most of the reasons why you might want to own something other than an S&P 500 ETF.

Here? You might want to beat the market and you might have a high risk tolerance as well as decades to make up for any losses.

If so, you can't beat the market by owning only the market. You've got to own something else, too.

2. You don't want that much volatility

One of the reasons why people invest outside of the S&P 500 is because they want their portfolio to have smoother, less volatile returns than what the S&P 500 doles out.

Let's look at standard deviation, which depicts how much the return of an investment has varied from its long-term average over a certain period of time.

The higher the standard deviation, the more volatile the security has been:

Real estate and gold have been volatile, too. But they're not as correlated with stocks. When one zigs, the other sometimes zags. And that can produce lower portfolio volatility.

Most people gradually migrate into less volatile assets over time as they get closer to (and into) retirement, and their focus shifts from wealth accumulation to wealth protection.

People in their 30s, 40s and even 50s have plenty of time to recover from steep bear-market losses. But anyone who's about to be (or already is) living on a fixed income from retirement withdrawals have less tolerance for sudden 20% or 30% drops in their net worth.

Don't feel ashamed if you're young and feel like the S&P 500 is too volatile for you. Some people don't have the stomach for big market dips and can get spooked into poor decisions like liquidating their accounts and stuffing cash under their mattress.

Sometimes it's better to trade sub-market returns for being able to sleep at night.

3. You want more income

In a similar vein, some people are willing to accept a lower potential annual return as long as more of that return comes in the form of dividends or interest income.

While dividends have historically been a significant part of the S&P 500's total return, the lion's share still belongs to price gains. And you're not really getting much in the way of income; the index yields barely more than 1%.

High-yield dividend funds pay closer to 3%. A core bond portfolio? Around 4%. Junk bonds? More than 6%. Will any of those assets return better than the S&P 500 over the long run?

History says no. And even those income percentages aren't guaranteed. Companies can cut or suspend dividends, and interest-rate changes can impact how much a bond fund pays over time.

But those assets deliver a higher percentage of returns that aren't linked to market swings. For many investors, that provides peace of mind.

4. You want to avoid concentration risk

The S&P 500 is made up of 500 companies. Were a fund's assets spread across all 500 companies equally, each company would account for just 0.2%. So a big move in any individual stock wouldn't move the needle much.

Alas, the S&P 500 is market cap-weighted, which means a pure S&P 500 tracker like VOO, IVV and the rest are market cap-weighted. That means the larger the stock, the more the assets invested in each stock.

Nvidia (NVDA) accounts for 8% of assets. Apple (AAPL) is close to 7%. So is Google parent Alphabet (GOOGL).

That means a move in NVDA or AAPL will push an S&P 500 ETF around a heckuva lot more than a move in marginal holdings such as Campbell's (CPB) or News Corp (NWS).

That's also why the S&P 500 is also imbalanced on a sector basis. Tech stocks make up more than a third of assets. Financial stocks account for more than 10%, as do communication services stocks.

But utility stocks, materials stocks and real estate investment trusts (REITs) are each relegated to weights of less than 3%.

There are good arguments that this has helped, not hindered, the index over time.

But it's a risk that some people don't care to take on, enough so that the Invesco S&P 500 Equal Weight ETF (RSP), which lets you own those stocks in even portions, has amassed nearly $90 billion in assets.

A specific edge case? People who work for big publicly traded tech firms and have a lot of compensation in stock don't want additional exposure to the sector, let alone their own companies.

That's less a solution for equal-weight funds, however, and more of a job for direct indexing.

5. You want more diversification

Much like you might not want to be overweight in a single stock lest that stock struggle and hold back your returns, many advisors preach diversification across different stock sizes and styles, and even different assets, to prevent the same thing in case U.S. large caps stall out.

Consider target-date funds (TDFs), which are designed to give us the investment exposure we need throughout our lives.

TDFs don't own just the S&P 500 or some other U.S. large-cap portfolio. They usually also own some mid-cap stocks and small caps, as well as international stocks, and even domestic and foreign bonds. Sometimes they'll even own commodities and/or real estate.

6. An S&P 500 mutual fund might be cheaper (in two ways!)

The reason why most people would tell you to buy an S&P 500 ETF, and not an S&P 500 mutual fund, is because of fees.

In fund investing, if all else is equal – and when it comes to S&P 500 trackers, it is – you should buy the fund with the lowest fees, which will net you the highest return. And that's not always going to be an S&P 500 ETF.

Right now, SPYM is the cheapest S&P 500 ETF at 0.02% annually. But the Fidelity 500 Index Fund (FXAIX) charges 0.015%. If your advisor offers access to the Vanguard 500 Index Fund Institutional Select Shares (VFFSX), that share class charges just 0.01%.

But a few mutual funds are also cheaper on a nominal basis. Mutual funds often require you to invest a certain dollar amount on your first purchase, like $1,000 or $3,000. That would normally give SPYM, at around $86 per share, an advantage.

But FXAIX, as well as the Schwab S&P 500 Index Fund (SWPPX, 0.02% expense ratio), let you start buying for as little as $1. So if you're starting out with little money, at least a couple S&P 500 mutual funds are an easier lift than any S&P 500 ETF.

By the way, when Warren Buffett made his bet, he didn't use an ETF. He used the Vanguard 500 Index Fund Admiral Shares (VFIAX), which was one of the most cost-efficient ways to buy the index at the time.

7. Warren himself wouldn't bet the whole farm on the index

When it comes to the serious matter of providing for his wife after his death, the Oracle of Omaha says he's putting his money where his mouth is.

He is … but not all of it. From Buffett's 2013 letter to Berkshire shareholders (emphasis mine):

"What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. … My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)"

If even the great S&P 500 champion found room in his will for an additional investment … chances are you'll find one, too.

As of this writing, Kyle Woodley owned shares of SPYM … but also a bunch of other investments.

Related content

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Today's investment environment is driving increased demand for growing income, supported by falling interest rates, persistent inflation and a growing population of retirees.

This demand feeds into financial advisers' allocation priorities — and it's a major reason Bahl & Gaynor now offers a suite of active ETFs.

From a portfolio construction standpoint, active ETFs offer several potential advantages, though these can vary based on market conditions, implementation and individual investor circumstances:

• Potential tax efficiency driven by a lower likelihood of capital gain distributions and deferral of internal gains
• Exposure to certain allocations in a single 'line item' for simplicity and clarity of positioning
• Possible reduction in cash drag through the smaller cash positions permitted by the ETF creation/redemption mechanism
• Intraday liquidity, enabled via the ETF creation/redemption mechanism, but subject to market conditions
• Competitive ongoing operating cost vis-à-vis the mutual fund structure

How these potential advantages are used often depends on how a financial adviser structures their practice. We observe two common practice models among advisers: Separately managed account (SMA)-centric practices, and adviser-as-portfolio manager practices.

SMA-centric practices

SMA-centric practices place SMAs at the center of client allocations. This typically covers core exposure to large cap domestic equities. It can also emphasize income generation and growth, particularly for clients approaching or in retirement.

Active ETFs can enable additional income exposure in this practice model. For example, an adviser may allocate to bullet maturity ETFs, collateralized loan obligation ETFs, and dividend growth ETFs to complement the income-producing capabilities of a large cap equity SMA allocation.

We often see strategies such as Bahl & Gaynor's smig® - Small/Mid Cap Income Growth ETF (SMIG) used alongside large cap equity income SMA allocations as a line item that extends income-generating exposure into often-overlooked small and mid-cap dividend-paying companies.

Adviser-as-portfolio manager practices

Other advisers structure their practices around a core discretionary equity model that their team manages, which may include a combination of individual equities, mutual funds, direct index exposure, and both passive and active ETFs.

Advisers often manage portfolios to a strategic asset allocation and risk profile, but they typically retain flexibility to achieve desired outcomes through a wide variety of solutions. For example, some advisers may add active dividend growth ETFs to complement the individual equity exposure they already manage on behalf of clients.

An adviser may pair their individual equity exposure with a dividend growth strategy like Bahl & Gaynor's Income Growth ETF (BGIG) as part of an approach to increase income production or as a completion portfolio for individual equity positioning.

Lessons learned from building an active ETF suite

Bahl & Gaynor's journey toward offering a suite of dividend growth ETFs has not been linear. It has evolved over time as we scaled our ETF family. What has remained consistent is our focus on maximizing flexibility for advisers and their clients in achieving important goals.

As we built our active ETF suite, several key decisions shaped both implementation and adviser usability. These included:

• Transparent vs semi-transparent holdings
• Investment strategy liquidity fit
• Clarity of targeted client outcomes

Transparent ETFs are the overwhelming choice for advisers today, but as an issuer this was not such a clear-cut decision when we launched our first ETF in 2021. But our firm's commitment to SMAs was also a commitment to transparency in how we manage client funds. Selecting a fully transparent structure for our ETF offerings harmonized with this foundational commitment.

It is also important to recognize that the vehicle in which a strategy is held does not change the underlying liquidity profile of strategy holdings. We wanted to ensure the underlying liquidity of our strategies would harmonize with the active ETF structure. We have found the ETF creation/redemption mechanism to be an effective structural mechanism for new and departing shareholders in this regard.

There are now more ETFs trading than individual public companies in US markets. This has created a "sea of same-ness" in terms of passive and active investment solutions in the ETF wrapper.

When we began building our ETF franchise, we wanted to ensure that our targeted client outcomes were clearly stated to transparently align with adviser and client goals. We focus on clearly defined client outcomes — strategies designed to generate growing income, downside risk protection and long-term alpha generation — to help advisers align allocations with client expectations.

Conclusion

The growth of active ETFs reflects more than just a shift in vehicle structure — it reflects a shift in how advisers build portfolios. Flexibility, transparency and tax efficiency are increasingly essential, but equally important is the alignment of investment strategies with how advisers build portfolios across different practice models.

Dividend growth strategies, delivered through the ETF wrapper, offer a versatile solution, capable of serving as a complementary allocation within SMA-centric practices or as a core building block within adviser-managed portfolios.

Ultimately, the value of the structure is realized not just in its features, but in how effectively it helps advisers deliver on client objectives with clarity and consistency.

As the ETF landscape continues to evolve, we believe the combination of disciplined investment strategies and flexible implementation will remain central to helping advisers and their clients navigate an increasingly complex market environment.

This material is for informational purposes only and does not constitute investment advice or a recommendation. All investments involve risk, including the possible loss of principal. Dividend payments are not guaranteed and may be reduced or eliminated. ETFs are subject to market risk and may trade at a premium or discount to net asset value. Any discussion of tax efficiency is general in nature; outcomes will vary based on individual circumstances. References to specific strategies are for illustrative purposes only.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In a modern economic system, some level of inflation is expected and largely unavoidable.

Population growth increases demand. Fiscal spending injects money into the economy. Even productivity gains, while beneficial, can lead to higher consumption, which feeds back into pricing pressures.

Because of its impact on everyday life, inflation is a major concern for policymakers. It affects housing affordability, food costs, transportation and overall living standards. Left unchecked, it can erode purchasing power and contribute to economic instability.

For investors, inflation can eat into their real returns. While nominal returns are the headline numbers you see — the percentage gain of an investment over time — real returns adjust for inflation, reflecting what your money can buy after prices rise.

Half the Federal Reserve's dual mandate is to maintain price stability around 2% annual inflation, but that target has not always been met.

Most of us remember the macro environment a few years back, when inflation peaked at a 40-year high of 9.1% in June 2022. This was driven by a combination of pandemic-era stimulus and supply chain disruptions, which pushed up the cost of such essentials as groceries and gasoline — and weighed on investors' real returns.

Earlier periods were even more severe. During the late 1970s and early 1980s, inflation climbed into the double digits. Then-Fed chair Paul Volcker responded by raising interest rates above inflation to bring it under control. His monetary policy worked, but it came at the cost of a deep recession, widespread economic strain and civil unrest.

More recently, the ongoing conflict in the Middle East has caused inflation to accelerate once again. The war between the U.S., Israel and Iran caused a temporary shutdown of the Strait of Hormuz, which created a supply-side shock as disruptions to the flow of oil and key shipping routes reduced available supply while demand remained relatively stable.

Energy prices moved higher almost immediately, and because energy is a key input in transportation, manufacturing and agriculture, those cost increases will eventually filter through to food and other goods.

While higher inflation is a concern, it's also a reason for investors to take risks. Holding cash over long periods inevitably leads to a loss of purchasing power. Even if your balance stays the same, what it can buy declines year after year.

Stocks are often viewed as a long-term way to outpace inflation, but some assets are more directly tied to rising prices than others. These can be accessed through more specialized exchange-traded funds (ETFs) and might serve as useful tools when building an inflation-resistant portfolio.

How is inflation measured?

The two primary measures of inflation are the Consumer Price Index (CPI) and the Personal Consumption Expenditures Price Index (PCE).

CPI is managed by the Bureau of Labor Statistics (BLS), while PCE is calculated by the Bureau of Economic Analysis (BEA). Both track changes in prices, but they differ in what they measure and how they're constructed.

CPI is based on a consumer expenditure survey and reflects out-of-pocket spending by urban households. It includes categories such as housing, food, transportation, medical care and energy, with fixed weights assigned to each.

PCE, on the other hand, draws from business surveys such as retail sales and service reports. It measures goods and services consumed across all households, including items paid for on behalf of consumers, such as employer-sponsored healthcare.

For investors, CPI is generally more intuitive and relevant, as it better reflects the direct cost of living. The Fed, however, prefers PCE because of its broader coverage and ability to adjust as consumer behavior changes.

When CPI and PCE are reported, both include "core" readings, which exclude volatile food and energy prices and are typically considered to be better predictors of future inflation.

Understanding inflation sensitivity for assets

For a retail investor, understanding how assets respond to inflation often starts by breaking down these "baskets" of goods and services. CPI, for instance, includes housing, food, energy and transportation. From there, you can work backward and map those categories to investments.

The best ETFs can provide exposure either indirectly through stocks of companies that produce or sell these goods or directly through commodities and derivatives tied to their prices.

Certain patterns tend to emerge. Many inflation-proof investments fall under the category of real assets. These include real estate and infrastructure, which often generate income linked to inflation through rents, tolls or regulated pricing structures.

Commodities are another major category. This goes beyond precious metals such as gold and silver and includes energy products (crude oil and natural gas) and agricultural inputs (wheat, corn, soybeans and fertilizers such as potash). These are among the first to rise during inflationary periods.

There are also financial instruments designed specifically to track inflation. A common example for U.S. investors is Treasury Inflation-Protected Securities (TIPS). These are special government bonds where the principal adjusts to changes in CPI. When inflation rises, the bond's value and coupon payments increase. This contrasts with traditional Treasury bonds that tend to lose value in inflationary environments.

All these approaches can be accessed through ETFs. Some funds focus on a single category, while others combine multiple inflation-sensitive assets. Either way, it helps to look beyond the ETF label. Break down the inflation measure you care about, understand its components, and analyze those based on what the prospective ETF holds.

How we picked the best inflation-fighting ETFs

If you use a screener such as ETF Central, you can filter for funds with the word "inflation" in their name. That currently returns 29 funds. However, an ETF's name alone is not enough to determine whether a fund works as an inflation hedge.

Beyond mapping inflation inputs to what a fund holds, it helps to see how these ETFs performed during a real inflationary period. None of these ETFs were around during the Volcker era, but many were active during the 2021 to 2022 inflation surge.

Before looking at assets under management or fees, we backtested each ETF using testfolio.io. We focused on the one-year period from December 31, 2021, to December 30, 2022. To qualify, an inflation-hedging ETF needed to deliver a total return that exceeded the 6.46% inflation rate during that period.

That time frame was not only marked by high inflation, but also the start of a bear market and rising interest rates. This added a meaningful hurdle as many diversification assumptions broke down in 2022.

For example, many TIPS ETFs declined as interest rates rose and traditionally inflation-resistant equities, such as real estate investment trusts (REITs) and infrastructure stocks, declined due to cyclical risk.

After identifying funds that passed our above-inflation return test, we adjusted our usual ETF screening approach. Because this process narrowed the list significantly, we didn't enforce strict minimums for assets under management or maximum expense ratios.

Instead, if a fund had relatively high fees or a smaller asset base that could raise closure risk, we highlighted those considerations in the individual write-ups.

ProShares Inflation Expectations ETF

• Assets under management: $18.2 million
• Net expense ratio: 0.30%
• Cumulative total return (December 31, 2021, to December 30, 2022): 8.8%

The ProShares Inflation Expectations ETF (RINF) tracks the FTSE 30-Year TIPS Treasury Rate Hedge Index, which is built around the concept of the break-even inflation rate. This is the difference in yield between a nominal Treasury bond and a TIPS of the same maturity. When inflation expectations rise, this spread widens.

To express this thesis, RINF takes a long position in 30-year TIPS and an offsetting short position in duration-matched nominal Treasury bonds. Long-duration TIPS are particularly sensitive to inflation expectations, but they also carry significant interest rate risk. The short position in nominal Treasuries acts as a hedge against that risk.

RINF's goal is to isolate inflation expectations while offsetting interest rate movements. The strategy tends to perform well when inflation expectations are rising faster than nominal yields. It can struggle when both real yields and nominal yields move higher, or when inflation expectations decline.

Rather than holding 30-year TIPS and shorting nominal bonds directly, RINF implements its exposure synthetically using index swaps with counterparties such as Société Générale and Citibank. The positions are backed by cash-like collateral, which also generates some interest income.

There are a couple of considerations. With assets under management below $50 million, RINF carries a higher risk of closure. Its gross expense ratio is also relatively high at 1.12%, although ProShares currently waives a portion of the fee, bringing the net expense ratio down to 0.30%.

Learn more about RINF at the ProShares provider site.

State Street Multi-Asset Real Return ETF

• Assets under management: $1.2 billion
• Net expense ratio: 0.50%
• Cumulative total return (December 31, 2021, to December 30, 2022): 7.8%

Many single-sector inflation plays, particularly energy ETFs, performed very well in 2022. But that cuts both ways. Just two years earlier, during the March 2020 COVID-19 shock, oil prices briefly turned negative and energy-heavy funds saw steep losses. That level of volatility and concentration can make them difficult to rely on as a consistent inflation hedge.

The State Street Multi-Asset Real Return ETF (RLY) takes a more diversified approach. It's an actively managed ETF that can invest across domestic and international inflation-linked bonds, real estate, commodities, infrastructure and natural resource stocks spanning agriculture, energy, metals, mining and utilities.

The ETF is structured as a fund of funds, primarily holding other State Street ETFs while also allocating to select third-party funds.

As of April 2026, natural resource stocks make up 35.6% of RLY, followed by commodities at 25.1% and global infrastructure at 24.6%. Inflation-linked bonds account for 8.8% of the portfolio, with smaller allocations to real estate (3.3%) and cash (2.5%).

Many of these underlying assets generate income, too, contributing to a relatively healthy 3.1% 30-day SEC yield.

Learn more about RLY at the State Street Investment Management provider site.

FlexShares Morningstar Global Upstream Natural Resources Index Fund

• Assets under management: $7.4 billion
• Net expense ratio: 0.46%
• Cumulative total return (December 31, 2021, to December 30, 2022): 14.9%

Investors looking for the inflation sensitivity of commodity producers but with broader diversification beyond the energy sector might find the FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR) appealing.

This ETF passively tracks the Morningstar Global Upstream Natural Resources Index. Energy accounts for 29.9% of the portfolio as of April 2026. The rest is spread evenly across metals (29.3%) and agriculture (27.8%), with smaller allocations to water (5.0%) and timber (4.4%).

GUNR also adds geographic diversification. The U.S. represents 39.3% of the portfolio, followed by Canada (16.3%) and Australia (10.3%), both of which are major natural resource producers with stable political environments.

As expected, there is also an income component, though lower than multi-asset funds such as RLY. GUNR currently offers a 2.1% 30-day SEC yield after accounting for expenses.

Learn more about GUNR at the FlexShares provider site.

Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF

• Assets under management: $6.3 billion
• Net expense ratio: 0.59%
• Cumulative total return (December 31, 2021, to December 30, 2022): 19.3%

Energy and commodity-producing equities can respond well to inflation, but they still carry equity-market risk. They are stocks, so they can decline alongside broader markets. While they held up in 2022, it's not hard to imagine an inflationary period in which a sharp stock sell-off pulls them down anyway.

In that scenario, a less-correlated hedge such as the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) might be more effective. Instead of owning stocks, PDBC's portfolio spans a wide range of commodities, including crude oil (Brent), natural gas, copper, gold, aluminum, zinc, corn, soybeans, cotton and feeder cattle. This broad positioning give investors exposure to multiple parts of the inflation basket.

However, there are additional mechanics to understand. Commodity ETFs such as PDBC rely on futures contracts, which trade along a curve. In many markets, that curve is in contango, meaning longer-dated contracts are more expensive than near-term ones.

As contracts approach expiration, the fund must roll its positions. In a contango environment, this can create drag if the fund sells lower-priced expiring contracts and buys higher-priced new ones. PDBC addresses this with an "optimum yield" strategy. Instead of blindly rolling into the next contract, it selects contracts along the curve that might reduce the impact of contango.

Another consideration is taxes. Many commodity funds are structured as partnerships and issue a Schedule K-1, which can complicate tax filing. PDBC avoids this, but investors should still be aware that it can generate sizable year-end capital gains distributions, which may reduce tax efficiency.

Learn more about PDBC at the Invesco provider site.

Global X MLP & Energy Infrastructure ETF

• Assets under management: $3.35 billion
• Net expense ratio: 0.45%
• Cumulative total return (December 31, 2021, to December 30, 2022): 21.5%

Upstream energy producers tend to have strong sensitivity to inflation, but they also come with high volatility. A more moderate approach is to focus on midstream companies, which operate the infrastructure transporting crude oil and natural gas via pipelines, storage facilities and export terminals.

Exposure to this segment is available through the Global X MLP & Energy Infrastructure ETF (MLPX), which tracks the Solactive MLP & Energy Infrastructure Index. The portfolio is primarily composed of large, incorporated pipeline operators including Enbridge (ENB), TC Energy (TRP) and Kinder Morgan (KMI).

MLPX can also allocate some of its assets to master limited partnerships (MLPs). These are pass-through entities that own midstream infrastructure and often pay higher yields. Direct ownership of MLPs can be more complex due to Schedule K-1 tax forms, but within a regulated investment company structure like MLPX, and with a 25% cap, investors receive a standard 1099-DIV form instead.

The midstream focus tends to result in higher income and lower volatility compared to upstream producers. Relative to the S&P 500, MLPX has a beta of 0.5, making it half as sensitive historically to broader market movements. It currently pays a 4.2% 30-day SEC yield after fees.

Learn more about MLPX at the Global X ETFs provider site.

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Fidelity Investments has built one of the most extensive mutual fund platforms in the industry. As of April 30, its online screener lists more than 300 mutual funds. For many investors, especially those with a workplace 401(k), Fidelity mutual funds are already familiar.

Many of these have no minimum investment requirements and no transaction fees when traded on Fidelity's brokerage platform. The lineup covers virtually every asset class, including stocks, bonds, commodities and money markets, with a large share of actively managed strategies

That said, the firm has also made significant progress in exchange-traded funds (ETFs), which Fidelity's screener now shows just over 80 options. Like its mutual fund lineup, the ETF offering spans a wide range of asset classes, including newer additions such as bitcoin and ethereum.

One of the more developed areas within the lineup of Fidelity ETFs is fixed income. These bond ETFs provide exposure across different issuers such as government, corporate and agency bonds, and across a range of credit qualities and maturities.

While the underlying exposures vary, many share a few common traits, including reasonable fees and monthly distributions, which can be more convenient than the semiannual interest payments typical of individual bonds.

Still, for newer bond investors, choosing the right Fidelity bond ETF can be confusing. Differences in yield, duration and credit risk can materially affect outcomes. Our guide outlines the key metrics to focus on and highlights five Fidelity bond ETFs worth considering for 2026.

How to pick the best Fidelity bond ETF

Picking the right bond ETF starts with a few personal variables, and the first is your time horizon. A common guideline is to match the average duration of a bond fund to how long you plan to keep the money invested.

Duration measures interest-rate sensitivity. Bond prices move inversely to interest rates, and the longer the duration, the larger that impact. If the two are mismatched, you can run into problems.

For example, if you plan to use the money within three to five years, a long-term bond ETF with a duration of 10 years is not a good fit. A 1% rise in interest rates could translate into roughly a 10% decline in the fund's net asset value (NAV), all else equal.

Longer-duration funds often offer higher yields in normal environments because investors demand compensation for tying up capital for longer periods. But unlike individual bonds, you can't hold a bond ETF to maturity to recover principal. That means price fluctuations matter more. Matching duration to your time horizon helps reduce that risk.

The second factor is your risk tolerance, which largely comes down to credit quality. While bonds are generally less volatile than stocks, they are not risk-free. A bond ETF's stability largely depends on the quality of the issuers it holds.

Investment-grade bonds, rated BBB or higher, tend to be more stable. Within that range, higher-rated bonds like A, AA and AAA are more resilient than BBB. The trade-off is yield. As credit quality increases, yields tend to fall. Lower-quality bonds, often called high-yield or "junk" bonds, offer higher income but come with greater price volatility and default risk.

The third variable is your objective. If your goal is capital appreciation, bonds are usually not the primary tool, aside from niche strategies like convertible bonds. Most investors use bond ETFs for income.

If income is the goal, focus on the 30-day SEC yield. This is a standardized measure that reflects the fund's income after fees over a recent period, annualized. As a rough benchmark, some investors look for yields in the 4% range to align with common withdrawal rules, though actual needs will vary.

Keep in mind that taxes can reduce this income. Bond ETF distributions are typically taxed as ordinary income at both the federal and state level. There are exceptions though. Interest paid on Treasury bonds is exempt from state taxes, and municipal bond ETFs may be exempt from federal and sometimes state taxes.

Because of this, many investors prefer to hold bond ETFs in tax-advantaged accounts such as a Roth IRA. If you are unsure, it may be worth checking with a financial advisor.

How we screened for the best Fidelity bond ETFs

Without knowing a specific investor’s time horizon, risk tolerance or objectives, the approach here was to use Fidelity's built-in screener to narrow the universe based on factors that appeal broadly.

We started with the full list of 383 mutual funds and ETFs and filtered by fund type. This reduced the pool to 64 funds categorized as pure-play fixed income, excluding money market funds and multi-asset allocation strategies.

Next, we capped expense ratios at 0.50%, or about $50 annually per $10,000 invested. Since the 30-day SEC yield is quoted after fees, keeping costs low helps preserve income. This reduced the list to 51 funds.

From there, we prioritized funds with at least a five-year track record. This ensures enough history to evaluate performance across different environments, including rising rates and high inflation in 2022. That brought the list down to 42 funds.

We then applied a size filter, requiring at least $300 million in assets under management. While $50 million is often cited as a minimum threshold, a higher bar helps reduce the risk of ETF closure and improves liquidity. This narrowed the pool to 41.

To ensure meaningful income, we required a 30-day SEC yield of at least 4%. This places the funds in line with prevailing short-term rates and common income targets. After this step, 16 Fidelity bond mutual funds and ETFs remained.

From that group, we focused on ETFs specifically, prioritizing those with low fees and broad diversification. Moreover, active ETFs were not excluded.

In fixed income, active management can play a larger role because the market is less transparent and less liquid than equities, with many bonds trading over the counter rather than on centralized exchanges. This can create opportunities for portfolio managers to add value.

Fidelity Total Bond ETF

• Assets under management: $25.0 billion
• Expense ratio: 0.36%
• 30-day SEC yield: 4.59%

The Fidelity Total Bond ETF (FBND) is Fidelity's actively managed alternative to the widely used "aggregate bond" ETFs. Aggregate bond funds typically track the broad investment-grade market, including U.S. Treasuries, corporate bonds and agency mortgage-backed securities, with an intermediate duration profile.

FBND follows a similar starting point but adds flexibility through active management. In addition to core investment-grade bonds, the fund can allocate up to 20% of its portfolio to higher-yielding segments such as junk bonds and emerging market debt. The goal is to enhance returns while still maintaining an overall duration similar to the Bloomberg U.S. Aggregate Bond Index.

Rather than holding the full U.S. bond market passively, the portfolio managers evaluate credit quality, currency exposure, macroeconomic conditions and relative value opportunities. This allows the fund to tilt toward areas that may offer better risk-adjusted returns.

The portfolio is still broadly diversified, holding more than 4,500 securities. About 69.5% is rated AA, 24.4% falls within other investment-grade categories and 8.4% is allocated to below-investment-grade bonds. This mix reflects a balance between stability and incremental income.

The strategy also makes use of derivatives, including interest rate swaps, credit default swaps, futures and forward contracts. These tools can be used for hedging or to gain exposure more efficiently, and in some cases may introduce modest leverage.

Learn more about FBND at the Fidelity Investments provider site.

Fidelity Corporate Bond ETF

• Assets under management: $341.0 million
• Expense ratio: 0.36%
• 30-day SEC yield: 4.86%

Investors who prioritize income over maximum safety may find Treasury-heavy funds too conservative. If yield is the focus, the Fidelity Corporate Bond ETF (FCOR) is a more direct way to access higher-paying corporate bonds.

The fund primarily invests in investment-grade corporate debt and aims to maintain a duration profile similar to the Bloomberg U.S. Credit Bond Index. That keeps its interest-rate sensitivity in line with the broader corporate bond market.

As an actively managed ETF, it doesn't simply replicate the benchmark. The portfolio managers evaluate credit quality, relative value and security-specific features, and can adjust positioning based on market conditions. The fund also has flexibility to allocate to high-yield bonds and select foreign issuers.

The portfolio is more concentrated than FBND, with just over 550 holdings. It's largely North America-focused and remains high quality overall, with about 93.8% in investment-grade bonds. Roughly half of the portfolio sits in intermediate-term maturities.

Unlike broader bond funds, FCOR has minimal exposure to Treasuries or securitized assets. Corporate bonds make up about 91.3% of the portfolio. That concentration helps boost yield, but also means higher sensitivity to credit conditions and less diversification.

Like FBND, FCOR can use derivatives such as interest rate swaps, credit default swaps, futures and forward contracts for hedging or efficient exposure. These tools can also introduce modest leverage.

The 4.86% 30-day SEC yield is attractive, though investors should note that corporate bond income is typically taxed as ordinary income, which can reduce after-tax returns.

Learn more about FCOR at the Fidelity Investments provider site.

Fidelity Securitized Income ETF

• Assets under management: $4.4 billion
• Expense ratio: 0.36%
• 30-day SEC yield: 4.25%

Securitized debt is a type of bond created by pooling together loans and packaging them into tradable securities. These can include mortgages, auto loans and other consumer debt. Investors receive payments based on the cash flows from those underlying loans.

You will find securitized assets in most broad bond ETFs, but usually as just one component. For investors looking to isolate this segment, the Fidelity Securitized Income ETF (FSEC) offers a more focused approach.

The fund primarily invests in U.S. government-related mortgage-backed securities issued by agencies such as the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These entities either have explicit or implicit government backing, which keeps credit risk low.

FSEC is actively managed, but like FBND and FCOR, it aims to maintain a duration profile similar to its benchmark, the Bloomberg U.S. Securitized Index. The portfolio managers can adjust holdings based on factors such as relative value, prepayment risk and interest rate expectations.

The strategy also uses derivatives, including interest rate swaps, futures and forward contracts, which can be used for hedging or to gain exposure more efficiently.

This can introduce leverage into the portfolio, which shows up in the fund's current positioning. While it holds just over 1,000 securities, all based in North America and largely rated AAA, its notional exposure is about 122.8% of assets. This indicates that the fund is using leverage to enhance returns.

Because of the government-backed nature of the holdings, credit risk is minimal. The main risk comes from duration. About 80.6% of the portfolio is in long-term securities, making the fund more sensitive to interest rate changes. Rising rates can lead to price declines, while falling rates can provide a tailwind.

Learn more about FSEC at the Fidelity Investments provider site.

Fidelity High Yield ETF

• Assets under management: $507.6 million
• Expense ratio: 0.35%
• 30-day SEC yield: 6.41%

Risk-tolerant investors willing to accept lower credit quality can access higher income through the Fidelity High Yield ETF (FDHY).

The fund aims to hold at least 80% of its portfolio in non-investment-grade bonds, defined as those rated below BBB. These are often referred to as high-yield or "junk" bonds. They offer higher interest payments to compensate for greater default risk.

The portfolio is relatively concentrated, holding just over 300 bonds, with about 96.5% classified as non-investment grade. However, interest rate risk is somewhat reduced by the maturity profile. About 62.7% of the holdings fall into short-term categories.

Geographically, the portfolio is dominated by North America, with 82.6% of holdings tied to issuers in the region. Sector exposure leans toward energy stocks and industrial stocks, both of which are common in the high-yield market.

There is a real possibility of capital loss if credit conditions weaken or default rates rise. In stable environments, investors are compensated with a higher level of income, reflected in the 6.41% 30-day SEC yield.

Keep in mind that income from corporate bonds is typically taxed as ordinary income, which can reduce after-tax returns in a taxable account.

Learn more about FDHY at the Fidelity Investments provider site.

Fidelity Limited-Term Bond ETF

• Assets under management: $383.7 million
• Expense ratio: 0.25%
• 30-day SEC yield: 4.48%

Investors with a shorter time horizon should generally prioritize bond ETFs with lower duration. This helps reduce the risk that a sudden rise in interest rates leads to meaningful price declines. For that role, the Fidelity Limited-Term Bond ETF (FTLB) is designed to keep sensitivity to interest rates in check.

This actively managed ETF can invest across investment-grade, high-yield and emerging market bonds, but uses the Fidelity Limited-Term Composite Index as a guide. The high-yield allocation is capped at 20%, which helps balance income potential with credit risk.

Like other Fidelity active bond ETFs, the managers evaluate credit quality, valuation and macro conditions when selecting holdings. The fund can also use derivatives such as interest rate swaps, futures and forwards for hedging or more efficient exposure, which can introduce modest leverage.

The portfolio currently holds just over 1,000 bonds, with about 75% tied to North American issuers. Credit quality remains solid, with 67.1% rated investment grade, 23.9% rated AAA and only 7.9% in high-yield bonds, well below the 20% cap.

A key feature is its maturity profile. The fund targets a dollar-weighted average maturity between two and five years, keeping duration relatively low; 78.6% of holdings currently fall into short-term categories. That positioning helps limit volatility compared to intermediate- or long-term bond funds.

Learn more about FTLB at the Fidelity Investments provider site.

Related content

• Best Monthly Dividend ETFs
• Best Low-Risk ETFs to Replace CDs
• 5 Dividend Growth ETFs to Buy

It's important to understand that a dividend from a stock is not "free money." On the ex-dividend date, all else equal, the company's share price is adjusted downward by the amount of the payout.

The value is simply being transferred from the company to you. Prices can move during the trading day, but that adjustment reflects a basic accounting reality.

This is why "dividend capture" strategies, where investors rotate into dividend-paying stocks just before the ex-dividend date and sell after the price recovers, tend to be a wash over the long term. Once you factor in transaction costs and taxes from higher turnover, the strategy often underperforms.

A more constructive way to look at dividends is that they're one of several ways a company can return value to shareholders.

When a business generates excess cash, management has a few options. Some companies, particularly in technology, reinvest internally or pursue acquisitions. Others might employ stock buybacks, reducing the share count and increasing each investor's ownership.

Dividends are typically used by more mature companies that have already captured most of their addressable market and have fewer opportunities to reinvest at high returns. In those cases, returning cash to shareholders becomes a practical choice.

Dividend payment schedules can vary. In the U.S. and Canada, most companies pay quarterly. In markets like the United Kingdom, semiannual payouts are more common. A small number of companies do pay monthly, but they are the exception rather than the rule.

That changes when you package these companies into an investment vehicle such as a mutual fund or, more commonly, an exchange-traded fund (ETF). By pooling many holdings together, fund providers can structure distributions on a monthly basis, which appeals to income-focused investors.

Even so, the same mechanics still apply. On the ex-distribution date, the ETF's net asset value (NAV) will drop by the amount paid out. The cadence might change, but the underlying math does not.

Before going through our list of the top monthly dividend ETFs, it helps to understand this mechanic and a few related ones to avoid confusion.

Dividends vs distributions: What you're getting paid

Even though many ETFs use the word "dividend" in their names, the payout you receive from them is technically called a "distribution." A dividend is paid by a company out of its retained earnings. A distribution, on the other hand, is paid by a fund.

Most ETFs pay distributions because they're structured as regulated investment companies (RICs) under the Internal Revenue Code and governed by the Investment Company Act of 1940.

To maintain this status, they must distribute at least 90% of their taxable income each year. In addition, they are generally required to distribute nearly all ordinary income and capital gains annually to avoid excise taxes on undistributed income.

The key difference is that an ETF's payout can come from multiple sources, depending on what it holds and what activity occurred inside the fund. This results in different tax treatments:

• Capital gains occur when the fund sells securities at a profit. Capital gains are less common in ETFs due to the in-kind creation and redemption process, which helps reduce internal selling when investors exit. Still, they can happen, especially in actively managed or niche strategies. They can be taxed at either short-term or long-term capital gains rates.
• Qualified dividends are dividends designated by the ETF that qualify for lower capital gains tax rates (0%, 15% or 20%, depending on your income). To qualify, the ETF must hold the underlying stocks for more than 60 days within a 121-day window around the ex-dividend date, and you must also hold the ETF for more than 60 days in that same period. Frequent trading can prevent you from meeting this requirement.
• Non-qualified dividends are dividends taxed at ordinary income rates. They're often paid from certain foreign companies and REITs, or situations in which the aforementioned holding period requirements are not met.
• Ordinary income usually includes interest from bonds. It's taxed at your marginal income tax rate, but there can be state and/or federal exceptions for ETFs owning Treasury bonds and municipal bonds, respectively, while corporate bonds are the least tax efficient.
• Return of capital (ROC) is essentially your own money being returned to you, not from investment income. It reduces your cost basis and defers taxes until you sell. ROC can be used constructively by fund managers to smooth out distributions, but it can also be used destructively to prop up a fund's headline yield.

If you're specifically targeting dividend income, it helps to look beyond the headline yield and examine the composition of distributions. Ideally, a larger portion comes from qualified dividends. You can find this breakdown on the Form 1099-DIV issued at year-end.

How we picked the best monthly dividend ETFs

The first step was narrowing the universe to equity-only strategies. This meant excluding a large number of ETFs that pay monthly distributions, but where the income is not actually derived from dividends.

One major category we excluded was covered-call ETFs. These funds hold stocks or an index, then sell call options against that position. You give up some upside in exchange for higher income. That income, however, comes from options premiums, not dividends. As a result, distributions are often classified as ordinary income or return of capital rather than qualified dividends.

We also excluded all fixed income ETFs. Many bond ETFs distribute income monthly, but that income comes from interest payments, not dividends. While these can be useful for lower-risk portfolios, they don't meet the definition of a dividend strategy.

Within the remaining pool of distribution-paying equity ETFs, we further limited the list to those with a monthly cadence. This is a meaningful constraint.

Many of the largest, lowest-cost and most diversified dividend ETFs pay quarterly. By focusing on monthly payers, the available universe becomes much smaller, and not always for the better.

From there, we applied additional filters. While we didn't strictly exclude active ETFs, we placed a strong emphasis on fees. We capped the expense ratio at 0.40%. On a $10,000 investment, that equates to $40 per year in fee drag. Since fees directly reduce yield, keeping them low is critical.

We also set a minimum yield threshold. The goal of a dividend ETF is to generate income, so each fund needed to offer at least a 1.5% 30-day SEC yield. For context, a broad market ETF such as the iShares Core S&P 500 ETF (IVV) yields 1.12%.

Scale and liquidity were also considered. We required at least $1 billion in assets under management to ensure that the ETF is well-established and not at risk of closure. While many investors use $50 million as a rough minimum, this higher threshold provides an additional margin of safety.

Finally, we looked at historical performance where available. Each ETF needed at least a five-year track record. While past performance is not predictive, we wanted to ensure that total returns, including reinvested dividends, have remained competitive with broader equity strategies.

WisdomTree U.S. Total Dividend Fund

• Assets under management: $1.55 billion
• Expense ratio: 0.28%
• 30-day SEC yield: 1.98%
• Five-year annualized total return (NAV): 11.42%

If maximum diversification is the goal, the WisdomTree U.S. Total Dividend Fund (DTD) is one of the broadest dividend strategies available. DTD tracks a fundamentally weighted index with relatively straightforward inclusion rules.

Companies must be listed on a U.S. exchange, pay regular cash dividends and meet minimum size and liquidity thresholds. From there, stocks are weighted based on the total cash dividends they're expected to pay in the coming year. That distinction matters.

The fund isn't weighted by dividend yield. Instead, it emphasizes companies that pay large absolute amounts of cash to shareholders. This tends to tilt the portfolio toward large, established firms with strong cash flows, even if their yields aren't especially high.

A practical way to think about DTD is as the broad U.S. market, excluding non-dividend-paying companies. That means you lose exposure to some potentially overvalued names, such as Tesla (TSLA) and Palantir Technologies (PLTR), but still retain many of the largest blue chip stocks.

Top holdings include Nvidia (NVDA), JPMorganChase (JPM), Microsoft (MSFT), Apple (AAPL), Alphabet (GOOGL), Broadcom (AVGO), ExxonMobil (XOM), Chevron (CVX) and Johnson & Johnson (JNJ).

Sector exposure reflects this balance. Financial stocks lead at 18.9%, followed by industrials at 18.8%, consumer staples at 18.8% and tech stocks reduced to 18.3%. Healthcare comes in at 11.4%, while energy is elevated at 8.2%, roughly double its weight in the broader market.

The portfolio currently trades at a lower forward price-to-earnings ratio of 17.3, suggesting a mild tilt toward value.

The 1.98% 30-day SEC yield is modest, but the focus here is not maximizing income. It's on combining dividend exposure with broad diversification and competitive total return.

Learn more about DTD at the WisdomTree provider site.

WisdomTree U.S. LargeCap Dividend Fund

• Assets under management: $5.92 billion
• Expense ratio: 0.28%
• 30-day SEC yield: 1.90%
• Five-year annualized total return (NAV): 11.81%

DTD's total market approach includes a mix of large-, mid- and small-cap stocks. If you prefer to focus strictly on blue-chip names, the WisdomTree U.S. LargeCap Dividend Fund (DLN) is the more targeted option.

DLN tracks large-cap stocks in the WisdomTree U.S. Dividend Index, limiting its universe to roughly the 300 largest dividend-paying companies. As with DTD, holdings are weighted based on the aggregate cash dividends expected to be paid, not by yield.

In practice, the portfolio looks very similar to DTD at the top end. You still get exposure to many of the same large-cap names, but with slightly higher concentration due to the absence of smaller companies.

Sector allocations also follow a comparable pattern, with technology, financials, healthcare stocks, consumer staples, energy and industrial stocks making up the bulk, with only minor differences in weightings.

Historically, total returns for DLN have closely tracked those of DTD. DLN trades at a forward price-to-earnings ratio of 17.8, maintaining a similar value tilt. The 1.90% yield is slightly lower, but the strategy is still centered on overall return rather than maximizing income.

Learn more about DLN at the WisdomTree provider site.

WisdomTree U.S. High Dividend Fund

• Assets under management: $1.49 billion
• Expense ratio: 0.38%
• 30-day SEC yield: 3.59%
• Five-year annualized total return (NAV): 11.52%

DTD and DLN take broad approaches to dividend investing. They include companies that pay dividends but don't impose stricter requirements such as minimum yield thresholds or long dividend histories. That works well for diversification, but might not meet the needs of investors prioritizing income.

For those investors, the WisdomTree U.S. High Dividend Fund (DHS) offers a more targeted strategy. While still derived from the WisdomTree U.S. Dividend Index, DHS explicitly screens for the higher-yielding stocks before applying the same cash dividend weighting approach.

It also introduces an additional layer through a composite risk score. This score blends value, quality and momentum factors, which are used to adjust position sizing.

The result is a more concentrated and more value-oriented portfolio compared with DTD and DLN. Holdings skew toward large-cap value stocks, with top positions including Altria Group (MO), AbbVie (ABBV), Philip Morris International (PM), Merck (MRK), ExxonMobil (XOM),, PepsiCo (PEP), AT&T (T), Texas Instruments (TXN), Verizon Communications (VZ) and Chevron (CVX).

Sector exposure reflects this shift. Financials lead at 22.5%, followed by consumer staples stocks at 18.7% and healthcare at 14.3%. Technology plays a much smaller role at just 3.4%, a sharp contrast to broader dividend ETFs.

This value tilt shows up in valuation metrics. DHS trades at a forward price-to-earnings ratio of 13.0, lower than both DTD and DLN, while offering a significantly higher 3.59% yield.

Despite that higher income focus, total returns have remained competitive over time when distributions are reinvested.

Learn more about DHS at the WisdomTree provider site.

Invesco S&P 500 Low Volatility ETF

• Assets under management: $7.24 billion
• Expense ratio: 0.25%
• 30-day SEC yield: 2.26%
• Five-year annualized total return (NAV): 6.93%

While not explicitly a dividend-focused fund, the Invesco S&P 500 Low Volatility ETF (SPLV) does offer a higher-than-average yield and pays on a monthly basis. The focus here is defense rather than maximizing growth.

SPLV tracks the S&P 500 Low Volatility Index, which starts with the S&P 500 universe. That means companies already meet criteria for size, liquidity and earnings consistency.

From there, the index selects the 100 stocks with the lowest trailing one-year volatility. Those stocks are then weighted by the inverse of their volatility. The less volatile a stock has been, the larger its weight in the portfolio.

This naturally tilts the ETF toward more stable, defensive sectors. Utility stocks make up 27.1% of the portfolio, a much higher weight than in the broader market. There's also a notable 14.1% allocation to REITs, which contributes to the ETF's higher yield but can reduce tax efficiency since REIT income is often taxed as ordinary income.

SPLV is also rebalanced and reconstituted on a quarterly schedule in February, May, August and November. "Reconstitution" refers to updating the list of holdings, adding new low-volatility stocks and removing those that no longer qualify. Rebalancing adjusts the weights of those holdings based on their updated volatility levels.

The end result is a portfolio that looks very different from the S&P 500, with lower concentration in mega-cap growth names and historically lower sensitivity to market swings.

For investors willing to trade some upside for stability and monthly income, SPLV may be useful.

Learn more about SPLV at the Invesco provider site.

Invesco S&P 500 High Dividend Low Volatility ETF

• Assets under management: $3.27 billion
• Expense ratio: 0.30%
• 30-day SEC yield: 4.66%
• Five-year annualized total return (NAV): 7.16%

The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) builds on the idea behind SPLV, but adds an explicit income focus. While slightly more expensive, it delivers more than double the yield while still meaningfully reducing risk.

SPHD follows a two-step screening process within the S&P 500. It first identifies high-yielding dividend stocks, then filters those down based on the lowest one-year trailing volatility. This prioritizes income first, with risk control as a secondary consideration.

Unlike SPLV, SPHD doesn't weight holdings by inverse volatility. Instead, it weights them by dividend yield, meaning higher-yielding stocks receive larger allocations. The portfolio is also more concentrated, holding just 50 stocks.

To manage that concentration, the index applies constraints at each semiannual reconstitution and rebalance in January and July. No sector can have more than 10 holdings, total sector weight is capped at 25% and individual positions are limited to 3%.

Sector exposure reflects the income focus. Real estate is the largest allocation at 19.2%, followed by consumer staples at 18.5%, energy stocks at 14.7% and financials at 14.3%. The heavy allocation to REITs helps boost yield, but can reduce tax efficiency since much of that income is taxed as ordinary income.

Compared with SPLV, SPHD leans more toward cyclical sectors and has a narrower portfolio. That makes it riskier, even though the low-volatility screen still reduces sensitivity relative to the broader market. The fund also trades at a lower forward price-to-earnings ratio of 13.3, reflecting its value tilt.

Learn more about SPHD at the Invesco provider site.

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• Best Low-Risk ETFs to Replace CDs
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• 5 Best Fidelity ETFs to Buy Now

If you're looking to keep a meaningful amount of money safe, perhaps to pay tuition next semester or to fund a down payment on a home, a certificate of deposit (CD) is often one of the first investment options that comes to mind.

CDs are popular because they offer a risk-free way to save. Your principal is guaranteed and insured up to certain limits by agencies such as the Federal Deposit Insurance Corporation. That combination of stability and predictability makes them a go-to choice for short-term savings goals.

There is one major drawback, though, and that's the lockup period. When you purchase a CD, you commit to leaving your money in place for a fixed term. If you need to access those funds early, you'll typically face a penalty, often the forfeiture of several months of interest earned.

If you want to keep money relatively safe while still earning interest without that kind of restriction, there are alternatives worth considering. These can include Treasury bills, money market accounts and, increasingly, low-risk exchange-traded funds (ETFs).

Each option comes with its own trade-offs in terms of liquidity, yield and risk. Here's what you need to know about low-risk ETFs compared to more traditional cash alternatives, along with a selection of funds that can serve as flexible substitutes for a CD.

Why consider an ETF for your cash management needs?

If your goal is to replicate the safety of a CD without the lock-up period, the traditional alternatives have been money market funds and Treasury bill ladders.

A money market fund is a specialized type of mutual fund that aims to maintain a fixed $1 net asset value per share. Barring extreme events, known as "breaking the buck," their NAV remains stable regardless of day-to-day market movements.

That structure helps insulate investors from volatility and makes them one of the lowest-risk options for holding cash. Although they're not insured like CDs, in practice they're widely viewed as very stable.

That said, they come with some limitations. Because they're mutual funds, all transactions are processed at the end of the trading day. You can't buy or sell intraday.

Some funds may also require minimum investments, and distributions are typically paid out monthly. While liquidity is effectively daily, it is not as flexible as real-time trading.

Treasury bill ladders offer another route. These involve purchasing a series of short-term government securities with staggered maturities, such as 3-month, 6-month and 1-year Treasury bills.

As each security matures, the proceeds can be withdrawn or reinvested into a new position, maintaining a rolling ladder of exposure. The tradeoff is complexity.

Building and maintaining a ladder requires more hands-on management, often through platforms such as TreasuryDirect.gov. That platform has drawn criticism for being clunky and difficult to navigate, which can be a barrier for some investors.

In contrast, a newer category of low-risk ETFs offers a more flexible approach. These funds typically hold high-quality, short-duration fixed-income securities designed to preserve capital and minimize sensitivity to changing interest rates.

While their NAVs aren't fixed at $1 like money market funds, it generally fluctuates within a narrow range, often just a few cents.

They're not backed by deposit insurance, but in practice they still rank among the lowest-risk ETF options available, especially compared to traditional bond funds that carry more duration or credit risk.

The key advantage is liquidity. Unlike money market funds or Treasury ladders, these ETFs trade throughout the day. You can buy and sell shares at any time during market hours, often with tight bid-ask spreads.

That combination of stability, simplicity and intraday flexibility makes low-risk ETFs increasingly popular substitutes for CDs.

How we picked the best low-risk, cash-like ETFs

No ETF is truly as low-risk as a CD. CDs benefit from deposit insurance, which guarantees your principal up to certain limits. ETFs don't have that protection. That said, there are still ways to identify funds that sit at the lowest end of the risk spectrum within the ETF universe.

First, we limited our selection to fixed-income ETFs.

All else equal, equities are higher risk because they sit lower in a company's capital structure. Stockholders are residual claimants, meaning they only get paid after debt holders are satisfied.

Bonds, by contrast, represent contractual obligations. That higher priority in the capital stack, along with defined cash flows, generally makes fixed income more stable.

While it's possible to engineer low-risk profiles using options or hedging strategies, those approaches tend to introduce additional complexity, counterparty risk and higher fees.

Second, within fixed income, we focused on ultra-short duration and very high credit quality.

Specifically, we looked for funds with durations of one year or less. Duration measures sensitivity to interest rates. When rates rise, bond prices fall, and when rates fall, bond prices rise. Keeping duration short helps minimize that volatility.

On the credit side, we targeted holdings rated AA to AAA. While U.S. government debt has been downgraded from AAA to AA, it's still widely considered among the safest borrowers globally.

We also screened for liquidity. Each ETF selected has a 30-day median bid-ask spread of 0.05% or less. This helps ensure that investors are not losing too much value when entering or exiting positions.

Fees directly reduce yield, so we capped expense ratios at 0.15% per year. On a $10,000 investment, that limits fee drag to no more than $15 annually.

Finally, we focused on funds that generate yields close to prevailing short-term interest rates. Most of these ETFs distribute income monthly, and their yields tend to move in line with the federal funds rate, currently 3.50% to 3.75%.

That range effectively represents the baseline, or risk-free rate, that investors should expect when allocating to low-risk, cash-like strategies.

State Street SPDR Bloomberg 1–3 Month T-Bill ETF

• Assets under management: $49.9 billion
• Expense ratio: 0.1353%
• Inception date: May 25, 2007
• Average duration: 0.09 years
• 30-day SEC yield: 3.40%

The State Street SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) is one of the most widely used cash-like ETFs, due in part to its long track record and the scale of State Street's distribution platform.

The strategy is simple and transparent. BIL holds short-term U.S. Treasuries with maturities between one and three months. The portfolio currently consists of 23 holdings, all backed by the U.S. government.

Interest-rate sensitivity is minimal. That keeps price fluctuations extremely small, while still allowing the fund to capture prevailing short-term yields. BIL's 30-day SEC yield sits roughly in line with the current fed funds range after accounting for fees.

Liquidity is another strength. BIL consistently trades about 500,000 shares per day, and its 0.01% median bid-ask spread keeps transaction costs low.

Learn more about BIL at the State Street Investment Management provider site.

iShares 0–3 Month Treasury Bond ETF

• Assets under management: $82.8 billion
• Expense ratio: 0.09%
• Inception date: May 26, 2020
• Average duration: 0.09 years
• 30-day SEC yield: 3.54%

Undercutting BIL on fees is the iShares 0-3 Month Treasury Bond ETF (SGOV), which tracks the ICE 0–3 Month U.S. Treasury Securities Index. In practice, SGOV is very similar to BIL.

Both funds hold ultra-short-term U.S. Treasuries, resulting in nearly identical sensitivity to interest rates. Yields are also comparable, with SGOV's slightly higher 30-day SEC yield reflecting its lower expense ratio.

Where SGOV stands out is liquidity. The ETF recently traded more than 50 million shares, significantly higher than BIL.

Despite that volume, trading costs remain minimal, with a tight 0.01% 30-day median bid-ask spread.

Learn more about SGOV at the iShares provider site.

Global X 1–3 Month T-Bill ETF

• Assets under management: $2.4 billion
• Expense ratio: 0.07%
• Inception date: June 20, 2023
• Average duration: 0.10 years
• 30-day SEC yield: 3.55%

Even cheaper than SGOV is the Global X 1-3 Month T-Bill ETF (CLIP), which tracks the Solactive 1–3 Month U.S. T-Bill Index. While not a typical Global X offering, given the firm's focus on thematic ETFs, CLIP has gained traction as a straightforward cash management tool.

It provides exposure to ultra-short-term U.S. Treasury bills, similar to both BIL and SGOV, but at a slightly lower cost.

The portfolio currently holds 24 Treasury securities. Its 30-day SEC yield narrowly edges out SGOV, largely due to its lower expense ratio.

Like its peers, CLIP distributes income monthly and maintains strong liquidity, with a tight 0.01% 30-day median bid-ask spread.

Learn more about CLIP at the Global X ETFs provider site.

F/m U.S. Treasury 3-Month Bill ETF

• Assets under management: $6.8 billion
• Expense ratio: 0.15%
• Inception date: August 9, 2022
• Average duration: 0.25 years
• 30-day SEC yield: 3.44%

If you want precise exposure to a specific point on the yield curve, broader ETFs like BIL, SGOV and CLIP may not be ideal. Those funds hold a range of maturities. Some investors, however, prefer targeting a single tenor, most commonly the 3-month Treasury bill.

That's where the F/m U.S. Treasury 3-Month Bill ETF (TBIL) comes in. This ETF is designed to replicate a simple strategy many investors already use through TreasuryDirect: buying a 3-month T-bill, holding it to maturity and rolling the proceeds into the next issuance.

TBIL automates that process. At any given time, it holds the latest "on the run" 3-month Treasury bill. When a new one is issued, the fund rolls into it. The result is a very clean and easy-to-understand exposure to short-term government debt.

The trade-off is cost and liquidity. Its expense ratio is higher than peers, which slightly reduces its 30-day SEC yield. Trading costs are still low. But at a 0.02% 30-day median bid-ask spread, it's modestly less liquid than the largest ultra-short Treasury ETFs.

Learn more about TBIL at the F/m Investments provider site.

Vanguard 0–3 Month Treasury Bill ETF

• Assets under management: $5.6 billion
• Expense ratio: 0.06%
• Inception date: February 7, 2025
• Average duration: 0.10 years
• 30-day SEC yield: 3.56%

When credit quality and interest rate sensitivity are effectively the same, the deciding factor often comes down to fees. The 30-day SEC yield is quoted after expenses, so lower costs directly translate into higher take-home income.

In that respect, the Vanguard 0-3 Month Treasury Bill ETF (VBIL) stands out. In classic Vanguard fashion, VBIL undercuts competitors on price while delivering the highest yield in this group.

The ETF tracks the Bloomberg U.S. Treasury Bills 0–3 Month Index, providing the same ultra-short Treasury exposure as its peers with minimal interest rate risk.

Despite its recent launch, VBIL has quickly gathered assets. And the cost advantage doesn't come at the expense of tradability. VBIL maintains strong liquidity, with a tight 0.01% 30-day median bid-ask spread.

Learn more about VBIL at the Vanguard provider site.

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One of the more anticipated developments in 2026 was the debut of ETF share classes for mutual funds. For more than 20 years, this structure was effectively exclusive to Vanguard due to a patent.

It allowed the firm to pair mutual funds with share classes of ETFs, using the ETF's in-kind creation and redemption process to help reduce taxable capital gains distributions across the entire fund structure.

That tax efficiency, combined with scale, contributed to Vanguard's cost advantage.

That changed in early 2026. In February, F/m Investments added a mutual fund share class to an existing Treasury bill ETF. In March, Dimensional Fund Advisors followed by launching an ETF share class of an actively managed micro-cap mutual fund.

These moves signaled that the structure is beginning to open up more broadly across the industry.

Even before ETF share classes were formally expanded, many fund providers had already been replicating mutual fund strategies inside ETF wrappers. The appeal was clear. ETFs offer intraday liquidity, and they tend to generate fewer capital gains distributions.

This has been especially common among active managers. Fidelity, for example, launched ETF versions of both its Blue Chip Growth and Magellan mutual funds.

One category where the ETF format hasn't taken off in the same way is money market funds. While money market ETFs have been introduced as a way to deliver cash-like stability with ETF liquidity, they've attracted only modest inflows.

That stands in stark contrast to traditional money market mutual funds, which still hold trillions of dollars in assets.

Here's why money market funds continue to dominate cash management, along with a look at some specific options for your consideration.

Why money market funds are different

Most mutual funds experience some level of volatility. Even though their net asset value (NAV) is only priced once per day at market close, that value can still fluctuate depending on how the underlying securities perform.

Money market funds operate differently. They're designed to maintain a fixed $1 per share NAV. That means, under normal conditions, the price you buy and sell at remains constant regardless of day-to-day market movements. The return instead comes from the income the fund generates.

This stability is not absolute. During periods of extreme market stress, such as the 2008 financial crisis, a small number of money market funds "broke the buck," meaning their NAV fell below $1.

That undermined confidence in the product and triggered significant reforms. In response, the Securities and Exchange Commission (SEC) implemented stricter regulations to improve safety and liquidity.

These include requirements for higher credit quality holdings, minimum daily and weekly liquidity thresholds, limits on maturity and duration and, for certain fund types, the ability to impose liquidity fees or redemption gates during periods of stress.

Today, investors can choose from three broad categories of money market funds:

• Government money market funds must invest at least 99.5% of their assets in cash, U.S. Treasury securities, repurchase agreements collateralized by Treasuries and obligations issued or guaranteed by U.S. government agencies. This makes them the most conservative option in the category.
• Prime money market funds have a broader investment mandate and can hold instruments such as certificates of deposit, commercial paper and short-term corporate debt. They typically offer slightly higher yields than government funds but come with marginally higher credit risk.
• Tax-exempt money market funds invest primarily in short-term municipal securities issued by states, local governments and related agencies. Most of the income generated is exempt from federal income tax. Depending on the fund, it may also be exempt from the alternative minimum tax (AMT) or state taxes for residents in certain jurisdictions.

Regardless of the type, most money market funds distribute income on a monthly basis. On an annualized basis, yields tend to move in line with prevailing short-term interest rates.

Currently, that places most money market fund yields in the range of the federal funds rate, around 3.50% to 3.75%.

How we picked the best money market funds

Our primary consideration was fees. Money market funds are not designed to significantly outperform prevailing short-term interest rates. Their returns tend to track the fed funds rate.

Because these funds take on minimal credit and interest rate risk, there's little room to generate excess return. That makes fees one of the biggest determinants of investor outcomes.

The key metric to focus on is the seven-day SEC yield, which is quoted after expenses. In practice, the higher the expense ratio, the lower the yield a fund can deliver.

This can lead to situations where a prime money market fund, despite taking on slightly more credit risk, ends up yielding less than a government money market fund simply because its fees are higher. For this reason, we capped expense ratios at 0.20% per year.

We also considered accessibility. As mutual funds, some money market funds still impose minimum investment requirements. While these have become less common, certain large providers continue to require substantial initial investments.

That can be a barrier for investors just starting out. To address this, we limited our selection to funds with minimum investments of $5,000 or less, or those structured as ETFs where the minimum investment is one share (or less with fractional trading).

In addition, we focused on retail-accessible share classes for those structured as mutual funds. Many money market funds offer institutional share classes with lower fees, but these often require minimum investments in the millions of dollars and are geared toward entities such as pension funds, endowments or family offices.

Finally, we applied a basic scale filter. Given the large number of funds in this space, we restricted eligibility to those with at least $50 million in assets under management. This helps avoid the risk of fund closure due to insufficient interest.

North Capital Treasury Money Market Fund

• Assets under management: $64.4 million
• Expense ratio: 0.00%
• Minimum investment: N/A
• 7-day SEC yield: 3.70%

The North Capital Treasury Money Market Fund (NCGXX) is a bit of an under-the-radar option. While much smaller than offerings from large providers like Vanguard, Fidelity or Schwab, it stands out on a few key metrics.

The most notable advantage is cost. North Capital currently waives the fund's expense ratio down to zero. Since the seven-day SEC yield is quoted after fees, this directly boosts investor income, placing NCGXX's yield among the higher end of the money market category.

Accessibility is another differentiator. Despite being structured as an institutional share class, the fund doesn't require a minimum investment. That makes it viable even for investors starting with smaller amounts of capital.

For those willing to look beyond the largest fund families, NCGXX offers a simple, low-cost way to park cash while earning competitive yields.

Learn more about NCGXX at the North Capital provider site.

Vanguard Federal Money Market Fund

• Assets under management: $374.2 billion
• Expense ratio: 0.11%
• Minimum investment: $3,000
• 7-day SEC yield: 3.58%

If your preference is to stick with a large, established provider, Vanguard is hard to beat. The firm's cooperative ownership structure has historically led to consistent fee reductions, which directly benefit investors through higher net yields.

In that respect, the Vanguard Federal Money Market Fund (VMFXX) stands out as a core option.

While it does come with a $3,000 minimum investment, its expense ratio remains low relative to comparable funds from Fidelity and Schwab, supporting a competitive 3.58% seven-day SEC yield.

VMFXX is a government money market fund. That means at least 99.5% of its assets are invested in cash, U.S. government securities or repurchase agreements fully backed by government securities or cash.

This structure keeps credit risk minimal while maintaining a stable $1 net asset value.

Learn more about VMFXX at the Vanguard provider site.

Vanguard Treasury Money Market Fund

• Assets under management: $105.6 billion
• Expense ratio: 0.07%
• Minimum investment: $3,000
• 7-day SEC yield: 3.63%

Government money market funds can come in different forms. The most conservative tend to focus exclusively on U.S. Treasuries, and that's the case with the Vanguard Treasury Money Market Fund (VUSXX).

VUSXX invests at least 80% of its assets in Treasury bills or repurchase agreements backed by Treasuries. Vanguard itself classifies this as one of its lowest-risk offerings.

Despite being more conservative than VMFXX, it actually offers a higher 3.63% seven-day SEC yield. That comes down to cost. With a lower 0.07% expense ratio, more of the underlying yield is passed through to investors.

Learn more about VUSXX at the Vanguard provider site.

iShares Prime Money Market ETF

• Assets under management: $484.1 million
• Expense ratio: 0.20%
• Minimum investment: None
• 7-day SEC yield: 3.63%

Money market funds have now arrived in ETF form. Unlike traditional mutual fund versions, their net asset value is not fixed at $1. In practice, though, it remains very stable.

For example, the iShares Prime Money Market ETF (PMMF) trades within a narrow range around $100 per share. Over the course of the month, the NAV gradually increases as interest accrues, then resets lower on the ex-distribution date.

PMMF is structured as a prime money market fund. That allows it to invest beyond government securities into instruments such as certificates of deposit, commercial paper issued by financial institutions and corporations, as well as asset-backed securities.

Despite its higher 0.20% expense ratio, PMMF delivers a 3.63% seven-day SEC yield, comparable to more conservative Treasury-focused funds.

It also removes the barrier of minimum investments, with investors able to buy in at roughly $100, or the price of a single share.

Learn more about PMMF at the iShares provider site.

iShares Government Money Market ETF

• Assets under management: $104.4 million
• Expense ratio: 0.20%
• Minimum investment: None
• 7-day SEC yield: 3.48%

Prime money market funds like PMMF introduce some degree of credit risk. While still low due to the short duration and generally high quality of holdings, it isn't negligible. During the 2008 financial crisis, it was primarily prime money market funds that "broke the buck."

Investors looking to minimize that risk while staying within an ETF structure may prefer the iShares Government Money Market ETF (GMMF). Unlike PMMF, this fund is required to invest at least 99.5% of its assets in cash, U.S. government securities or repurchase agreements backed by those securities.

In practice, the portfolio is primarily composed of U.S. Treasuries, with smaller allocations to agency debt and government-backed repurchase agreements. This keeps credit risk extremely low and aligns GMMF more closely with traditional government money market funds.

The tradeoff is income. At a 3.48% seven-day SEC yield, GMMF pays slightly less than PMMF, reflecting its more conservative positioning, net of higher fees vs VMFXX or VUSXX.

Learn more about GMMF at the iShares provider site.

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Many newer ETF investors tend to focus on headline returns, often taking historical performance figures at face value. What those numbers do not fully capture are the effects of inflation and taxes.

While returns are typically presented net of fees, the rising cost of living and Uncle Sam can still take a meaningful bite out of what you actually keep.

Taxes, in particular, can have a larger impact on bond ETFs than equity ETFs. That comes down to how income is treated. Most bond ETFs distribute income that's taxed as ordinary income, not at the more favorable qualified dividend rates that apply to many U.S. equity ETFs.

Depending on your tax bracket, a significant portion of your yield can be lost to taxes before it's reinvested, reducing your effective compounding over time.

The impact can vary by bond type, as Treasury bond ETFs are typically exempt from state and local taxes, while corporate bond income is generally subject to both, making it among the least tax-efficient.

To address this, ETF providers offer municipal bond ETFs. These funds invest in bonds issued by state and local governments rather than corporations or the federal government. These securities are commonly used to finance public projects such as schools, highways, hospitals and water systems.

The key advantage is tax treatment. Income from many municipal bonds is exempt from federal income tax, and in some cases may also be exempt from even state taxes depending on where you live and how the fund is structured.

When packaged inside an ETF, investors gain the usual benefits of the structure, including intraday liquidity, transparent pricing and regular monthly income distributions. That combination of tax efficiency and accessibility has made municipal bond ETFs a popular option for income-focused investors in higher tax brackets.

With the wide range of options available and the fact that tax benefits can vary based on your individual situation, it pays to be selective.

Here, we look at how to find the best tax-free municipal bond ETFs, offer up some top options to consider for 2026, and round things out by explaining what to look for when evaluating municipal bond funds.

How we picked the best tax-free municipal bond ETFs

Given the wide variability in this space and the fact that each investor's tax situation is different, our primary goal was to present a well-rounded selection rather than a one-size-fits-all solution.

We selected five funds designed to address the most common use cases for municipal bonds. This includes one broadly diversified national fund that is exempt from federal taxes and the AMT, one state-specific option each for California and New York, one short-term fund for lower interest rate sensitivity, and one high-yield fund for investors seeking higher income.

From there, we applied our standard ETF screening criteria. First, we limited our selection to funds with at least $1 billion in assets under management. This helps reduce the risk of fund closure and ensures we are selecting established products from reputable providers.

We also required each fund to have a minimum five-year track record. This provides a clearer picture of how the ETF has performed across different market environments, including periods of credit stress and changing interest rate conditions.

Liquidity was another key consideration. We focused on ETFs with a 30-day median bid-ask spread of 0.05% or less to minimize trading costs when entering or exiting positions.

Finally, we capped expense ratios at 0.35% per year. On a $10,000 investment, that translates to approximately $35 in annual fees, which helps keep cost drag manageable while still allowing for a range of specialized municipal bond strategies.

Vanguard Tax-Exempt Bond ETF

• Assets under management: $47.6 billion
• Expense ratio: 0.03%
• 30-day SEC yield: 3.6%

In classic Vanguard fashion, the Vanguard Tax-Exempt Bond ETF (VTEB) stands out for its rock-bottom cost. For investors looking for flexibility, the strategy is also available as an Admiral Shares mutual fund.

This ETF passively tracks the S&P National AMT-Free Municipal Bond Index, ensuring that its income is exempt from federal income taxes as well as the federal alternative minimum tax.

From a risk standpoint, VTEB sits on the more conservative end of the municipal bond spectrum. The majority of its holdings are rated AA, reflecting strong credit quality across issuers.

Vanguard assigns it a 2 out of 5 on its internal risk scale, consistent with its focus on investment-grade securities.

Learn more about VTEB at the Vanguard provider site.

iShares California Muni Bond ETF

• Assets under management: $4.5 billion
• Expense ratio: 0.08%
• 30-day SEC yield: 3.2%

For some investors, minimizing state taxes can be just as impactful as reducing federal taxes. Broad national municipal bond ETFs won't always achieve that. To qualify for state-level tax benefits, the fund must hold bonds issued within your state of residence.

That's where the iShares California Muni Bond ETF (CMF) comes in. It tracks the ICE AMT-Free California Municipal Index, providing income that may be exempt from both federal and California state income taxes.

At first glance, the 3.2% 30-day SEC yield may seem low. However, iShares estimates a tax-equivalent yield of 6% for investors in the highest federal and state tax brackets.

While it is slightly more expensive than VTEB, the 0.08% expense ratio remains reasonable given its targeted tax advantages.

Learn more about CMF at the iShares provider site.

iShares New York Muni Bond ETF

• Assets under management: $1.4 billion
• Expense ratio: 0.09%
• 30-day SEC yield: 3.4%

Similarly, while on opposite sides of the country, New York investors face many of the same challenges as those in California, particularly high state income taxes. That's why many ETF providers offer state-specific municipal bond funds tailored to New York residents.

Enter the ishares New York Muni Bond ETF (NYF), which tracks the ICE AMT-Free New York Plus Municipal Index. The fund holds a diversified portfolio of 800+ municipal bonds issued within the state.

The ETF offers a 3.4% 30-day SEC yield, but iShares estimates a tax-equivalent yield of 6.7% for investors in the highest federal and state tax brackets.

At 0.09%, the expense ratio is just one basis point higher than CMF, remaining very reasonable for a targeted, tax-advantaged strategy.

Learn more about NYF at the iShares provider site.

SPDR Nuveen Bloomberg Short Term Municipal Bond ETF

• Assets under management: $3.5 billion
• Expense ratio: 0.20%
• 30-day SEC yield: 2.5%

Municipal bond funds are generally high quality, often rated AA, but they also tend to carry intermediate durations. That can make them more sensitive to rising interest rates, as seen in 2022.

Investors with a shorter time horizon or lower risk tolerance may prefer a shorter-duration option like the SPDR Nuveen Bloomberg Short Term Municipal Bond ETF (SHM). This ETF tracks the ICE 1–5 Year AMT-Free Broad Municipal Index.

The result is lower interest rate sensitivity. With an average duration of 2.28 years, SHM is far less exposed to rate movements than longer-term municipal bond ETFs.

However, that added stability comes at the cost of yield, with a lower 2.5% 30-day SEC yield.

Learn more about SHM at the State Street Investment Management provider site.

VanEck High Yield Muni ETF

• Assets under management: $4.5 billion
• Expense ratio: 0.32%
• 30-day SEC yield: 4.2%

Not all municipal bond issuers are investment grade. While most states, cities and agencies maintain solid creditworthiness, some face financial strain. To compensate for that added risk, they issue bonds with higher interest payments.

Accessing that segment of the market is possible through the VanEck High Yield Muni ETF (HYD). The portfolio reflects this mix of credit quality, with roughly 41% in investment-grade bonds, 21% in non-investment-grade securities rated BB to CCC and about 35.4% in unrated bonds.

This added credit risk increases the probability of default compared to higher-quality municipal ETFs.

However, investors are compensated with a higher 4.2% 30-day SEC yield, which remains exempt from federal income taxes.

Learn more about HYD at the VanEck provider site.

Understanding the different types of municipal bond ETFs

There are two main ways to think about municipal bond ETFs. These are not official classifications, but in practice, most fund lineups tend to follow one or both of these frameworks.

The first is by tax treatment:

• National municipal bond ETFs are the most diversified options, holding hundreds or even thousands of bonds issued by state and local entities across the U.S. Income from these funds is generally exempt from federal income tax and, in many cases, also exempt from the alternative minimum tax (AMT). The AMT is a parallel tax system designed to limit certain deductions and ensure a minimum level of taxation for higher-income individuals.
• State-specific municipal bond ETFs focus on bonds issued within a single state, often large, high-tax jurisdictions such as New York or California. For investors who reside in that same state, income from these ETFs can be exempt not only from federal taxes but also from state and local taxes, making them especially attractive for high earners in those regions.

The second is by credit quality and interest rate sensitivity:

• Credit quality reflects the issuer's ability to repay its obligations on time and in full. Municipal bonds are typically investment grade, meaning BBB or higher, with many rated A or AA. Some funds, however, invest in high-yield or "junk" municipal bonds, which offer higher income but come with increased risk, including the potential for default or principal loss if issuers face financial distress.
• Duration refers to how sensitive a bond ETF is to changes in interest rates. Short-term municipal bond ETFs, which hold bonds maturing in a few years or less, tend to be less affected by rising or falling rates. Longer-duration funds can see larger price swings as rates move, offering higher income potential but greater volatility. This is why providers often offer both short-term and long-term options depending on an investor's time horizon.

These categories are not mutually exclusive. You may find a short-term national municipal bond ETF or a long-term state-specific fund. The combination of these characteristics allows investors to tailor exposure based on both tax considerations and risk tolerance.

One final point is how yield is measured. Most bond ETFs report a 30-day SEC yield, which reflects income earned over the past month, net of expenses, and annualized.

For municipal bond ETFs, however, the more relevant metric is the tax-equivalent yield. This estimates what a taxable bond would need to pay to match the after-tax income of a municipal bond, based on your tax bracket.

Some providers publish this figure directly. If not, it can be estimated using your tax rate and available online calculators from brokerages.

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Stocks, schmocks. Lately, bonds have been a rewarding place to be, too, if the recent performance of Kiplinger ETF 20 member, JPMorgan Income ETF (JPIE), is any guide.

The multisector bond fund, which aims to maximize income for a prudent level of risk, delivered a 6.9% return over the past 12 months, with less than half the volatility of the Bloomberg U.S. Aggregate Bond Index. It currently yields 5.6%.

The fund's managers, led by Andrew Norelli, have a flexible mandate. They are free to invest in any sector and any bond they deem attractive, whether it's rated investment grade (triple-A to triple-B) or below, or whether it is short or long in maturity.

That leeway, along with good bond-picking, has enabled them to deliver above-average returns with below-average volatility since the exchange-traded fund's late-2021 launch.

Over the past three years, "even the Aggregate Bond index has had twice the volatility and returned less," says Norelli.

Lately, the managers have favored short-term securitized loans, which Norelli says offer more income than other bonds, including government and corporate debt, without lowering the quality of the portfolio. At last report, nearly 66% of the portfolio held securitized debt, much of it in government-guaranteed mortgage-backed bonds.

Norelli and his comanagers have an optimistic outlook for 2026, in part because of good economic growth numbers in recent quarters. But certain risks, such as central bank moves and the continued gradual shift away from the dollar as the primary currency for international trade and government reserves, make them cautious about interest rates and bonds with long-term maturities.

The fund's current two-year duration (a measure of interest rate sensitivity) is relatively low for this strategy, which at other points in recent years has been as high as six years. (Bond prices and yields move in opposite directions; a two-year duration implies a 2% drop in net asset value if interest rates rise by one percentage point, and vice versa.) The duration of the Agg index, at last report, was 5.8 years.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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It's true what people say: If you want the most reward, you have to take the most risk. But prudent investing is about taking calculated risks, not blind ones. And after three consecutive years of hardy stock returns, it may be time to dial down the risk in your portfolio, in preparation for the eventuality of a market stumble.

Or your circumstances in life might dictate a more cautious stance, for whatever reason. De-risking is about planning ahead.

"After the risk has happened, it's too late," says Tim Steffen, director of advanced planning in the wealth management division of investment firm Baird.

In a classic sense, de-risking involves scaling back on stocks and moving into less-volatile instruments, such as bonds and cash.

Some strategists, including Liz Thomas, head of investment strategy at SoFi, don't think market conditions warrant that right now, and you might agree. Similarly, thirty-something investors, who don't need to tap their retirement savings for decades, and investors who are already conservatively positioned may not need to de-risk.

In those cases, staying the course may be the better tack — and actually avoids the risk of not meeting your goals by investing too conservatively for long-term success.

But other situations present good opportunities to shore up your portfolio by making appropriate tweaks.

We'll review some de-risking strategies for several circumstances, including temporary hurdles (your job is in jeopardy or you're nearing retirement), more lasting ones (such as a change in your comfort level with risk), and other situations.

The first steps to de-risk your portfolio

Consider some best practices in your quest for a safer portfolio. It's important to remember that de-risking doesn't mean upending your current investment plan or selling everything and moving to cash. Rather, it's about finding ways to tame the risk in your portfolio without dramatically shifting the allocation of your investments.

In some cases, no selling may be required; you simply invest any new money you're putting in the market "a little differently," says Baird's Steffen.

Start with a review of your portfolio. You should have an investment plan already in place — one centered on a diversified portfolio that holds a mix of foreign and U.S. stocks, bonds, and cash and that is aligned with your time horizon and your risk tolerance.

These days, after three good stock-market years, your portfolio might be more aggressively positioned than you'd prefer. A simple rebalancing — selling securities that have done well and buying pockets of the market that have underperformed — could be enough to lower the risk level of your portfolio. And "now is a good time to lock in some gains," says Baird's Steffen.

Next, identify any life changes or worries that may be keeping you up at night. If your cash needs, investment goals, risk tolerance or time horizon have become more challenging, some de-risking might be in order.

"Scale any shifts you make in your portfolio to the scale of the risk involved," says David Kressner, a managing adviser at Altfest Personal Wealth Management in New York City.

Finally, you may want to assess how any portfolio tweaks you're considering may affect your chances of achieving your investment goals. That’s what Cassandra Rupp, a senior wealth adviser at Vanguard, does before making any moves in her clients' portfolios.

Rupp stress tests the new portfolio in a Monte Carlo simulation, which runs through hundreds of possible market scenarios to find out how it might perform and, most importantly, how likely the altered portfolio will be to accomplish the client's investment objective.

"So, it's not just about how we might be revising the investments," says Rupp. "It's also revisiting the success rate of the new long-term plan."

Read on for ways to de-risk your portfolio in five different scenarios, including investments to consider. All returns and data are through May 26, unless noted otherwise.

Scenario 1: You're worried about a stock market bubble.

If a bubble in artificial-intelligence-related stocks concerns you, you're probably overinvested in them, says Baird's Steffen. Of course, these days, most of us are. The AI-stock-heavy tech and communications services sectors combined currently make up nearly half of the S&P 500 Index.

Diversification is the name of the game in this scenario. "Rarely does a bubble affect all things in a uniform type of way," says Kressner. For instance, in the early 2000s, when the dot-com bubble burst, a well-diversified portfolio, with exposure to non-tech sectors, small-company shares and foreign stocks, weathered the downturn well, he says.

Beef up your stakes in non-tech parts of the market with an aim to lower your tech exposure to about 25% of your overall stock portfolio.

"This is a good time to spread your money out," says Lewis Altfest, chief investment officer at Altfest Personal Wealth Management. "Tech stock valuations are kind of rich right now. And I think other parts of the market are going to do better than technology, or at least keep up with it, and with less risk," Altfest says.

Non-tech sectors to consider include healthcare and consumer staples, where investors are currently "underexposed," says SoFi's Thomas.

Our favorite diversified healthcare fund is the Fidelity Select Health Care Portfolio (FSPHX), a member of the Kiplinger 25, the list of our favorite no-load mutual funds. Manager Eddie Yoon has outpaced his competition over the past three, five, 10 and 15 years.

The Vanguard Consumer Staples Index (VCSAX) and its exchange-traded-fund twin that trades under the symbol VDC both charge just 0.09% in annual expenses and boast five-and 10-year annualized records that rank among the top decile of consumer staples funds.

Alternatively, an equal-weighted index fund, such as the Invesco S&P 500 Equal Weight ETF (RSP), can lessen overconcentration in huge tech stocks because it holds every stock in the S&P 500 in equal proportion.

Or buy funds that focus on midsize and small-cap stocks. Small caps will benefit from continued interest rate cuts; mid-cap stocks are ripe pickings for all those mergers and acquisitions deals that many expect to pick up in pace this year.

The iShares Core S&P Mid-Cap ETF (IJH) and the iShares Core S&P Small-Cap ETF (IJR) are members of the Kiplinger ETF 20, the list of our favorite exchange-traded funds, as is the aforementioned Invesco S&P 500 Equal Weight fund.

Tilting toward large-company value strategies is another way to diversify. You'd be surprised to learn, however, that many large-value funds count Nvidia (NVDA), Apple (AAPL) and Microsoft (MSFT) among their top holdings. Two that don't: Vanguard Equity Income (VEIPX) and Dodge & Cox Stock (DODGX). Both funds are members of the Kiplinger 25.

Index-fund lovers might consider Vanguard Value Index (VVIAX), which also trades as an ETF under the symbol VTV.

Explore abroad. Despite a solid performance in 2025, foreign stocks still trade at bargain prices relative to U.S. shares on multiple measures.

The Vanguard Total International Stock ETF (VXUS) tracks an index that includes nearly every publicly traded foreign stock in developed and emerging countries. The fund has climbed 33% over the past 12 months.

Altfest favors international value-oriented stock strategies these days. One such fund that catches our eye: the iShares Edge MSCI International Value Factor ETF (IVLU), which tracks an index of foreign large and midsize companies that trade at low valuations. Over the past 12 months, the fund has gained 38%. Its 10-year annualized return, 11%, isn't shabby, either. Both trailing returns outpace the MSCI EAFE Index of stocks in foreign developed countries.

Scenario 2: Your job is insecure.

Layoff fears are high these days, according to a recent survey by Zety, a website that helps job seekers write résumés and cover letters. But if you're laid off, unless you’re close to retirement age, you'll likely find work again.

So the best de-risking strategy — before the pink slip arrives — is to leave your portfolio allocation alone but focus on having enough cash to cover your costs while you're looking for new employment.

Build an emergency fund that covers at least three to six months of essential expenses — rent or mortgage, car payments, gas, food, healthcare costs, insurance and utilities. Planning for enough to cover just the basics, of course, means fewer dinners out and other such treats while you're looking for a new job.

If denying those pleasures is a downer to you, then you may need to pad your emergency fund more, says Jonathan Lee, a wealth management adviser at U.S. Bank. And bear in mind, depending on your work experience, income level and how niche-y your skill set is, it may take you longer to find a job than someone in the early stages of their career.

In that case, a six-month emergency fund makes more sense than one that covers just three months.

You should consider family-income dynamics when you're deciding how much to save in your emergency fund, too. If you're single or your family pulls in two fairly equal salaries, then a three-month fund may be sufficient. But if household income is lopsided or you rely on one income (or you and your partner work at the same place or in the same field), an emergency fund that covers closer to six months is a good goal, says U.S. Bank's Lee.

Finally, factor in psychology. For nervous Nellies, a six-month emergency fund can make sense regardless of job experience or family dynamics. Setting aside cash over a year or even two years is a reasonable goal by balancing saving for your retirement and an emergency fund at the same time.

If you're already out of work and have no emergency fund, you may have to tap other resources, such as a home-equity line of credit, if you have one.

If you must sell investments, tee up assets in a taxable account first, both to avoid an early withdrawal tax penalty if you're younger than 59½ (you can make penalty-free withdrawals of contributions from a Roth account) and to keep your tax-deferred assets growing. Aim to keep your overall allocation in place by selling proportionately across your portfolio so that your long-term investment plan remains unchanged.

Keep your emergency stash in an interest-bearing account that beats inflation (running about 3.8%). "You may not need to rely on it for years, but over the course of time, inflation can seep into your ability to afford your lifestyle as you know it," says Lee.

At last report, top yields for both high-yield savings accounts and money market bank accounts were at or above 4%. Among money market mutual funds, the Vanguard Federal Money Market Fund (VMFXX), the second-largest in the country by assets, offered 3.6%; the biggest money market mutual fund, the Fidelity Government Money Market Fund (SPAXX), paid 3.3%.

Scenario 3: You've entered the retirement danger zone.

The five years before and after you retire, a period known as the retirement danger zone, is a critical time in your investing life. A major market downturn during that stretch could shrink your portfolio just when you need to start pulling from it.

Over time, that can negatively impact your ability to outlast your nest egg. "It's called the sequence-of-returns risk," says U.S. Bank's Lee. We're living longer, too, which adds to the danger.

The best way to protect yourself against a sequence-of-returns risk is to make sure you've got enough cash on hand to cover two to three years' worth of expenses in retirement, after accounting for income from other sources, such as Social Security or a pension.

Consider putting aside enough for necessary expenses, as well as fun money, says Lee. Extremely risk-averse investors might consider holding up to five years of expenses, but three years is a good middle ground. The goal is to buy enough time to ride out a tough market, should one come along, so you aren't forced to sell investments in a down market.

Ready cash means money that's easily accessible in a high-yield savings account, money market bank account or a money market mutual fund, all of which yield roughly 3.0% to 4.0%, nationwide, at last report.

You can use this Bankrate tool to find and compare savings options fast:

Investors in the retirement danger zone should consider de-risking the medium-term portion of their investment portfolio, too. In a "bucket" approach to retirement-portfolio construction, that means holding the bucket of money you expect to tap roughly four to 10 years from now in a combination of cash and high-quality bonds and bond funds.

Our favorite actively managed intermediate-term bond funds include Baird Aggregate Bond (BAGSX), which currently yields 3.9%; Fidelity Investment Grade Bond (FBNDX), which yields 4.0%; and the Vanguard Core Bond ETF (VCRB), 4.7%.

An intermediate-term government fund we like is Vanguard Intermediate Term Treasury (VFITX), which is actively managed and yields 4.0%.

For now, short-term bond funds still offer good yields. Consider these stand-out short-term bond funds: iShares Short Duration Bond Active (NEAR), which yields 4.3% — it's a member of the Kip ETF 20 — and Vanguard Short-Term Federal (VSGBX), which currently yields 3.5%.

Lee says a small stock allocation in the medium-term bucket is not out of order, as long as the stocks are high-quality, well-established, large-cap stocks from the U.S. or developed foreign countries. "These stocks will grow over time, but they aren't all the way out on the risk spectrum," he says.

To add high-quality companies to your portfolio, take a look at these two funds. The Pacer US Cash Cows 100 ETF (COWZ) focuses on large companies with the highest free-cash-flow yield. That's free cash flow (money left over after operating expenses and spending to maintain or upgrade property and equipment) relative to a company's market value.

The fund has returned 10.5% annualized over the past five years. Notably, it gained 0.2% in 2022, a year when the S&P 500 lost 18.1%. The JPMorgan U.S. Quality Factor ETF (JQUA) turned in a solid 13.8% five-year annualized return with below-average volatility. It tracks an index that sifts for companies that meet 10 quality-oriented criteria, including measures of profitability, financial risk and earnings quality.

For exposure to high-quality foreign stocks, consider the Invesco S&P International Developed Quality ETF (IDHQ), an index fund that homes in on three fundamental ratios: return on equity (a profitability measure), accruals ratio (an earnings-quality measure) and financial-leverage ratio (a measure of financial stability and solvency). Or consider a foreign dividend-stock fund — such funds tend to offer smoother rides.

Kiplinger 25 member Janus Henderson Global Equity Income (HFQTX) sports below-average volatility and has generated a robust 6.4% yield over the past 12 months.

Ideally, you'd be making de-risking moves in a tax-sheltered account, says Christine Benz, director of financial planning and retirement at Morningstar.

"But if you're still working and contributing to those retirement accounts, think about channeling your new contributions to those safer holdings as a way to move up your allocation there," she says.

Scenario 4: Your risk tolerance is lower than you think.

It happens: You thought you could withstand a bear-market drop in your portfolio, but now you're not comfortable with it. The early 2025 tariff tantrum, when the S&P 500 dropped 19% in less than seven weeks, was a wake-up call for many investors.

If your ability to withstand stock market losses has changed, there are ways to maintain exposure to equities but pare down the volatility, or even limit potential losses — you just may have to give up some potential gains.

Defensive sectors, such as consumer staples and utility stocks, tend to be steady Eddies, in part because many sport robust dividends that can cushion any losses (or shore up slim returns).

Over the past decade, for instance, shares in companies that sell essential daily household products have been nearly 20% less volatile than the broad market. The aforementioned Vanguard Consumer Staples ETF (VDC) ranks among the top 8% of all consumer staples funds over the past three years. Utilities, meanwhile, are a classic defensive play. Consider the Invesco S&P 500 Equal Weight Utilities ETF (RSPU).

Focusing on more stable stocks may be a good move this year, says SoFi's Thomas, because it's a midterm election year, and those tend to be more volatile.

A buffered ETF uses options tied to a specific index to cushion losses to a predetermined degree in exchange for a cap on potential gains.

Buffered ETFs require some timing when you buy, because the options are set to cover a specific stretch — 12 months, for example — so optimally, you'll get in at the start of the period. Once purchased, however, they can be held indefinitely, because they roll over to a new 12-month stretch.

Buy shares in the Innovator U.S. Equity Power Buffer ETF July Series (PJUL) in late June, for instance. It protects you against the first 15% in losses in the S&P 500 between the start of July 2026 and the end of June 2027.

The cap on gains changes from one-year period to one-year period and had not been set yet at press time. The fund's cap on gains over the past 12-month period that ended in April 2026 was 13.1%, net of fees.

These funds come in many iterations. Some are tied to the performance of other indexes, including the Nasdaq Composite, as well as benchmarks for small-company stocks, emerging and developed foreign stocks, and even bonds. The reset period, also known as the outcome period, varies, too. Some buffered funds reset over three months, six months or two years, for example.

The Innovator Defined Wealth Shield ETF (BALT) offers protection against a 20% drop in the S&P 500 every three months. In its most recent quarterly stretch, which ended in March, the fund’s three-month cap on gains was 2.1% (which implies an annualized cap of more than 8% over 12 months). With its hefty buffer on losses, this fund tends to behave more like a bond investment.

Scenario 5: You fear a recession ahead.

Most economists expect slower growth but no recession in 2026. But just the fear of a recession can affect the stock market, whether one actually occurs or not, says Jim Paulsen, a former Wall Street strategist who writes the newsletter Paulsen Perspectives.

In turn, a calamity in the market could dent what’s known as the "wealth effect," causing investors to cut back on spending and delivering a blow to the economy.

Diversification is your first line of defense in a recession. Make sure your investments are appropriately spread across sectors, company size, geography and even investment style (value and growth).

A Wells Fargo Investment Institute study shows that a portfolio with a wide mix of investments outperformed the S&P 500 by an average of seven percentage points over the past several recessions.

Retune your portfolio so it's more defensive. A defensive portfolio — one that's always positioned for an economic downturn — can allow you to maintain an appropriate mix of stocks, bonds and cash, but tilting toward more conservative selections within those asset classes may provide a smoother ride, which can help investors stay the course, says Frank Maltais, a certified financial planner at Fidelity in Portland, Maine.

On the stock side, load up on high-quality names that are less economically sensitive, are low in volatility and pay dividends. In addition to funds we've already named, such as Fidelity Select Health Care, Vanguard Equity Income, Invesco S&P 500 Equal Weight Utilities and Vanguard Equity Income, we also like Capital Group Dividend Value (CGDV), which invests in stocks of established U.S. firms that generate above-average dividend yield (greater than the S&P 500).

Over the past three years, it has returned 25.4% annualized, beating 99% of its peers (large-value funds), with volatility that was a touch below average.

Go high-quality on the bond side, too, and hold short-and intermediate-term Treasuries, which offer ballast in stock-market downturns, as well as government-guaranteed mortgage bonds. You can buy Treasuries directly from the government at Treasury Direct.gov and hold to maturity.

Among funds, the iShares U.S. Treasury Bond ETF (GOVT) holds debt with short-, medium-and long-term maturities and yields 4.3%. More than 55% of the portfolio is invested in bonds that mature in one to five years. Target the short end of the yield curve with the iShares 1-3Year Treasury Bond ETF (SHY), which yields 3.9%.

If you want to tilt more toward medium-maturity debt, Vanguard Intermediate-Term Treasury (VFITX) holds a mix of bonds that mature in three to seven years. Our favorite mortgage-bond funds include the index-based Vanguard Mortgage-Backed Securities ETF (VMBS), which yields 4.1%, and the actively managed fund Vanguard GNMA (VFIIX), which yields 3.7%.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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When you make money in a taxable account, Uncle Sam will eventually claim a portion of it. The rate you pay depends on how that return is classified. Capital gains, for example, are divided into short term and long term.

Dividends are also split into qualified and non-qualified. The highest tax burden typically falls on ordinary income, which includes interest payments from bonds and distributions from real estate investment trusts (REITs)

If you want to keep more money compounding in your portfolio, it might serve you better to focus less on chasing the highest returns and more on what the government takes off the top.

Over time, tax drag can quietly erode performance just as much as a bad investment decision.

While accounts such as Roth IRAs or workplace 401(k) plans offer tax advantages, contribution limits apply and eligibility can be restricted. A standard brokerage account is far more flexible when it comes to contributions and withdrawals, but taxes apply in full. That makes fund selection especially important.

Below, we break down how tax efficiency works for exchange-traded funds (ETFs) compared with mutual funds. We also highlight five ETFs that stand out for their ability to minimize tax drag in 2026.

Why ETFs are more tax efficient than mutual funds

Before 1993, when the first U.S.-listed ETF debuted, mutual fund investors routinely faced a frustrating problem at year end: large capital gains distributions.

A mutual fund is an open-ended vehicle. Inside the portfolio, every time the manager buys or sells a security, that transaction can become a taxable event. If a security is sold above its cost basis, the gain is realized.

There are two common ways this happens. The first is through active management. In an attempt to outperform a benchmark, managers might trade frequently. High portfolio turnover increases the odds that appreciated positions are sold, locking in realized gains.

The second is investor redemptions. If a once high-flying mutual fund hits a rough patch and investors rush to pull money out, the fund must raise cash. If there isn't enough cash on hand, the manager might be forced to sell appreciated securities to meet withdrawals. That sale realizes gains.

Here's the catch: Even if you personally didn't sell a single share of the mutual fund, you can still receive a capital gains distribution at year end.

This is because mutual funds don't pay taxes at the fund level as long as they distribute realized gains and income to shareholders. You then owe taxes at your own rate.

That distribution reduces the fund's net asset value, and you pay the tax bill. If you re-invest the proceeds, you're compounding from a slightly diminished base. Over time, that tax drag can meaningfully reduce after-tax returns.

ETFs largely avoid this problem because of their in-kind creation and redemption mechanism. When new shares are created, an authorized participant delivers a basket of securities to the ETF issuer in exchange for ETF shares. When shares are redeemed, the process works in reverse. The ETF hands out a basket of securities instead of selling them for cash.

Because securities are transferred in kind rather than sold on the open market, the ETF typically doesn't realize capital gains. This structure acts as a built-in tax-management tool and is one of the main reasons ETFs are generally more tax efficient than mutual funds.

That said, not all ETFs are equally tax efficient. While capital gains distributions are rare, most ETFs still distribute investment income.

For example, dividend ETFs collect payments from the stocks they hold and pass them through to shareholders. Those dividends might be qualified, often from U.S. corporations, or non-qualified, more common with global diversification.

Bond ETFs distribute interest income, which is usually taxed as ordinary income. Treasury bond ETFs are generally exempt from state and local taxes. Municipal bond ETFs may be exempt from federal income tax and sometimes state tax as well. Corporate bond ETFs, however, are taxed at federal and state levels.

Other ETF categories can be less tax-friendly or complex. REIT ETFs often pass through income that isn't qualified and is taxed at higher rates. Some options-based strategies might distribute large amounts of return of capital. While not immediately taxable, it reduces your adjusted cost basis and can result in a larger capital gains bill when you eventually sell.

The bottom line is that while ETFs are typically more tax efficient than mutual funds, there is still meaningful variation within the ETF universe. Understanding what an ETF holds, how it generates income and how those distributions are classified is essential.

Investors can review this information on their year-end Form 1099-DIV, which details dividends and capital gains distributions. Careful selection can help minimize tax drag and keep more of your returns compounding over time.

How we selected the most tax-efficient ETFs

If we had ranked funds purely by after-tax returns, the list would have skewed almost entirely toward municipal bond ETFs.

While municipal funds can be highly tax efficient, that approach would not be very helpful for investors trying to build a well-diversified portfolio across multiple asset classes.

Instead, we structured our selection around five distinct categories: equities; bonds; commodities; cryptocurrency; and cash-like. The goal was to identify one ETF within each asset class that historically demonstrated minimal tax drag.

In some cases, that meant a fund with a very low or non-existent yield. In others, it meant a fund whose distributions leaned toward more tax-friendly sources, such as qualified dividends or return of capital, rather than ordinary income.

We also favored broadly diversified funds within each category. Concentrated strategies, even if tax efficient, can introduce uncompensated risk tied to a single sector, country or security. By emphasizing diversified exposure, we aimed to ensure each ETF could realistically function as a core building block rather than a narrow tactical trade.

After narrowing the field within each category, we applied criteria to ensure durability and usability. Each fund selected had at least $1 billion in assets under management to reduce closure risk and support economies of scale. We also capped expense ratios at 0.2%.

The result is a group of ETFs that not only aim to reduce tax drag, but also meet structural standards for liquidity and long-term viability.

Vanguard Growth ETF

• Inception date: January 26, 2004
• Assets under management: $203.5 billion
• Expense ratio: 0.03%
• 30-day SEC yield: 0.38%

While most equity ETFs avoid the large year-end capital gains distributions that historically affected mutual funds, investors can still face taxes from regular dividend payouts. Those dividends are taxable in a brokerage account.

One way to improve tax efficiency is to focus on funds with minimal yields or dividends that are largely qualified. Growth ETFs tend to hold companies that re-invest excess cash back into their businesses rather than distribute it to shareholders. As a result, yields are typically low.

The Vanguard Growth ETF (VUG) tracks the CRSP U.S. Large Cap Growth Index. The portfolio currently reflects an average earnings growth rate of 31.4% and a return on equity of 37.1%. In practical terms, these are firms prioritizing expansion, innovation and market share over dividend payouts.

The result is a modest yield, and much of that income is composed of qualified dividends, which are taxed at more favorable rates.

The trade-off is concentration. The fund is relatively top-heavy and heavily weighted toward tech stocks, which accounts for 65.7% of the portfolio

Learn more about VUG at the Vanguard provider site.

iShares National Muni Bond ETF

• Inception date: September 7, 2007
• Assets under management: $42.8 billion
• Expense ratio: 0.05%
• 30-day SEC yield: 3.15%

Investors looking for a tax-efficient way to lower overall portfolio risk might consider a municipal bond ETF such as the iShares National Muni Bond ETF (MUB), which tracks the ICE AMT-Free U.S. National Municipal Index and holds a diversified portfolio of more than 6,100 municipal bonds issued by state and local governments.

The majority of the portfolio is rated AA, with most of the remainder in AAA and single-A categories. That credit profile places it toward the higher-quality end of the fixed income spectrum, reducing default risk relative to lower-rated bonds.

At first glance, the 30-day SEC yield might appear lower than what's available from many taxable bond funds.

However, the key distinction is that MUB’s income is exempt from federal income tax and also exempt from the federal alternative minimum tax (AMT). For investors in higher tax brackets, this materially changes the comparison.

The more appropriate measure is the tax-equivalent yield. This figure estimates the yield a taxable bond would need to generate after taxes in order to match the tax-free income provided by a municipal bond fund.

According to iShares, MUB's tax-equivalent 30-day SEC yield is approximately 5.32%.

Learn more about MUB at the iShares provider site.

SPDR Gold MiniShares Trust

• Inception date: June 25, 2018
• Assets under management: $32.0 billion
• Expense ratio: 0.10%
• 30-day SEC yield: 0.0%

Some commodity ETFs that hold futures contracts can generate sizable year-end capital gains distributions. Futures positions must be rolled as contracts approach expiration. If those contracts are sold at a gain, the fund, as a pass-through vehicle, must distribute it to shareholders.

The SPDR Gold MiniShares Trust (GLDM) avoids that issue because it doesn't use futures at all. Instead, GLDM is backed by physical gold bullion held in custody with JPMorgan Chase Bank. As a spot gold ETF, its share price is designed to track the market price of gold during trading hours.

Gold itself is a non-cash-generating asset. It doesn't pay interest or dividends. As a result, GLDM carries no yield and typically doesn't distribute income to shareholders. That makes it structurally tax-efficient in a taxable account while you hold it.

However, taxes still apply when you sell. Physical gold and gold-backed ETFs are treated as collectibles under IRS rules. Long-term capital gains on collectibles don't receive the standard preferential rates applied to stocks and most ETFs. Instead, they're subject to a maximum federal tax rate of 28%.

Learn more about GLDM at the State Street provider site.

Grayscale Bitcoin Mini Trust ETF

• Inception date: July 31, 2024
• Assets under management: $3.4 billion
• Expense ratio: 0.15%
• 30-day SEC yield: 0.0%

Spot bitcoin ETFs share a similar structural tax advantage to physical gold funds. Bitcoin itself doesn't generate cash flow. There are no dividends and no interest payments.

As a result, the Grayscale Bitcoin Mini Trust ETF (BTC) has no yield and doesn't make regular income distributions. For taxable investors, that means there's generally no tax bill while you continue to hold the ETF.

BTC is notable because it was launched through a spin-off from Grayscale's older and much larger spot bitcoin ETF, with approximately 10% of the assets carved out into this lower-cost vehicle.

The original fund charged a 1.5% expense ratio. BTC's fee is one-tenth of that, making it far more competitive.

Unlike gold, bitcoin is not treated as a collectible under IRS rules. When you sell shares of a spot Bitcoin ETF at a gain, taxation depends on your holding period. Short-term gains are taxed at ordinary income rates, while long-term gains qualify for standard long-term capital gains rates, which are typically lower.

Learn more about BTC at the Grayscale provider site.

Alpha Architect 1–3 Month Box ETF

• Inception date: December 27, 2022
• Assets under management: $9.8 billion
• Expense ratio: 0.1949%
• 30-day SEC yield: 0.0%

If your goal is to keep cash relatively safe while still earning a nominal return, the traditional solution has been a money market fund.

The drawback is that the income those funds distribute is generally taxable each year and might not be especially efficient depending on whether the holdings are Treasury bills, repurchase agreements, or corporate paper.

Municipal money market funds can improve tax treatment, but they're not the only option anymore.

The Alpha Architect 1-3 Month Box ETF (BOXX) takes a different approach. Instead of owning Treasury bills directly, BOXX seeks to replicate their total return through a multileg options strategy known as a "box spread."

This combines long and short call options and put options at different strike prices to create a payoff that closely resembles a fixed-income instrument. Institutions have long used variants of this structure to borrow at low rates.

Because BOXX relies on options rather than holding interest-paying securities, it aims to avoid regular taxable income distributions.

The more relevant metric for this fund is its average yield to options expiry, which represents the anticipated weighted average return from the current option positions held in the portfolio. That figure is currently around 3.91%, broadly in line with prevailing short-term interest rates.

It's important to note that while BOXX's objective is to limit taxable distributions and it has largely done so, the fund has made them sporadically in the past. Avoiding income is a goal of the structure, but it isn't guaranteed.

Learn more about BOXX at the Alpha Architect ETF website.

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Exchange-traded funds have long given investors convenient access to some of the world's most valuable commodities, primarily gold and silver. Both metals dominated headlines amid what many market participants call the "debasement trade."

Major gains for gold ETFs and silver ETFs in 2025 reflect rapidly rising interest from investors, traders and speculators.

The debasement trade reflects a view that persistent fiscal deficits, heavy government borrowing and accommodative monetary policy will erode the purchasing power of the U.S. dollar over time, pushing investors toward hard assets perceived as resistant to inflation and currency dilution.

Historically, gold has been a primary beneficiary of this mindset. It remains a core component of central bank reserves worldwide and has functioned as a store of value across cultures and monetary regimes. Silver, while also considered a precious metal, draws additional support from its industrial uses.

But gold and silver aren't the only metals attracting investor interest. Another metal gaining momentum is copper. It might not carry the same mystique as gold or silver, yet its role in the modern economy is arguably more critical. Precious metals ETFs provide some industrial exposure.

As global electrification accelerates in the age of artificial intelligence (AI), though, copper increasingly looks less like a cyclical industrial input and more like a structural growth story. That theme was underscored by a January 2026 report from S&P Global, "Copper in the Age of AI: Challenges of Electrification."

The firm highlighted several noteworthy trends. Most notably, the U.S. government designated copper a critical mineral in 2025 due to its importance in mobility infrastructure, communications networks and defense tech.

Meanwhile, global copper demand is projected to rise from 28 million metric tons in 2025 to 42 million metric tons by 2040, a roughly 50% increase. At the same time, analysts forecast a potential 10 million metric ton supply shortfall by 2040 if new production fails to keep pace.

Copper's investment case is about long-term, upstream exposure to the raw material layer of industries such as AI data centers, electric vehicles, grid upgrades and renewable energy buildouts.

Copper ETFs offer brokerage-accessible ways to express that view, but can vary meaningfully in exposure. Here's our breakdown of five copper ETFs worth considering and what differentiates them from one another.

How we defined copper ETFs

Not all copper funds are structured the same way. Some aren't even ETFs. A good example is the Sprott Physical Copper Trust (COPP).

It's a closed-end fund (CEF). Unlike ETFs, which create and redeem shares on an ongoing basis to keep supply aligned with demand, CEFs launch through an initial public offering (IPO) with a fixed number of shares. After that, shares simply trade between investors on the exchange.

That structure leads to an unusual dynamic. A CEF's market price can trade above its net asset value (NAV), known as a premium, or below it, known as a discount. Depending on buying and selling pressure, you could overpay or underpay relative to the value of the underlying assets.

For example, as of February 17, COPP's NAV was $11.60, while its market price was $11.39. That means investors were buying its underlying copper reserves at roughly a 1.8% discount.

There's no guarantee a discount will narrow. It can persist for years, or even widen. On top of that, COPP carries a 1.61% expense ratio, which is relatively high.

Unlike gold, there is currently no widely available U.S.-listed ETF that holds physical copper bullion in vaults. Instead, most copper ETFs focus on copper mining companies.

These are organizations that explore for deposits, drill and extract ore from the ground, process it and sell refined copper into the market. What makes or breaks these companies often comes down to their "all-in sustaining cost," or AISC. This represents the total cost of producing one pound of copper, including extraction, labor, energy and maintenance.

When copper prices rise meaningfully above a miner's AISC, profit margins expand rapidly. When prices fall toward or below that cost level, margins compress or disappear.

A miner's fixed costs remain largely the same regardless of copper prices. When revenue per pound increases, a large portion of that incremental revenue flows straight to the bottom line. The reverse is also true in downturns.

That's why copper mining stocks tend to be correlated with spot copper prices, but often in amplified fashion. As a result, copper miner ETFs can be more volatile than copper itself.

Copper mining ETFs are common because wrapping publicly traded mining stocks inside an ETF is straightforward. Investors get indirect copper exposure without dealing with the hassle of CEFs.

For the majority of long-term investors interested in copper as a structural theme tied to electrification, a copper mining ETF often strikes a balance between accessibility, liquidity and exposure.

How we picked the best copper ETFs

In addition to excluding copper CEFs, we also omitted several types of copper exposure that, in our view, introduce unnecessary complexity or structural risk for long-term investors.

First, we excluded leveraged copper ETFs. These are the funds with "2x" in the name that aim to deliver two times the daily return of a copper benchmark. The emphasis is on daily price action.

Because these ETFs reset each day, performance over longer holding periods can diverge significantly from simply doubling copper's long-term return, especially in volatile markets. The compounding effect can work against investors, making these vehicles more suitable for short-term trading.

Second, we excluded futures-based copper ETFs. These funds hold copper futures contracts rather than physical copper or copper mining stocks. Futures prices are not always aligned with the current, or spot, price of copper. The gap between the two can materially impact returns.

A key risk is "contango," in which longer-dated futures trade at higher prices than near-term contracts or the spot market. When contracts approach expiration, the ETF must sell the expiring contract and buy the next one. In a contango environment, that often means selling lower and buying higher, creating a persistent drag on performance.

Many futures-based commodity ETFs are also structured as limited partnerships. Investors might receive a Schedule K-1 (PDF) instead of a standard Form 1099. A K-1 can complicate tax filing, potentially involving additional forms, multi-state reporting, and delayed tax documents.

Because the copper ETF universe is relatively narrow, we were less rigid on fund size and expense ratios than in other categories. That said, we still flagged cases in which lower assets under management could pose a potential risk of closure or if fees were meaningfully higher than the category average.

Finally, we focused heavily on explaining benchmark construction and geographic exposure. Some copper ETFs track global mining indexes, while others tilt toward specific regions such as Canada, Australia or emerging markets.

Differences in benchmark methodology, weighting schemes and geographic concentration can meaningfully affect investment outcomes. Those structural distinctions are often more important than small differences in fees.

Global X Copper Miners ETF

• Inception date: April 19, 2010
• Expense ratio: 0.65%
• Assets under management: $7.46 billion
• 30-day median bid-ask spread: 0.09%

The Global X Copper Miners ETF (COPX) is the largest copper-focused ETF by assets under management, a status it has earned largely through longevity. With more than a decade of live performance history, COPX has become the default choice for many investors seeking pure-play exposure to copper mining equities.

The fund tracks the Solactive Global Copper Miners Total Return Index, which currently includes 41 companies. Holdings are concentrated in the materials sector, since that is where miners are classified.

Unlike broad equity ETFs that are typically overweight the U.S., COPX has a distinctly global footprint. Canada represents the largest country allocation at 36.7%, reflecting the country's deep mining ecosystem, established regulatory framework and large number of publicly listed resource companies. China, the U.S., Australia and Japan round out the top country exposures.

Performance has been robust, particularly in recent periods. Over the trailing 10-year period, COPX has delivered a 22.17% annualized total return with distributions reinvested. A significant portion of that gain has come more recently, with the ETF up 93% over the past year as copper prices rallied sharply.

Learn more about COPX at the Global X provider site.

iShares Copper and Metals Mining ETF

• Inception date: June 21, 2023
• Expense ratio: 0.47%
• Assets under management: $446.81 million
• 30-day median bid-ask spread: 0.18%

The iShares Copper and Metals Mining ETF (ICOP) comes from BlackRock's expansive iShares lineup, which offers ETFs across virtually every asset class and strategy. Despite launching only in mid-2023, ICOP has gathered meaningful assets, reflecting the strength of the iShares brand.

The ETF tracks the STOXX Global Copper and Metals Mining Index, a benchmark composed of 47 companies. Canada represents a significant portion of the portfolio.

But ICOP differs from COPX in that it casts a wider net across diversified metals miners rather than focusing on pure-play copper producers. As a result, you see relatively greater representation from companies based in the United Kingdom and Australia, along with firms that derive revenue from multiple industrial metals in addition to copper.

Liquidity is lower than COPX, with a bid-ask spread roughly twice as wide. However, investors benefit from a lower expense ratio.

Learn more about ICOP at the BlackRock iShares provider site.

Sprott Copper Miners ETF

• Inception date: March 5, 2024
• Expense ratio: 0.65%
• Assets under management: $283.7 million
• 30-day median bid-ask spread: 0.33%

While we were critical of Sprott's physically backed copper trust due to its closed-end structure and premium-discount dynamics, the firm does offer a more conventional alternative in the form of the Sprott Copper Miners ETF (COPP).

COPP tracks the Nasdaq Sprott Copper Miners Index. Unlike ICOP, this benchmark places greater emphasis on pure-play copper producers. The portfolio currently holds 62 companies, and Sprott provides detailed breakdowns of revenue exposure and portfolio composition.

Geographically, the allocation is again Canada-heavy at approximately 43% of the portfolio, reflecting the country's deep mining ecosystem. The U.S. follows, with Chile No. 3. Chile's inclusion is notable, as the emerging market is one of the largest copper-producing nations.

COPP tilts toward larger companies, with about 70% of holdings above $10 billion in market cap. One distinctive feature of COPP is that it includes a small allocation, approximately 4.39%, to physical copper through ownership of Sprott's physical copper trust.

Learn more about COPP at the Sprott provider site.

Sprott Junior Copper Miners ETF

• Inception date: February 1, 2023
• Expense ratio: 0.76%
• Assets under management: $184.98 million
• 30-day median bid-ask spread: 0.43%

A junior miner is a company still in the exploration or early development phase. Many are not yet producing copper at commercial scale. Instead, they're drilling, conducting feasibility studies, securing permits and attempting to prove out economically viable reserves.

Because their revenue is often limited or nonexistent, their valuations are highly sensitive to exploration results, capital market conditions and commodity price expectations. The upside can be significant if a project moves into production or becomes an acquisition target. The downside can be equally severe if financing dries up or resource estimates disappoint.

The composition of the Sprott Junior Copper Miners ETF (COPJ) portfolio reflects this speculative tilt: 78.1% of holdings are small-cap stocks with market capitalizations under $2 billion. Canada remains the largest country allocation. Australia, another jurisdiction known for its early-stage resource firms, ranks second at 15.2%.

Investors should understand that COPJ carries materially higher volatility than larger-cap copper miner ETFs such as COPP. The fund is also more expensive and less liquid, as reflected in its higher expense ratio and wider bid-ask spread.

Learn more about COPJ at the Sprott provider site.

Themes Copper Miners ETF

• Inception date: September 24, 2024
• Expense ratio: 0.35%
• Assets under management: $13.31 million
• 30-day median bid-ask spread: 0.49%

If fees are your primary consideration when selecting a copper miners ETF, the Themes Copper Miners ETF (COPA) stands out. COPA is the lowest-cost option on this list.

COPA tracks the BITA Global Copper Mining Select Index, a portfolio of 53 companies involved in copper mining. Like most funds in this segment, it's heavily weighted toward materials stocks.

Canada represents the largest country allocation, reflecting the country's deep mining ecosystem, followed by the U.S., the UK and Australia. From a market-cap perspective, the portfolio skews toward larger, more established producers.

With just $13.31 million in assets, it's significantly smaller than many peers. Lower AUM and lighter trading volume have translated into a wider bid-ask spread compared with larger copper ETFs.

Learn more about COPA at the Themes ETFs provider site.

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When the stock market became particularly volatile in early 2025, many investors began looking for safer investment vehicles. They were often disappointed.

One of the safest places to put your money is an FDIC-insured savings account. However, with interest rates as low as 0.01%, that safety comes with a considerable caveat in the form of inflation.

If you put $100,000 into such an account, you'll have made $10 in interest after a year. Before you go on a spending spree, keep in mind that such accounts often carry fees. One common 0.01% APY savings account charges $8 per year, leaving you with just $2 in profit.

With inflation hovering near 3%, it's easy to see how saving in such a low-yield account actually costs you spending power.

On the other side of the spectrum, the S&P 500 yields an average of 10% growth per year, which can mean significant gains for your portfolio over time.

As investors experienced firsthand when the stock market tumbled for days in late March and early April of 2025, such growth potential is accompanied by considerably more risk than savings accounts.

The market rapidly recovered, but that's not always the case — hence the use of the words "investing" vs "savings."

CDs have been a tempting option in this era of elevated interest rates, but those rates are on the way down. As such accounts mature, investors look for ways to at least maintain similar interest rates to the ones they'd been enjoying.

For those investors willing to take on slightly more risk than CDs, there are a few interesting options.

Structured notes

One example of a way to take on a little more risk in exchange for a higher yield is to buy an enhanced-yield bond from a financial institution.

An example of such a bond, known as a structured note, would be an indexed bond that pays 8% for the term of the note. If the index performs well, at the bond's maturity, you'll get your principal plus 8%. If the index performs poorly, you'll get only your principal.

Such bonds often have terms protecting the financial institution from particularly poor market performance. A common example is that if the index is down more than 30% when the bond matures, you get your original principal, less the amount that index has dropped.

Clearly, this is a higher-risk proposition than a regular bond or a CD because there's a possibility that you'll lose part or all of your principal, but it's a lower risk than investing directly in the market.

Buffer ETFs

Another interesting investment product that acts as a hybrid between risky market investments and safe low-yield choices is the buffer ETF.

"Buffer" refers to the downside buffer component of the ETF. That downside buffer can be as much as 100%, which means no matter how much the ETF's market drops, you won't lose your principal investment as long as you hold it to maturity, most often a one-year period.

Choosing an ETF with a buffer that's less than 100% often has the potential for higher returns, but at the expense of risking part of your principal investment.

If you're trying to decide between a structured note and a buffer ETF, bear in mind that structured notes are generally targeted at higher-net-worth investors and carry higher minimum investments.

Frequently, a buffer ETF doesn't have a minimum investment requirement, which means anyone can participate at any level they wish.

While these investment options often don't offer complete safety, the willingness to take on a small amount of risk can offer a higher potential return than standard "safe" investments like CDs.

These blending tools can be a compelling way to get a better return with less downside risk than traditional riskier investment options.

Needless to say, investing is complex and shouldn't be undertaken alone. It's important to work with your financial adviser to determine the products that make the most sense for you and your unique situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In a market dominated by artificial intelligence, international stocks were the sleeper hit over the past 12 months. In 2025, for the first time in 16 calendar years, foreign shares significantly outpaced their U.S. counterparts.

Vanguard Total International Stock (VXUS), one of our favorite exchange-traded funds and a member of the Kiplinger ETF 20, gained more than 32% over the 12-month period ending December 2025.

By contrast, the iShares Core S&P 500 ETF (IVV), tracking the U.S. benchmark, returned 18%. Meanwhile, shares in developing countries did even better; the iShares Core MSCI Emerging Markets ETF (IEMG) climbed nearly 33% over the same one-year period.

The weakening dollar was a tailwind. Its 9.4% drop in value in 2025 relative to a basket of foreign currencies meant any revenues and profits generated overseas became more valuable when converted into dollars.

Lower interest rates in the U.S. helped nudge investment capital abroad, while improving economic conditions there provided a favorable backdrop. Stepped-up spending on defense and security in European countries was a boon to those markets.

The setup fueled robust, double-digit returns for most foreign markets. Top performers among developed markets included Spain and Austria, which returned 82% and 78%, respectively, for the year ending in December.

Emerging markets South Korea and Greece logged 100% and 83% gains, respectively. All told, European bourses returned more than 35% over the same period. And China shares rallied 31%.

Global momentum could continue

Most global strategists expect at least some of that momentum to continue, especially if the dollar weakens further or even stabilizes at its current weaker position.

Strategists at BofA Global Research expect the dollar, indexed against a basket of other currencies, to end 2026 near $95; it was just below $99 in late 2025. A global "economic rebalancing" is underway, they write in a recent report, which they believe could be a plus for European and Chinese stocks.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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There are few certainties in life beyond death and taxes, but one of them is that you can always count on Vanguard Group to cut fees.

The nation's second-largest asset manager kicked off 2026 by once again cutting costs on a slew of exchange-traded funds (ETFs) and mutual funds. The move is part of a multiyear effort to save investors' hard-earned capital and boost their long-term returns.

This is what Vanguard does. The late, great Jack Bogle was keenly aware of the pernicious effects of costs on long-term performance. The Vanguard founder famously admonished folks never to allow the "tyranny of compounding costs" to overwhelm the magic of compound returns.

Put another way, Bogle said that when it comes to investing, "you get what you don't pay for."

No wonder Vanguard recently announced another sweeping round of cost reductions. The latest move slashes fees on a quarter of its U.S. funds. In total, 53 funds received a 27% fee reduction, on average, in early February, Vanguard said.

The firm now boasts an asset-weighted average expense ratio of 0.06%. That equates to 60 cents on every $1,000 invested.

Vanguard expects to deliver nearly $250 million in savings to investors this year. Combined with last year's fee cuts, investors are expected to save a staggering $600 million, Vanguard said.

"These fee reductions — set to deliver more than half a billion dollars in savings across 2025 and 2026 — are a clear expression of our purpose and commitment to our clients as owners," Vanguard CEO Salim Ramji said in a statement.

"When investors keep more of what they earn, the benefits compound over the long term, helping our clients achieve their most important financial goals."

Higher costs, lower wealth

Bogle's argument against costs was both elegant and elementary: every dollar you pay to an asset manager is a dollar that stops compounding for you.

Over a 50-year investment horizon, even a seemingly modest 1% annual fee can erode nearly half of your potential ending wealth. That's why Vanguard has cut fees and expense ratios more than 2,000 times since Bogle founded the firm in 1975. Expense ratios that started at 0.50% now average 0.06%. That's a very big deal.

Have a look at the table below to get a sense of the changes to some of Vanguard's biggest and most popular funds.

Vanguard's relentless attack on fees benefits all investors because other asset managers are forced to compete on price. The so-called Vanguard Effect has been revolutionary for retail investors. There's even an argument to be made that lower fees (and commission-free trading) boost equity valuations.

Vanguard notes that lower costs are directly correlated to the long-term performance of the firm's mutual funds and ETFs.

Need receipts? About 84% of Vanguard funds have outperformed their peer group averages in the past decade, including 88% of its active fixed-income funds, according to LSEG Lipper data.

If nothing else, Vanguard's latest cuts should prompt folks to double-check what they hold. If you own funds that charge, say, 0.50% for only market-matching returns, it's time to make some changes to your portfolio.

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No one would bat an eye if you called 2025 "the year of the ETF." At the same time, 2026 is even more of a banner year for exchange-traded funds.

The ETF industry grew to roughly $13.5 trillion by the end of last year — 30% year-over-year growth helped by rising markets, sure, but also record net new ETF flows of nearly $1.5 trillion. And ETF inflows crossed the $1 trillion threshold earlier than ever this, in mid-June.

In the meantime, mutual funds' assets grew by 10% to a little more than $31 trillion, but the investment fund class actually saw about $540 billion in outflows last year. And outflows are accelerating in 2026.

So ignore my earlier statement — I think you'd get quite a few reactions out of the folks representing the mutual fund industry. That's in part because ETFs' recent success appears to be at the expense of mutual funds, and in part because we could make the exact same claim every year for a long, long time.

However, despite bleeding share to their more versatile, tax-efficient and cost-effective ETF brethren for many years, mutual funds are far from a failed asset class. Indeed, mutual funds still boast a number of qualities that make them attractive holdings not just in a bubble, but in the real world where ETFs exist as an alternative.

Let's take a look at three reasons why you'd still buy mutual funds over ETFs.

1. Mutual funds underperform the S&P 500 … but not all indexes

If you want to make the case for buying an S&P 500 index fund, all you have to do is cite the oft-repeated S&P Dow Jones Indices' SPIVA (S&P Indices Versus Active) data showing that the index regularly takes human managers to the woodshed.

Case in point? Looking at data through December 31, 2025, just 14% of managers of funds that own large-cap stocks have been able to beat the average annual return of the S&P 500 over the trailing 10 years … and that number drops to 10% over the trailing-15-year period.

Here's the thing: Large-cap strategies involve investing in the most well-known, well-researched, and well-covered stocks on the planet. There is precious little that the broader market doesn't know about these companies, so there are very few inefficiencies for human managers to exploit.

The disparity isn't as bad in other categories, however, and active management has done quite well over shorter time periods. For instance:

• 24% of small-cap managers have beaten the S&P Small-Cap 600 over the trailing 10-year period. But that shoots up to 58% over the past three years and about 59% over the past year.
• Almost 20% of mid-cap managers have topped the S&P MidCap 400 over the trailing 10 years, but that improves to 37% over the last three years and 45% over the past year.

Where human managers really earn their keep, however, is in fixed income.

Over the trailing-five-year period, for instance, 27% of municipal bond fund managers have beaten the S&P National AMT-Free Municipal Bond Index, about 47% of general investment-grade managers have outdone the iBoxx $ Liquid Investment Grade, 72% of investment-grade short- and intermediate-term bond managers have topped the iBoxx $ Overall 1-5Y Index. And in that latter category, 53% of all managers have outdone the index over the trailing-10-year period, too.

And a reminder: Those are simply the averages. Some mutual fund managers have built up sterling track records of outperformance across most time frames, even if their contemporaries haven't.

2. If you want active management, mutual funds are where it's at

ETFs rose to prominence on the back of cost-efficient index strategies, but the actively managed ETF world is flourishing. From Morningstar:

"Last year," Stephen Welch, senior manager research analyst, Equity Strategies, wrote about fund flows in 2025 for Morningstar, "active exchange-traded funds set more records as they continued to gobble assets. They took in roughly $475 billion, or about one-third of all ETF inflows."

Yet ETFs still offer a fraction of the actively managed options available in the mutual fund world.

"Last year, close to 1,000 active ETFs launched, accounting for 35% of the roughly 2,800 US-domiciled active ETFs," Welch wrote, but "active ETFs still have a long way to go to catch mutual funds, of which there are more than 6,300 U.S.-listed strategies."

"But Kyle," you reply as you realize you're talking to your computer monitor, "aren't companies about to launch ETF clones of all their mutual funds?"

They might — but it'll likely take a lot longer than you think.

Vanguard was the first to have an ETF share class of a mutual fund approved — a quarter-century ago. The Vanguard Total Stock Market ETF (VTI) launched in 2001 as the ETF version of Vanguard Total Stock Market Index (VTSAX), followed by several other ETF versions of Vanguard's popular index funds. But no one has followed since, in large part because Vanguard owned the patent on the structure.

But that patent expired in 2023. Two years later, in late 2025, the Securities and Exchange Commission (SEC) approved Dimensional Fund Advisors' application to launch ETF shares of 13 of its existing mutual funds. But while that might have poked a hole in the dam, that dam might take years to burst.

"In the background, there's so much plumbing and infrastructure, making sure things are communicating correctly," Daniel Sotiroff, senior analyst for ETF and Passive Strategies at Morningstar, said in a Young and the Invested interview. "You have mutual funds that have existed in one way for decades, if not the better part of a century now, and you have ETFs that have existed for 30 some odd years, and they're completely different systems and now they have to talk to one another."

Sotiroff goes on to say that there are "relatively few firms" that are in a position to do this and do it well, and "the firms that are — I think of a Dimensional or a Capital Group — they're usually pretty prudent about what they're going to put in an ETF. They're not just going to start slapping the [ETF] wrapper on everything left and right."

3. Sometimes you have to buy mutual funds … and that's probably for the best

If we're being brutally honest, a big part of why mutual funds haven't hemorrhaged even more assets is because many investors are forced to own them. Most 401(k)s, 403(b)s, 457s only allow investors to select from a handful of mutual funds.

But again, if we're being brutally honest, this limitation likely saves many investors from themselves.

By forcing participants to own investment funds instead of individual securities, 401(k)s and other workplace plans are mandating a level of diversification that investors might otherwise avoid, drastically reducing concentration risk.

Moreover, by limiting investments to mutual funds — which don't trade throughout the day like ETFs do — 401(k)s discourage inexperienced investors from the frequent trading that numerous studies say produces underperformance compared to just buying and holding.

Would it be nice to have it all? Sure. But we're arguably better off being "stuck" in stodgy old mutual funds.

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The kind of uncertainty and volatility we've seen so far in 2026 can still lead to well above-average returns at the end of the year. Just look at what happened in 2025.

At the same time, it's only natural for you to be thinking about the kind of portfolio stability and peace of mind that comes from owning income-generating assets, such as weekly income-oriented exchange-traded funds.

Of course total returns, stability and peace of mind are important. At the same time, any discussion of weekly income ETFs should start with how fund distributions work.

When an ETF pays a distribution, its net asset value, or NAV, typically falls by roughly the amount of that payout on the ex-distribution date.

The NAV is simply the total value of the fund's assets minus liabilities, divided by the number of shares outstanding. The ex-distribution date is the cutoff date after which new buyers are no longer entitled to the upcoming payment.

In plain terms, the cash you receive doesn't come from nowhere. It comes out of the fund itself.

Because of this, some financial advisers argue that investors who need income can replicate the same result by selling a small number of ETF shares on a regular schedule and withdrawing the proceeds.

From a purely mechanical perspective, that logic is sound. Whether you receive a $100 distribution or sell $100 worth of shares, your total portfolio value ends up roughly the same. In practice, though, many retirees find this approach of selling shares uncomfortable.

This mental accounting difference has been a longstanding challenge in retirement income planning, even if it isn't strictly rational.

That preference helps explain why income-focused ETFs often pay monthly rather than quarterly, semi-annual or annual distributions, which are more common among growth-oriented funds. More frequent payments align better with household cash-flow needs and reduce the psychological friction around withdrawals.

Issuers have taken this idea one step further by introducing ETFs with weekly distribution schedules.

A relatively new corner of the ETF market, the lineup remains limited. But it is expanding quickly.

How do weekly income ETFs work?

Not all weekly income ETFs are built the same way. Some hold straightforward portfolios of stocks or bonds, while others rely heavily on derivatives, such as options. A few are almost entirely options-based, tied to the performance of a single underlying stock.

That range of structures means investors need to be especially careful. Distribution frequency alone does not tell you where the income is coming from, how sustainable it is, how it will be taxed or what risks are being taken to generate it.

Another important aspect of weekly income ETFs is the source of the distribution. Throughout the year, investors receive a disclosure known as Form 19A, which is required under the Investment Company Act of 1940 and provides an estimate of the tax character of that specific payout.

On the Form 19A, distributions may be classified as net investment income, capital gains or return of capital, which occurs when the fund distributes more cash than it generated from income or realized gains during that period. In effect, part of the payout is simply your own invested money being returned to you. The final determination comes after the calendar year, on the Form 1099-DIV, which reflects the actual tax treatment of all distributions received.

Return of capital also has unique tax implications in that it is not immediately taxable. Rather, it reduces your adjusted cost basis in the ETF. This effectively defers taxes until you sell the shares. However, once your cost basis is reduced to zero, any additional return of capital is taxed as capital gains.

For investors in taxable accounts, this makes it especially important to monitor how much of a weekly income ETF's distributions are classified as return of capital and track your adjusted cost basis.

How we picked the best weekly income ETFs

The sheer pace of launches in the weekly income ETF space makes apples-to-apples comparisons difficult. New products are coming to market constantly, often with very different structures, objectives and risk profiles.

Our shortlist focused on more conservative weekly income ETFs with stated yields of 15% or less. While that may still sound aggressive, it is already well above long-term equity market returns, which have historically averaged closer to 10% annually before taxes and inflation.

In our view, yields above this level become increasingly difficult to sustain without eroding net asset value or relying heavily on return of capital.

From there, we prioritized ETFs that have held up reasonably well on a total return basis compared with their long-only, non-income benchmarks. We also screened for reasonable fees and structures that do not introduce unnecessary complexity.

The result is a set of five weekly income ETFs that aim to balance payout frequency with durability, rather than chasing headline yields at the expense of long-term outcomes.

Texas Capital Government Money Market ETF

• Assets under management: $75.2 million
• Expense ratio: 0.20%, or $20 annually on every $10,000 invested
• 30-day SEC yield: 3.5%

Most investors are familiar with money market mutual funds. With a net asset value per share pegged at $1, these funds are designed to preserve capital. And they invest in ultra-short-maturity, highly liquid fixed-income securities.

Depending on the fund, that can include Treasury bills, repurchase agreements, and sometimes, high-quality corporate paper such as certificates of deposit (CDs) or commercial paper.

That same money market strategy can also be implemented in ETF form. While you give up the fixed $1 net asset value, the trade-off is a share price that remains very stable and performs intraday like a stock. The Texas Capital Government Money Market ETF (MMKT) is a clean example of this structure.

MMKT invests about 99.5% of its assets in U.S. government securities or cash, including fixed, floating and variable-rate instruments, as well as repurchase agreements. The overriding objective here is the safety of principal rather than capital appreciation.

In practice, MMKT's share price hovers around $100. Interest accrues daily, causing the price to tick higher over time. On the weekly ex-distribution date, the price resets lower to reflect the payout, and the distribution is then credited to your brokerage account shortly after.

This is a key distinction is the distribution of income on a weekly basis rather than monthly, which is what money market mutual funds typically do. Like all money market strategies, yields are heavily influenced by prevailing short-term interest rates.

Learn more about MMKT at the Texas Capital provider site.

JPMorgan 100% U.S. Treasury Securities Money Market ETF

• Assets under management: $70.1 million
• Expense ratio: 0.16%
• 30-day SEC yield: 3.5%

Even within government money market funds, there are more specialized options, including Treasury-only money market funds, which sit at the most conservative end of the spectrum. These funds invest exclusively in U.S. Treasury bills, notes and bonds and typically avoid repurchase agreements altogether.

The JPMorgan 100% U.S. Treasury Securities Money Market ETF (JMMF) falls squarely into this category.

By holding only direct obligations of the U.S. Treasury, JMMF offers an additional tax benefit for investors. Interest income from U.S. Treasuries is generally exempt from state and local income taxes, which can make a meaningful difference depending on where you live.

The trade-off is yield. Treasury-only funds tend to offer lower yields than government money market funds that also use repurchase agreements. That dynamic explains why JMMF's 30-day SEC yield will sometimes trail other weekly income ETFs.

Learn more about JMMF at the JPMorgan provider site.

Roundhill Weekly T-Bill ETF

• Assets under management: $171.0 million
• Expense ratio: 0.19%
• 30-day SEC yield: 3.4%

The Roundhill Weekly T-Bill ETF (WEEK) holds Treasury bills with maturities ranging from zero to three months and distributes the income from those holdings on a weekly schedule.

If you buy Treasury bills directly, they do not pay periodic interest. Instead, you purchase them at a discount to face value and receive par at maturity, with the difference showing up as accrued, or "phantom," income.

WEEK effectively converts that price appreciation into a steady stream of weekly cash distributions. As Treasury bills mature and roll, the ETF passes that incremental gain through to investors rather than waiting until maturity.

The result is a very low-risk income vehicle. Credit risk is minimal given the U.S. Treasury backing, and interest rate risk is limited due to the ultra-short maturities. Similar to other cash-like ETFs, the yield will move up or down based on changes to the federal funds rate, but price volatility is minimal.

Learn more about WEEK at the Roundhill Investments provider site.

Roundhill Treasury Bond WeeklyPay ETF

• Assets under management: $2.7 million
• Expense ratio: 0.99%
• Distribution rate: 14.9%

While many weekly income ETFs attempt to generate eye-catching payouts by targeting volatile single stocks and layering on complex options strategies, the Roundhill Treasury Bond WeeklyPay ETF (TSYW) takes a different approach. Its underlying exposure is tied to the iShares 20+ Year Treasury Bond ETF (TLT).

TLT itself holds long-dated U.S. Treasury bonds. Credit risk is minimal because the bonds are government-backed, but interest rate risk is high. The long maturities mean prices are very sensitive to changes in interest rates. When rates rise, TLT tends to fall sharply. When rates fall, it can rally just as forcefully. That volatility is the key input TSYW is trying to harness.

Instead of owning TLT directly, TSYW uses a swap agreement that references TLT's price performance. The exposure is set at roughly 120% of TLT's weekly return, which makes TSYW a lightly leveraged product. Any gains generated by that strategy are then targeted for distribution on a weekly basis, producing the current 14.9% distribution rate.

For funds like TSYW, the distribution rate is more informative than a 30-day SEC yield. The SEC yield is designed for traditional interest-bearing securities and does not capture returns generated through derivatives such as swaps.

The distribution rate, by contrast, takes the most recent weekly payout and annualizes it relative to the ETF's net asset value, providing a more realistic snapshot of current income. That said, it is still an estimate and can change quickly as market conditions and interest rates shift.

Learn more about TSYW at the Roundhill Investments provider site.

Roundhill S&P 500 0DTE Covered Call Strategy ETF

• Assets under management: $334.6 million
• Expense ratio: 0.97%
• Distribution rate: 20.3%

Among the more conservative weekly income ETFs that still target equities, the Roundhill S&P 500 0DTE Covered Call Strategy ETF (XDTE) stands out for its structure. It was the first ETF to use zero-day-to-expiry, or 0DTE, options tied to the S&P 500.

The strategy has two moving parts. First, the fund gains overnight exposure to the S&P 500's price movements. Then, every morning, once markets open, XDTE sells an out-of-the-money call option on the S&P 500 that expires the same day.

For that trading session, upside is capped at the strike price of the covered call, while downside risk remains fully exposed. In exchange, the fund collects option premium generated by that day's expected volatility.

Because these are 0DTE options, the process can be repeated every single trading day rather than waiting weeks for monthly options to expire. Over time, that frequent option selling converts a portion of the S&P 500's day-to-day volatility into steady income.

Conceptually, this means you are monetizing price movement through weekly distributions rather than relying primarily on long-term price appreciation.

That said, this is not a low-risk strategy. The fund does not hold a traditional portfolio of stocks. Returns are driven largely by derivatives and collateral management, and the expense ratio is high compared to plain index funds.

Still, relative to many synthetic weekly income ETFs that rely on single stocks or heavy leverage, XDTE sits on the more conservative end of the spectrum due to its broad index exposure and systematic approach.

Learn more about XDTE at the Roundhill Investments provider site.

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Bitcoin proponents often describe the cryptocurrency as "digital gold" and a hedge against currency debasement. In practice, its recent behavior has looked very different, more like a speculative risk asset.

Bitcoin finished 2025 down more than 6% and has continued to slide in 2026, even as concerns around fiat currency debasement remain front and center.

The so-called "debasement trade" refers to the gradual loss of purchasing power in fiat currencies as governments rely on monetary expansion, rising debt and fiscal intervention. This trend can be seen over both long and short time horizons.

Over the long term, Bloomberg Intelligence data show that the U.S. dollar accounted for roughly 65% of global foreign exchange reserves in 2001, a reflection of American soft power and trust in its institutions. By 2026, that share had fallen to about 40%, a 25-percentage-point decline over 25 years, or roughly 1% per year.

Short-term pressure has also been visible. The U.S. Dollar Index (DXY) has fallen more than 10% over the trailing 12 months, driven by erratic trade policy, including on-and-off tariffs threatened and levied against longstanding partners such as Canada and the European Union.

These developments have led some commentators to frame the debasement narrative more bluntly as a "sell America" trade, one that affects not just equities but confidence in the currency itself.

Against that backdrop, the strength in precious metals is easier to understand. Gold, silver, platinum and palladium have not necessarily become more productive or intrinsically valuable assets.

Rather, the currency they're priced in has weakened. Each ounce today can be exchanged for more dollars than it could previously, reflecting depreciation in fiat purchasing power rather than a sudden change in the metals themselves.

Investor demand reflects this shift. Physical bullion has been moving quickly off dealer shelves, particularly in markets such as China, where cultural affinity and macro concerns intersect.

At the same time, inflows into precious metals exchange-traded funds (ETFs) have accelerated. These investment vehicles trade throughout the day such as stocks, are highly liquid, charge relatively low fees and closely track the price of the underlying metal.

Here's what investors should know before buying a precious metals ETF, along with our top picks for 2026.

How does a precious metals ETF work?

Precious metals ETFs don't operate like most traditional ETFs or bond ETFs. Instead of being organized as open-ended investment companies under the Investment Company Act of 1940, most precious metals ETFs are structured as grantor trusts governed by the Securities Act of 1933.

When you buy shares of a precious metals ETF, you're purchasing a "fractional, undivided beneficial interest in the assets of the trust." In plain terms, that means you indirectly own a slice of the physical metal held by the trust, rather than just shares in a fund that owns operating businesses or securities.

When new ETF shares are created, authorized participants deliver cash or metal, and the trust acquires physical gold, silver, platinum or palladium on the back end. That metal is stored in secure vaults, typically audited regularly by independent third parties.

This mechanism is what separates precious metals ETFs from most other commodity ETFs. Funds tied to energy or agricultural commodities usually don't physically hold barrels of oil or bushels of wheat. Doing so would be impractical and expensive.

Instead, those ETFs rely on futures contracts, which can introduce tracking differences relative to the spot price. Because precious metals ETFs hold the physical asset, their net asset value (NAV) generally tracks the spot price of the metal closely during market hours, minus expenses.

One important distinction to understand is taxation. In the U.S., gains from precious metals ETFs held in taxable accounts are generally treated as gains on collectibles rather than standard securities.

That means long-term capital gains can be taxed at higher rates than stocks or bond ETFs, which is why many investors prefer to hold precious metals ETFs in tax-advantaged accounts such as Roth IRAs.

How we picked the best precious metals ETFs

The reasons investors turn to precious metals vary widely. For some, the motivation in 2026 has been the debasement trade and the broader "sell America" narrative. For others, it's rising industrial demand, particularly from emerging markets.

Some investors use precious metals to reduce exposure to equity-market risk or credit risk in bonds, while others simply want diversification, given the historically low correlation certain metals have had with traditional asset classes.

Because of this range of use cases, we didn't build this list around a single investor profile, such as long-term holders or short-term traders. Instead, we focused on ETFs that are versatile, well-capitalized and highly liquid.

These funds are designed to work across multiple investment theses, serving as flexible tools rather than narrowly tailored products.

We did exclude several categories of precious metals ETFs based on structure. Most notably, we excluded futures-based funds.

While it's possible to gain exposure to metals through gold or silver futures, these ETFs often actively roll contracts or pursue secondary objectives such as leverage, inverse exposure, hedging strategies or income generation.

These approaches introduce higher fees, more complex tax treatment and tracking differences relative to spot prices, all of which go beyond the straightforward goal of owning the metal itself.

We also excluded closed-end funds (CEFs). Unlike ETFs, CEFs issue a fixed number of shares and don't create or redeem shares on an ongoing basis. As a result, their market prices can deviate significantly from NAV, trading at premiums or discounts depending on investor demand.

Precious metals ETFs avoid this issue through the creation and redemption mechanism, which helps keep prices closely aligned with the value of the underlying metal.

Finally, we curated our selections to cover the four primary precious metals available in ETF form: gold; silver; platinum; and palladium.

We also included one option that provides diversified exposure across multiple metals, allowing investors to own the entire basket through a single holding.

SPDR Gold Shares

• Expense ratio: 0.40%
• Assets under management: $185.9 billion
• 30-day median bid-ask spread: 0.01%
• Five-year annualized return: 17.42%

Gold has maintained monetary relevance for thousands of years, in part because its supply grows slowly and predictably. New production is constrained by the high cost and long timelines required to discover, permit and extract the yellow metal, which gives it deflationary scarcity.

Moreover, central banks around the world continue to hold gold as a reserve asset, reflecting its role as a neutral store of value across political systems and economic regimes.

SPDR Gold Shares (GLD) was the first physically backed gold ETF to trade in the U.S., and it remains the largest today. Launched in November 2004, GLD has become the default vehicle for gold exposure for many investors.

GLD isn't the cheapest gold ETF on the market, but its defining strength is liquidity. As of January 28, it traded more than 8.3 million shares across major U.S. exchanges with an extremely tight bid-ask spread. This depth of liquidity makes it one of the most efficient ways to gain or exit gold exposure at scale.

The ETF is physically backed, with its gold reserves held by custodians including HSBC Bank and JPMorgan Chase Bank. The trust is sponsored by World Gold Trust Services, with The Bank of New York Mellon serving as trustee.

GLD is suitable for long-term investors who value scale and liquidity, though cost-conscious investors might prefer alternatives. A common lower-cost option is the SPDR Gold MiniShares Trust (GLDM), which charges a 0.10% expense ratio, roughly a quarter of GLD's fee.

Where GLD truly stands out is versatility for traders. The ETF has an active options market, with weekly expirations and a wide range of strike prices. This allows investors to hedge positions using puts or generate income through covered calls.

Learn more about GLD at the State Street provider website.

iShares Silver Trust

• Expense ratio: 0.50%
• Assets under management: $56.7 billion
• 30-day median bid-ask spread: 0.01%
• Five-year annualized return: 21.54%

Silver tends to play second fiddle to gold in the precious metals hierarchy. Unlike gold, silver is not held in meaningful quantities as a reserve asset by central banks. While it does have jewelry and investment demand, modern silver usage is far more tied to industrial applications.

Silver is a key input in electrification, including solar panels, electric vehicles, batteries, semiconductors and a wide range of electronics. As global energy transition efforts expand, silver demand is increasingly linked to real economic activity, especially in emerging markets like China.

In ETF form, the iShares Silver Trust (SLV) is to silver what GLD is to gold. Launched in April 2006, it has one of the longest track records among physically backed silver ETFs. The fund tracks the LBMA Silver Price and holds slightly more than 15,636 metric tons of silver in trust, which translates to approximately 502,712,763 ounces.

Liquidity is a defining feature. SLV trades with a consistently tight bid-ask spread and extremely high volume. On January 28, more than 184.6 million shares changed hands, making it one of the most actively traded commodity ETFs in the market.

One important nuance for investors to be aware of is that recent surging demand for silver has occasionally strained the ETF's creation and redemption process. As of January 28, SLV was trading at a 3.27% premium to its net asset value.

While rare for an ETF, this can happen during periods of intense inflows and causes the fund to briefly behave more like a CEF. Investors considering entry during such periods should pay close attention to premiums and discounts.

Like GLD, SLV also benefits from a very active options market. Weekly expirations and a wide range of strike prices make it suitable for tactical strategies, including buying put options for downside protection or selling call options and puts to generate income.

Learn more about SLV at the iShares provider site.

Aberdeen Physical Platinum Shares ETF

• Expense ratio: 0.60%
• Assets under management: $3.9 billion
• 30-day median bid-ask spread: 0.21%
• Five-year annualized return: 12.99%

Platinum is one of the most valuable metals you won't often see but almost certainly rely on. It's prized in jewelry for its corrosion resistance, but its importance today is far more industrial than decorative.

Platinum plays a critical role in catalytic converters, where it helps reduce harmful emissions from internal combustion engines. That concentration of platinum is also why catalytic converters have become frequent targets for theft.

Beyond automobiles, platinum is widely used in chemical processing, petroleum refining and medical devices. Combined with its limited supply and high extraction costs, these uses place platinum firmly within the precious metals category.

For investors, gaining exposure to platinum is not as straightforward as gold or silver. ETF options are limited, and the most established choice is the Aberdeen Physical Platinum Shares ETF (PPLT). While it's not the most liquid ETF in the space and carries a wider bid-ask spread, PPLT offers direct, physically backed exposure to platinum.

PPLT is managed by Aberdeen, an asset manager with a longstanding specialization in precious metals. The fund holds physical platinum stored with ICBC Standard Bank in the United Kingdom, with The Bank of New York Mellon serving as trustee.

Transparency is a defining feature. The holdings are audited regularly, and investors can access detailed bar lists showing serial numbers, weights and storage locations, along with vault inspection reports from independent auditors.

Learn more about PPLT at the Aberdeen provider site.

Aberdeen Physical Palladium Shares ETF

• Expense ratio: 0.60%
• Assets under management: $1.4 billion
• 30-day median bid-ask spread: 0.11%
• Five-year annualized return: −8.28%

Also tucked away inside your car's catalytic converter is palladium. While it's far less common in jewelry than gold or platinum, palladium plays a critical role in emissions control.

Outside of catalytic converters, palladium also sees use in electronics, dental applications, chemical processing and certain hydrogen-related technologies. Even so, it has remained largely overshadowed by other precious metals in investor portfolios.

In the past five years, palladium has notably underperformed, posting negative returns while gold, silver and platinum all experienced strong rallies. That divergence might interest value-oriented precious metals investors.

For ETF exposure to palladium, the Aberdeen Physical Palladium Shares ETF (PALL) is one of the few options available. As with its sibling fund PPLT, it's managed by Aberdeen and uses a physically backed grantor trust structure.

While the expense ratio is higher than that of gold and silver ETFs and liquidity is more limited, the fund provides direct exposure to palladium spot prices without any derivative gimmicks.

PALL uses ICBC Standard Bank as its custodian, with the Bank of New York Mellon acting as trustee. Transparency is consistent with Aberdeen's precious metals lineup. Investors can access detailed bar lists showing serial numbers, weights and storage locations, along with auditor vault inspection reports.

Learn more about PALL at the Aberdeen provider site.

Aberdeen Physical Precious Metals Basket Shares ETF

• Expense ratio: 0.60%
• Assets under management: $3.6 billion
• 30-day median bid-ask spread: 0.28%
• Five-year annualized return: 16.07%

If your goal is maximum diversification within the precious metals segment, the Aberdeen Physical Precious Metals Basket Shares ETF (GLTR) is the most straightforward option. GLTR is Aberdeen's all-in-one solution for owning the entire precious metals universe in a single vehicle.

GLTR holds physical gold, silver, platinum and palladium, weighted roughly by their respective market sizes. Gold sits at the top, followed by silver, with smaller allocations to platinum and palladium.

Rather than making a bet on the supply, demand or industrial dynamics of any single metal, this structure lets you express a broader view on precious metals as an asset class.

That makes GLTR best suited for portfolio construction purposes. Investors who already hold diversified global stock and bond exposure across sectors might want precious metals as a non-correlated sleeve rather than a tactical trade.

GLTR fits that role well by spreading risk across multiple metals, each with different demand drivers and economic sensitivities.

The trade-off is cost and liquidity. GLTR carries the same relatively high expense ratio as Aberdeen's single-metal ETFs, and its trading spreads are wider than those of gold or silver ETFs. For long-term holders using it as a strategic allocation, those drawbacks might be acceptable.

Learn more about GLTR at the Aberdeen provider site.

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Since the April 2025 market low, small-capitalization stocks have kept pace with, and at times even outpaced, shares in large companies. Many strategists expect the rally in small-cap stocks to continue.

After a two-year profit downturn, earnings growth at small firms is turning up, says Francis Gannon, co-chief investment officer at small-cap specialist Royce Investment Partners. Lower interest rates, deregulation, and strong activity in mergers and acquisitions and in initial public offerings (IPOs) have been a boon.

Even the One Big Beautiful Bill Act, President Donald Trump's 2025 tax bill, could help small-cap earnings this year, thanks to certain tax benefits, says Gannon. "In any broadening of overall stock market returns, small caps are going to participate and do better than many people think," he says.

But little of that optimism is evident in the one-year returns of small-company stocks. The iShares Core S&P Small-Cap ETF (IJR), our favorite small-cap exchange-traded fund and member of the Kiplinger ETF 20, lost 2.6% over the 12-month period ending in November.

Interestingly, that lagged the 4.1% gain in the Russell 2000 small-company benchmark over the same stretch.

The worst small caps have been first. What gives?

The iShares Core S&P Small-Cap ETF follows the S&P 600 Index, which includes a filter for profitable companies; the Russell index doesn't. And lower-quality fare has done best, at least since the April low, says Gannon.

Unprofitable firms in the Russell 2000, he says, soared 93% between the April 2025 low and the end of October. By contrast, profitable firms returned just 27%. That's typical behavior coming out of a low, but eventually high-quality stocks rally, too. Given the many factors supporting earnings growth, "we could have a nice run in small caps from here," he says.

We favor the iShares Core S&P Small-Cap over an ETF that tracks the Russell 2000. The iShares fund's holdings don't overlap with an S&P 500 index fund, for starters. And stocks in the S&P 600 trade at a price-to-earnings multiple of just under 16, based on estimated earnings — a discount to the Russell 2000, which trades at 21.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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I am hooked on a podcast called Acquired, in which two smart guys do a deep analytical dive, typically lasting three or four hours, on a single successful company such as Coca-Cola (KO) or Trader Joe's. Ben Gilbert and David Rosenthal, a pair of venture capitalists, are especially adept at explaining what's behind the success of such tech giants as Alphabet (GOOGL), the former Google, which recently merited 11 hours and 42 minutes of dialogue all by itself.

What have I learned? The big winners have a clear mission, they're adaptable, and they're willing to spend money on talent and take risks. They make astounding profits. Apple (AAPL), essentially a phone manufacturer, earned $112 billion in fiscal 2025 on $416 billion in revenues. Alphabet and Microsoft (MSFT) have even better profit ratios, and Nvidia (NVDA) is in a universe all its own, earning 75 cents for every dollar of sales for the nine months ending in October.

In 2018, Apple became the first U.S. company to achieve a market capitalization (shares outstanding times price) of $1 trillion. Now, 10 companies — eight of them in technology — are trillionaires, and Big Tech dominates the stock market in unprecedented fashion.

The Washington Post in November calculated that the Magnificent Seven — Alphabet, Amazon.com (AMZN), Apple, Meta Platforms (META), Microsoft, Nvidia and Tesla (TSLA) —had gained 1,057% since January 2019 while the remainder of the stocks in the S&P 500 Index rose 132%. (Stocks I like are in bold; prices and other data are as of November 30, unless otherwise noted.)

With the exception of Tesla, whose revenues have been flat for three years, these companies deserve their high valuations. The question now, with all of them investing so much in artificial intelligence, is whether their latest bets will pay off. Other than the chipmakers, no one is earning sizable profits from AI yet, and the companies are making massive capital investments — Alphabet projected it would spend up to $93 billion in 2025 and even more in 2026.

There are other risks, among them intense competition and increasing government intervention. Still, as an investor, you have no choice. You need to own some or all of the Magnificent Seven stocks, either individually or as part of an index fund (the seven represent 35% of the value of the S&P 500), or even through a managed mutual fund such as the Fidelity Contrafund (FCNTX), where the proportion tops 40%.

But, as I wrote a few months ago, don't expect a stock with a market cap of $4 trillion to sextuple. That would amount to half the value of all the homes in the U.S. Trying to find the next Microsoft or Meta is a fool's errand, but there are many other tech stocks out there that actually could sextuple and, even if they don't, are worth your attention.

My Magnificent-Seven-Plus strategy

Let's begin with robotics, the machines that AI can power to do the work of humans or of clunkier machines. Symbotic (SYM) makes AI-driven robotic warehouse automation systems for such retailing giants as Walmart (WMT) and Target (TGT). Revenues rose 26% in the year that ended September 30. Profits are still elusive, but this is a business that could take off.

A major success story is Intuitive Surgical (ISRG), whose shares have tripled since October 2022. Although its market cap is less than one-twelfth the size of Amazon's, the company is not small, and it was founded 30 years ago. Intuitive's widely adopted da Vinci robotic system helps physicians perform minimally invasive surgeries.

At the other end of the risk curve is Serve Robotics (SERV), which makes self-driving food-delivery robots. Both Nvidia and Uber Technologies (UBER) hold stakes in Serve, which went on a wild ride in 2025, falling from $23 to $5, then climbing back to $18 and now trading at about $10.

You can buy a bundle of robotics companies through the Global X Robotics & Artificial Intelligence ETF (BOTZ), an exchange-traded fund that also has a large interest in Nvidia, or through the ARK Autonomous Technology & Robotics ETF (ARKQ), which has returned an annual average of 33.8% over the past three years — more than 13 points better than the S&P 500.

Cathie Wood manages the ARK funds, and it's worthwhile hunting for tech treasures in the portfolio of her flagship ETF, ARK Innovation (ARKK). Among the top holdings is Shopify (SHOP), with a $207 billion market cap but lots of room to grow. The company seems to have cracked the code with a platform that helps businesses track inventory, process sales and fulfill orders.

Archer Aviation (ACHR), which makes vertical takeoff and landing aircraft, still has no revenue, but I am bullish on low-level aerial corridors for fast transportation, and I am encouraged that Wood has taken a serious stake. ARK also owns CRISPR Therapeutics (CRSP), a Swiss company whose gene-editing process for treating disease benefits from AI analysis of huge data sets.

A company with promise is Tempus AI (TEM), whose revenues rose 85% in the most recent quarter compared with a year ago. Tempus uses AI to analyze, diagnose and treat disease. The company's tools sequence a patient's genes and compare the results with others in a proprietary database.

The next step is to determine the success of drugs used to treat similar patients and even recommend current clinical trials. Tempus can also compare a patient's tumor with those in its own database and find the best historical treatments. Shares have nearly doubled in the past five years, and the company's market cap is now $14 billion.

Powering gains

At a time when the world needs more power to drive data centers and advanced manufacturing, a sudden interest in geothermal energy has emerged. Geothermal currently provides electricity and heat for a negligible portion of the country.

But innovations similar to fracking, which propelled natural gas, are making geothermal less expensive to develop, faster to deploy, and feasible for more states than California and Nevada, which currently account for 93% of geothermal generation.

Ormat Technologies (ORA), with a market cap of $7 billion, is the only vertically integrated company that's a pure play on the U.S. market. Shares have jumped 39% in the past year, but now is the time to get in on the ground floor — or, in this case, below it.

With my Magnificent-Seven-Plus strategy, you can own the Big Tech stocks individually or in funds, and then perhaps another seven smaller technology companies with the potential to benefit from AI and other innovations. If you do buy the stocks, be committed. They'll go up and down. Try to hold on.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. Of the stocks mentioned here, he owns Amazon.com. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. You can reach him at JKGlassman@gmail.com.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Most beginner investors don't fail because they pick the wrong stocks. They fail because they're overwhelmed by too many choices and too much complexity right out of the gate.

When everything is available at once, doing nothing often feels safer than doing something wrong.

If you open an account with any of the best online brokers and trading platforms for the first time today, you're immediately flooded with choices.

Stocks, bonds, options, futures, leveraged products, crypto, prediction markets and tokenized assets all sit side by side, competing for your attention.

For new investors, the hardest part is deciding where to start.

At the same time, one of the most durable and widely used investment vehicles in the U.S. is also in the middle of a full-blown boom: exchange-traded funds (ETFs). They might have been around since the early 1990s, but the role of ETFs in portfolios has expanded dramatically.

According to ETF Central, there are now 4,864 ETFs listed on U.S. exchanges. Most investors will never need more than a handful. The sheer number helps explain why beginners often struggle to know where to start — but that's exactly how ETFs can simplify things.

ETFs cut through the noise and let you focus on getting invested, not overthinking every decision. They offer a way to build real market exposure without needing deep expertise.

If you're a beginner ETF investor, it's worth sticking around to see how a few simple choices can take you a long way.

ETFs offer capital efficiency

Imagine you wanted to build your own basket of the best stocks to buy. Research from the CFA Institute suggests that if you stick to large-cap U.S. companies, you need roughly 30 stocks before diversification benefits really begin to show.

The problem is that many blue chip stocks trade at hundreds of dollars per share. If you're just starting out, you might run out of money after buying only a few names.

ETFs solve this problem by pooling capital. When you buy a single ETF share, your money is combined with that of other investors and spread across dozens or even hundreds of companies.

With one transaction, you gain fractional exposure to many stocks. If your brokerage supports fractional shares, you might not need enough money to buy a full ETF share to get started.

This structure also simplifies future investing. Instead of repeatedly buying small pieces of many individual stocks, you can continue adding to the same ETF.

Each purchase automatically increases your exposure to the entire basket, making ETFs a capital-efficient way to stay invested over time.

ETFs provide tax efficiency

Before ETFs proliferated, many investors relied on mutual funds and often faced surprise tax bills near year-end. When investors redeem shares, the fund manager might need to sell underlying securities to raise cash. If those securities have appreciated, the sale creates capital gains.

By law, mutual funds must distribute those realized gains to shareholders. This means you can receive a taxable capital gains distribution even if you never sold your fund shares.

Investor redemptions and portfolio turnover can trigger taxes for everyone holding the mutual fund. ETFs are structured differently.

When demand for an ETF rises or falls, the issuer works with authorized participants who create or redeem shares using baskets of underlying securities, not cash. These in-kind transactions allow the ETF to adjust its share count without selling holdings and realizing capital gains.

As a result, ETFs are often far more tax efficient than mutual funds over long holding periods.

ETFs tend to have low fees

Lower fees aren't guaranteed, but on average, ETFs are cheaper than most comparable investment products. Intense competition among ETF providers has driven what's known as "fee compression."

When multiple firms offer nearly identical exposure, fees become one of the few ways to compete.

This has led to extremely low expense ratios for many ETFs. Some broad market index ETFs charge just a few basis points per year, meaning only a small drag on returns even over long-time horizons.

While there are low-cost mutual funds and zero-fee options in select cases, ETFs tend to offer consistently low pricing across asset classes, regions and strategies.

Lower fees matter because they compound. Every dollar not paid for investment costs remains invested and continues working for you year after year.

ETFs are liquid and easy to trade

The same creation and redemption mechanism that improves tax efficiency also helps keep ETF prices closely aligned with their net asset value.

When an ETF's market price drifts above or below its underlying value, authorized participants can step in to arbitrage the difference.

This process helps prevent persistent premiums or discounts such as those seen with closed-end funds (CEFs).

ETFs also trade throughout the day, just as stocks do. You can buy or sell shares whenever markets are open and see real-time bid and ask prices.

Mutual funds, by contrast, are priced once a day after the market closes, and all orders are executed at that single price.

Some ETFs are so liquid that options are listed on them. This opens the door to more advanced strategies later on, such as selling covered calls for income or buying put options for downside protection.

While not necessary for beginners, this flexibility highlights how liquid and widely used many ETFs have become.

ETFs democratize access to asset classes

When ETFs first appeared in the U.S. in 1993, they mainly provided access to U.S. large-cap stocks. Over time, that access expanded dramatically. Today, investors can use ETFs to reach nearly every major asset class.

Equity ETFs now span value stocks, growth stocks and dividend-paying stocks as well as high-quality, low volatility, momentum stocks and international exposure. Bond ETFs cover Treasuries, corporate bonds, high-yield (or junk bonds), municipal bonds and more specialized segments.

Commodity ETFs extend far beyond gold and silver into energy, industrial metals and niche materials. Cryptocurrency ETFs now provide regulated access to digital assets such as bitcoin, ethereum and solana that once required specialized platforms.

While this variety can feel overwhelming at first, it also means your investment options can evolve with you. As your knowledge grows, you can diversify further without leaving the ETF ecosystem.

The structure stays familiar, even as your portfolio becomes more sophisticated.

Three beginner-friendly ETFs

Warren Buffett's No. 1 rule of investing is simple: Do not lose money. That doesn't mean avoiding risk altogether. Taking risk is necessary to earn returns. What matters is avoiding uncompensated risk, which is risk you are not reliably rewarded for over time.

Being exposed to the overall stock market is a compensated risk. Historically, investors have been rewarded for owning equities. Exposure to small-cap stocks or undervalued stocks has also been shown to carry a return premium over long periods.

By contrast, concentrating your portfolio in a single sector, a single country or a handful of stocks is not something for which investors are consistently paid. Those bets can work for a while, but the outcomes depend heavily on timing and luck rather than long-term probabilities.

Broad diversification reduces the chance that one bad outcome can permanently damage your portfolio. You aren't trying to guess which company, industry or country will be the next winner.

With that principle in mind, our three beginner-friendly ETF picks focus on funds that are diversified, low-cost, well-established and supported by sizable assets under management.

These ETFs are designed to serve as core building blocks in a long-term portfolio rather than tactical or speculative positions.

Combining three ETFs such as these forms what's commonly known as the "three-fund portfolio," an idea popularized by John Bogle, the late founder of the Vanguard Group.

This approach gives you exposure to U.S. stocks, international stocks and bonds in a simple, disciplined way. With ETFs, implementing this strategy is easier and more accessible than ever.

Vanguard Total Stock Market ETF

The Vanguard Total Stock Market ETF (VTI) is one of the most widely used options for core U.S. equity exposure, particularly among beginner investors.

Unlike the S&P 500, which only tracks 500 large-cap companies, VTI follows the CRSP U.S. Total Market Index, which exposes you to more than 3,000 names across large-cap as well as midcap stocks and small-cap stocks, spanning both growth and value styles.

Because the fund is market-cap weighted, its top holdings still closely resemble those of the S&P 500. Larger companies naturally receive larger allocations.

That said, VTI is meaningfully less concentrated, which adds an extra layer of diversification. The fund's appeal largely comes down to its extremely low 0.03% expense ratio and tax efficiency.

One important limitation to note is that VTI only covers U.S. stocks. It doesn't provide international diversification.

For that reason, it's typically paired with an international equity ETF when used as part of a three-fund portfolio.

Learn more about VTI at the Vanguard provider site.

Vanguard Total International Stock ETF

There's no guarantee U.S. stocks will outperform indefinitely. There have been extended periods where they lagged international markets.

A well-known example is the stretch from 1999 to 2009, often referred to as the lost decade, when U.S. equities were hit by both the dot-com collapse and the global financial crisis. During that same period, many international markets held up far better.

The Vanguard Total International Stock ETF (VXUS) is commonly paired with VTI to address this risk. The ETF tracks the FTSE Global All Cap ex U.S. Index for a 0.05% expense ratio, providing exposure to thousands of non-U.S. companies across developed and emerging markets.

This includes countries such as Canada, Japan, the United Kingdom, Germany and Switzerland, along with emerging economies such as China, India and Brazil.

Like VTI, the fund is market-cap weighted, meaning larger companies receive larger allocations. While recent returns have lagged U.S. stocks, the holdings in VXUS generally trade at lower valuations.

A significant portion of the historical underperformance has also been driven by a strong U.S. dollar. If the dollar weakens, this ETF could meaningfully contribute to portfolio returns.

Learn more about VXUS at the Vanguard provider site.

Vanguard Total World Bond ETF

As investors get older, their time horizon shortens. That reduces the ability to endure drawdowns without needing to tap invested capital.

Bonds can play a stabilizing role in this phase, acting as portfolio ballast while also generating income that can exceed stock dividends.

For a three-fund portfolio, the bond allocation is meant to prioritize diversification and low cost. The Vanguard Total World Bond ETF (BNDW) fits that role well. For a 0.05% expense ratio, it provides exposure to more than 18,000 investment-grade bonds worldwide through the Bloomberg Global Aggregate Float Adjusted Composite Index.

The ETF uses an ETF-of-ETFs structure, holding U.S. bonds and international bonds in roughly equal proportions. The underlying portfolio includes government bonds, corporate bonds and mortgage-backed securities, with maturities spread across short, intermediate and long terms.

BNDW currently offers a 4.09% 30-day SEC yield and pays income monthly.

However, bond income is generally taxed at ordinary income rates, making this ETF better suited for tax-advantaged accounts such as a Roth IRA.

Learn more about BNDW at the Vanguard provider site.

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With the Federal Reserve resuming rate cuts, many investors and advisers might be reassessing their short-term liquidity strategies.

Thanks to their stable value, minimal duration and attractive yields, money market funds have become enormously popular in recent years, amassing a record high of $7.5 trillion in assets as of July, according to the SEC.

But money market funds are just one option for managing short-term liquidity needs. Ultra-short and short-term bond ETFs are gaining traction among advisers; ultra-short ETFs are the fastest-growing fixed income ETF category over the past year.

Ultra-short and short-term ETFs can help investors more precisely manage their liquidity needs.

Here are seven reasons why you should consider them in your portfolio.

1. Lower reinvestment risk than money markets funds

In a falling rate environment, money market funds will reflect declining yields faster.

Because of their slightly longer duration, ultra- and short-term bond ETFs may have lower reinvestment risk — the risk that your options once the bond matures will have lower yields than are available today.

2. Higher interest rate risk, a positive in the right environment

Bond funds have higher interest rate risk than money market funds, but this can benefit investors when rates fall, boosting bond prices.

It's important for investors and advisers to carefully weigh how anticipated changes in monetary policy and yield curves can affect the relative attractiveness of short-term bond ETFs vs money market funds.

Some professionals see ultra-short bond ETFs as alternatives to money market funds for immediate needs given their comparable duration profile, while short-term bond ETFs complement money market funds for longer-term savings goals. Consider each in the perspective of an overall portfolio.

3. Historically higher risk-adjusted returns

Ultra-short and short-term bonds have typically provided higher returns than bank accounts, money market funds and CDs because of their slightly longer maturities, though with modestly higher volatility.

This trend may persist with a normalizing yield curve.

ETFs also provide on-demand liquidity during market hours, comparable to money market funds and bank accounts, and avoid the lock-up periods of CDs.

4. Tax efficiencies

ETFs can be more tax-efficient than traditional mutual funds because in-kind transfers help minimize capital gains distributions.

However, overall tax treatment depends on the securities held, not just the ETF structure.

For example, money market funds do not distribute capital gains, and tax-exempt income depends on the underlying assets.

5. Lower costs

ETFs generally have lower average expense ratios than their mutual fund peers, but are subject to premium/discount volatility and bid-ask spreads. Investing with a large, reputable ETF issuer can help reduce total cost of ownership.

6. More customization and flexibility

There are ETFs for just about any duration, credit quality or sector. A portfolio of ETFs can be tailored to meet a client's goals, risk profile, tax strategies and tiered spending needs.

7. Accessibility

Unlike bank products or mutual funds, ETFs are available to anyone with a brokerage account with no investment minimums.

The right tools for the right time horizon

Cash and liquidity management is a function of risk tolerance, time horizon and spending needs. Having a framework in place can ensure clients have the optimal amount of cash in their portfolio.

Immediate spending needs within three months or less. Assets needed this soon should be in money market funds or possibly ultra-short ETFs invested in Treasury bills or other securities with maturities of 90 days or less.

Upcoming expenses up to a year. Ultra-short ETFs with an average duration of less than one year might be more appropriate for this time horizon.

Planned expenses from one to two years. Short-term bond ETFs become more viable for this time horizon, depending on the client's financial situation and comfort level.

Investors and advisers should evaluate liquidity tools not just by yield, but by strategic fit within the broader portfolio. Money market funds offer safety for immediate needs, while short-term ETFs provide dynamic solutions for those seeking higher returns and greater flexibility as rates decline and market conditions evolve.

For many clients, the optimal approach will involve blending both vehicles, ensuring they have the right liquidity resources over different time horizons.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

You might recognize Vanguard for its wide lineup of low-cost equity index funds and the lasting legacy of its late founder and chairman, John Bogle. Less appreciated is that The Vanguard Group, which Bogle founded in May 1975, has also been a major force in bond investing for decades.

That presence dates back to 1986. Fresh off the launch of its first stock fund, Vanguard introduced the Vanguard Total Bond Market Index Fund (VBTLX). At the time, this was a meaningful shift.

For individual investors, buying bonds typically meant going through a Wall Street bond desk or working with a financial adviser. Pricing was opaque because most bonds trade over the counter, and even placing an order was cumbersome.

The math behind bond pricing, yield calculations and duration also created a steep learning curve for retail investors.

Vanguard's solution was to bundle thousands of investment-grade bonds into a single fund. The portfolio included U.S. Treasury bonds, agency mortgage-backed securities and corporate bonds, with exposure spread across short, intermediate and long maturities.

Instead of navigating individual bond trades, investors could gain diversified fixed-income exposure in a low-cost, liquid and accessible format.

Fast forward to today and the Vanguard Total Bond Market strategy is still around, now offered in multiple share classes and at lower costs than ever. More importantly, it represents just one piece of a much broader fixed-income lineup.

Investors who prefer to stay within Vanguard's ecosystem can build a complete bond allocation using its mutual funds and ETFs, without needing to look elsewhere.

Here's what you need to know when choosing the best Vanguard bond funds.

The buyer's guide to Vanguard bond funds

According to Vanguard's built-in mutual fund and ETF screener, out of roughly 370 total funds, 128 are classified as "fixed income." Choosing between them comes down to three core considerations.

First is your risk tolerance. This refers to how much day-to-day market volatility you can handle and, more importantly, how deep of a drawdown you can tolerate and for how long.

Bonds are often viewed as a stabilizing force, but that does not mean they are immune to losses. Being honest about how much volatility and downside you can withstand is essential before selecting a bond fund.

Second is your time horizon. Bond maturity should generally align with when you expect to need the money. If you are investing for the long term, longer-maturity bond funds may make sense.

If the goal is shorter-term, such as saving for a home down payment or an upcoming tuition bill, shorter-term bond funds are usually more appropriate because they are less sensitive to interest rates.

Third is your investment objective. Some investors use bonds primarily to balance a portfolio and reduce overall volatility. Others prioritize income. This distinction helps determine the right credit quality.

High-quality Treasury or investment-grade bond funds are typically better for stability, while high-yield corporate bond funds, or junk bunds, can provide more income but come with higher credit risk.

Vanguard's screener makes this process straightforward. Investors can filter funds by credit quality, ranging from high to low, and by maturity, from short to long.

These two levers form the foundation for selecting the right bond fund.

There are also some practical details to understand, starting with the fact that many Vanguard bond strategies are available as both mutual funds and ETFs.

This structural flexibility stems from a now-expired Vanguard patent that allowed certain mutual funds to offer ETF share classes, improving tax efficiency and accessibility.

Mutual funds typically come in "investor shares" and "admiral shares" versions.

Investor shares usually have higher expense ratios but lower minimum investments, while admiral shares offer lower expense ratios with a typical $3,000 minimum investment requirement.

Another version, "institutional shares," is intended for use by pension funds, endowments and insurance companies.

Vanguard's bond ETFs, by contrast, require only the price of a single share, or less if your brokerage supports fractional shares.

Bond ETFs trade throughout the day, like stocks, while bond mutual fund orders settle once daily at net asset value.

Regardless of structure, Vanguard bond funds generally pay monthly distributions.

Although individual bonds usually pay interest semi-annually, bond funds pool those payments and distribute them monthly, which can make income more predictable for investors.

How we picked the best Vanguard bond funds

Picking the right bond fund from a lineup of 128 options is very much a your-mileage-may-vary decision. What works well for one investor may not work for another.

A retiree may prioritize a Vanguard bond fund focused on high-quality U.S. Treasuries to preserve capital.

A younger investor may be more willing to accept lower credit quality in exchange for higher income.

Others may simply want the lowest-cost, most diversified option available.

With that in mind, we selected five Vanguard bond funds that each serve a distinct purpose rather than trying to crown a single "best" option.

Each fund was chosen to represent one of the following categories: minimum fees; high safety; above-average yield; good tax efficiency; and maximum diversification.

Within each category, we limited our choices to funds with at least $1 billion in assets under management to ensure scale, liquidity and longevity.

We also applied a strict cost discipline. While Vanguard is known for low fees, differences still matter over time.

We capped the expense ratio at 0.25% annually, which translates to $25 a year in fee drag on a $10,000 investment.

For each fund, we highlight the key details investors need to evaluate suitability.

This includes the expense ratio, minimum investment requirements where applicable, the 30-day SEC yield and the availability of different share classes.

Vanguard Total Bond Market Index Fund Admiral Shares

• Dual share class: Yes (ETF)
• Expense ratio: 0.04% (0.03% for ETF)
• 30-day SEC yield: 4.31%
• Minimum investment: $3,000

Today, the Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) is available with a modern counterpart, the Vanguard Total Bond Market ETF (BND). Vanguard's first bond fund tracks the Bloomberg U.S. Aggregate Float Adjusted Index, a broad benchmark designed to represent most of the U.S. investment-grade bond market.

The portfolio spans corporate bonds, U.S. Treasuries, mortgage-backed securities and asset-backed securities across short, intermediate and long maturities.

Individual bond maturities range from about one year to more than 25 years. From a credit perspective, most holdings fall into AA, A and BBB ratings, alongside a large allocation to U.S. government bonds.

Because of this wide maturity mix, the fund's average duration sits at 5.8 years. That translates to moderate interest-rate sensitivity.

All else equal, a 1% rise in interest rates would be expected to reduce the fund's net asset value by about 5.8%, while a 1% decline in rates would have the opposite effect. Investors are currently compensated for taking that risk with a 4.31% 30-day SEC yield.

The 0.04% expense ratio makes VBTLX extremely affordable, even with the $3,000 minimum investment.

BND, meanwhile, carries a lower 0.03% expense ratio and trades at a market price of $73 per share, making it easier to access for new investors.

Learn more about VBTLX/BND at the Vanguard provider site.

Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares

• Dual share class: Yes (ETF)
• Expense ratio: 0.06% (0.03% for ETF)
• 30-day SEC yield: 0.60% (before inflation adjustment)
• Minimum investment: $3,000

Bond investors face two primary risks: credit risk and interest-rate risk. Credit risk shows up when lower-quality bonds lose value during economic stress. Longer-term bonds are much more exposed to rate changes, which is why long-duration bond funds suffered double-digit losses in 2022.

If your priority is safety, the Vanguard Short-Term Inflation Protected Securities Index Fund Admiral Shares (VTAPX) stands out. The fund holds Treasury Inflation-Protected Securities (TIPS).

TIPS' principal value rises when inflation increases. Their value falls when inflation declines. Because interest payments are calculated as a percentage of that inflation-adjusted principal, the size of the coupon payments also changes over time.

VTAPX further reduces risk by focusing on short-maturity TIPS. The fund's average duration is about 2.5 years, which limits sensitivity to interest-rate increases that often accompany higher inflation. That combination of government credit quality and short duration makes it more defensive.

The stated 0.60% 30-day SEC yield can look underwhelming at first glance, but it doesn't include the inflation adjustment to principal. Actual income can end up higher or lower depending on how inflation evolves, which is the entire point of holding TIPS as an inflation hedge rather than a pure income vehicle.

Like many Vanguard bond funds, VTAPX is also available as an ETF in the form of the Vanguard Short-Term Inflation Protected ETF (VTIP).

VTIP cuts the expense ratio in half to 0.03% and removes the $3,000 minimum investment. The ETF can be purchased for roughly $50 per share, making it more accessible for many investors.

Learn more about VTAPX/VTIP at the Vanguard provider site.

Vanguard High-Yield Corporate Fund Investor Shares

• Dual share class: Yes (Admiral Shares)
• Expense ratio: 0.22% (0.12% for Admiral Shares)
• 30-day SEC yield: 6.09%
• Minimum investment: $3,000 ($50,000 for Admiral Shares)

One of the most established principles in fixed-income investing is that higher credit risk is typically compensated with higher income.

Moving beyond U.S. Treasury bonds takes you to investment-grade corporate bonds. Moving one step further takes you to high-yield corporate bonds, often referred to as junk bonds. These are bonds with credit ratings below BBB.

Vanguard offers exposure to this segment through the Vanguard High-Yield Corporate Fund Investor Shares (VWEHX). The fund charges a 0.22% expense ratio with a $3,000 minimum investment. Investors with $50,000 available can access the Admiral Shares version VWEAX, which lowers the expense ratio to 0.12%.

This fund carries real risk. While it holds over 1,000 individual bonds, credit quality is firmly in speculative territory. More than half of the portfolio is rated BB, roughly another third is rated B, and a smaller portion is rated CCC or lower. During economic slowdowns, this part of the bond market can experience sharp drawdowns alongside equities.

That risk is reflected in the income. VWEHX is one of the highest-yielding bond funds in Vanguard's lineup, with a 6.09% 30-day SEC yield for the Investor Shares. The lower expense ratio of the Admiral Shares pushes the yield to 6.19%. This makes the fund appealing for income-focused investors who can tolerate volatility and potential credit losses.

However, tax efficiency is a drawback. Interest income from corporate bonds is fully taxable at both the federal and state level, making this fund better suited for tax-advantaged accounts such as Roth IRAs rather than taxable brokerage accounts.

Learn more about VWEHX/VWEAX at the Vanguard provider site.

Vanguard Tax-Exempt Bond Index Fund Admiral Shares

• Dual share class: Yes (ETF)
• Expense ratio: 0.07% (0.03% for ETF)
• 30-day SEC yield: 3.47% (before tax equivalent adjustment)
• Minimum investment: $3,000

For some investors, taxes matter just as much as yield, especially for those in higher income brackets.

As your taxable income rises, each additional dollar of interest income is taxed at a higher marginal rate. That makes fully taxable bond income less attractive in a brokerage account.

Municipal bond funds address this issue by providing income that is exempt from federal income tax and, in some cases, state taxes as well. For broad national exposure, it's hard to beat the Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX).

The fund tracks the Standard & Poor's National AMT-Free Municipal Bond Index and holds investment-grade municipal bonds issued by states, cities, and public authorities.

While not risk-free, the fund maintains relatively strong credit quality. Most holdings are rated AA, with the remainder largely split between AAA and A, reflecting the essential nature of the underlying projects and the broad diversification across issuers.

The stated 3.47% 30-day SEC yield is exempt from federal income tax and the alternative minimum tax. That means investors should evaluate it using tax-equivalent yield, which estimates the taxable bond yield required, based on your tax bracket, to generate the same after-tax income as VTEAX would.

VTEAX is also available as an ETF. The Vanguard Tax-Exempt Bond ETF (VTEB) cuts the expense ratio to 0.03%, removes the $3,000 minimum investment and trades at roughly $50 per share, making it more accessible for smaller portfolios.

VTEB also reports a slightly higher 30-day SEC yield due to lower ongoing costs.

Learn more about VTEAX/VTEB at the Vanguard provider site.

Vanguard Total World Bond ETF

• Dual share class: No
• Expense ratio: 0.05%
• 30-day SEC yield: 4.21%
• Minimum investment: N/A

The Vanguard Total World Bond ETF (BNDW) is arguably Vanguard's most diversified bond fund. The low-cost ETF tracks the Bloomberg Global Aggregate Float Adjusted Composite Index.

This benchmark spans more than 18,000 bonds worldwide, covering government and investment-grade corporate debt across U.S. and international markets, including both developed and emerging economies. The fund currently offers a 4.21% 30-day SEC yield.

BNDW is structured as an ETF of ETFs, allocating roughly half of its assets to BND and the other half to the Vanguard Total International Bond ETF (BNDX). While investors could replicate this mix themselves, BNDW packages it into a single, highly efficient vehicle at minimal cost.

One important detail is that BNDX is currency-hedged, since its underlying bonds are issued in foreign currencies while the ETF trades in U.S. dollars.

This hedging reduces the impact of currency fluctuations, so returns are driven primarily by bond performance rather than movements in foreign exchange rates.

Learn more about BNDW at the Vanguard provider site.

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Question: I'm 45 and I've barely invested in the stock market. I recently inherited $50,000. What should I do?

Answer: Well, to start, congratulations on your recent windfall. When invested responsibly, $50,000 can certainly get you well on your way to building your nest egg.

As for what to do with the money, there are two fundamental questions you need to answer.

The first is where to put it, or what types of accounts you should open.

And the second is what specific investments you should buy. Let's tackle that first question first.

What accounts should you open?

Every person's situation is a little different here, but we can start with some planning basics. Do you have an emergency fund in place to cover you in the event you lose your job or have some large, unexpected expenses pop up?

If not, it's a good idea to set aside a couple of months' worth of expenses and keep them separate in a savings or money market account.

Once that is settled, your best option will likely be to open a Roth IRA. Roth IRAs allow for tax-free compounding of capital gains, dividends and interest, and there is no tax due when you take distributions in retirement (or after age 59-½.)

A 45-year-old can contribute up to $7,000 for tax year 2025 – you have until April 15, 2026, to contribute – and $7,500 for 2026. So, a married couple could potentially sock away a quick $29,000 for the two tax years.

There are rules here, though, so you'll need to make sure you qualify. To start, you (or your spouse) need to have earned income from a job or a business. Additionally, your income has to be within certain limits. The maximum modified adjusted gross income (MAGI) to make a full contribution is $150,000 for single filers and $236,000 for those filing jointly. In 2026, those numbers jump to $153,000 and $242,000. The amount you can contribute to a Roth IRA starts to phase out above those levels.

Great.

But let's say you earn too much to qualify for a Roth. What then?

You can always contribute to a non-deductible traditional IRA and then do a "backdoor" Roth conversion. (You can read more about the ins and outs of backdoor Roth conversions here.)

Once you've stuffed everything you can into a Roth IRA, any remaining investable cash can be put into a regular brokerage account.

What investments to buy

Now for the fun part.

You have your accounts open, but what investments do you buy?

The answer here will vary based on your experience and your existing investments (if you have any).

If you really are a blank slate – you have no other investment accounts of any size or significance – then it makes sense to start with a basic, low-cost exchange-traded fund allocation that gives you exposure to a mix of stocks, bonds and potentially gold or commodities.

An aggressive investor might put 75% of their portfolio into a broad stock index fund such as the Vanguard Total Stock Market Index ETF (VTI), 20% of their portfolio in a diversified bond ETF like the Vanguard Total Bond Market Index ETF (BND) and the remaining 5% in a gold ETF – the SPDR Gold MiniShares (GLDM), for instance.

A more moderate investor, meanwhile, might allocate less capital toward stocks (say, 55% to 60%) and more toward bonds (35% to 40%).

Whatever allocation you start with, just be sure to rebalance it once or twice per year.

If you're really itching to do something more exotic than an ETF portfolio, it's perfectly fine to dip your toes into stock investing. You can keep most of the portfolio in ETFs and carve out a small allocation to individual stock positions.

But let's say this isn't your only portfolio. Let's say you've been contributing to your company's 401(k) plan for years and already have a good nest egg in mutual funds within the plan.

Great!

Now you can afford to be a little more aggressive. Rather than invest exclusively in a low-maintenance ETF allocation, you can expand into individual stocks.

It's beyond the scope of this article to list out specifically which equities to invest in, though Kiplinger's best stocks to buy now can give you a good jumping-off point. Otherwise, here are a few important rules of thumb for buying individual names.

To start, keep your position sizes manageable. Entire books have been written about the science of position sizing, but we can keep this simple. In a $50,000 portfolio, a $2,500 position represents 5% of the portfolio. That's not a magic number, of course, but it's a good rule of thumb for a beginner. At that size, you can afford to experiment and make a few mistakes without putting the entire portfolio at risk.

And secondly, before you buy a stock, set your rules for when you plan to sell it. Do you cut your losses if it drops by a certain amount? Take profits if it rises by a certain amount? Buying and holding forever is a perfectly acceptable answer. Just make sure you know what your plan is going in. The only bad answer is "I don't know."

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The U.S. stock market set 36 all-time highs in 2025 through October — remarkable for an aging bull that entered its fourth year that month. The S&P 500 Index returned 17.5% over that period (21.5% in the 12 months since we published our 2025 Investing Outlook), and a cumulative 91% since the bull market began in October 2022.

So why do some investors feel like there's a piano tied with a fraying rope suspended above their heads? The risks they're worried about include sticky inflation and a weakening job market, continuing trade tensions and potential cracks in the credit markets. Above all, investors are leery of an artificial intelligence (AI) boom that brings to mind bubbles of markets past. Are these concerns just proverbial bricks in the wall of worry that bull markets like to climb? Or are they signposts of something more sinister?

We think the bull market will remain intact and deliver further gains to investors in 2026, driven by a resilient economy, lower interest rates and decent corporate earnings growth. Stock market strategists that we track see the S&P 500 closing out 2026 at a price level between roughly 7,200 and 7,750. We'll ballpark it conservatively, near the midpoint, at somewhere around 7,500. That's up from a close of 6,840 on October 31, the date for prices and returns in this story, implying a price gain of more than 9%. Add in dividends for a total return of just under 11% — call it low double digits.

"We've had three straight years of double-digit returns," says Shannon Saccocia, chief investment officer in the wealth management division of Neuberger Berman. "The absolute return might be more modest in 2026, but we remain constructive."

Of course, the year will present a number of challenges, including an adjustment to a new Federal Reserve chair in the spring and midterm elections in the fall. But the biggest fear in the hearts of investors is that the market surge we're seeing now will stop short and head south.

At the risk of mixing too many metaphors, it might be helpful to think of the market this way: There may well be a distant storm brewing. But for now, we're issuing a storm watch, not a storm warning, and the clouds could either dissipate or darken from here. That means it's not time to evacuate the market, but it makes sense to batten down the hatches by making sure your portfolio is built soundly and able to withstand whatever comes.

The scary bits for investors

Before a government shutdown turned off the data spigot, it was clear that the labor market was softening. Intensified immigration restrictions have constrained the supply of workers, pressuring job growth.

Economists also theorize that companies may be slow to hire as they assess the potential for AI to help them reduce headcount. For various reasons, a growing number of companies have recently announced layoffs. Among them, UPS (UPS) said it cut 48,000 jobs in 2025; Amazon.com (AMZN) said it was targeting 14,000 jobs.

Kiplinger expects the unemployment rate to peak at 4.7% in mid-2026, then settle back to 4.5% by year-end, equal to year-end 2025.

"Hiring has slowed quite a bit, and those unemployed are unemployed for longer," says Matthew Martin, a senior U.S. economist at Oxford Economics. "If you're a new entrant to the labor force, or you've been laid off, finding a job is really hard."

Meanwhile, inflation is stuck at a rate of 3% — above the Federal Reserve's 2% target — as tariffs work their way through the economy. The government's September inflation report showed price gains in three-fourths of all goods categories, up from two-thirds in August. Historically, the level has been less than half.

"You see the impact of tariffs in goods inflation," says economist and market strategist Ed Yardeni. "We'd have been at 2% inflation if it wasn't for the tariffs," he adds.

Kiplinger expects that after closing out 2025 at 3.0%, the inflation rate for consumer prices will settle back to 2.6% by year-end 2026.

A currently bifurcated economy poses risks on both sides, considering that consumers account for roughly two-thirds of the economy. With lower-income households struggling, economists worry about decelerating spending and the potential for rising delinquencies.

But even with high-end consumers providing the lion's share of support, there's a risk that because so much of that household wealth has been accumulated in a sizzling stock market, a sharp correction could cause the cohort to cut back on spending, making the correction more hurtful for the economy than might otherwise have been the case.

The cockroach theory

Recent cracks in the credit markets made headlines when a handful of bad loans linked to fraud allegations dinged some regional banks and called into question the opaque risks at the so-called shadow lenders in the burgeoning private credit sector.

JPMorgan Chase CEO Jamie Dimon compared the soured loans to cockroaches: "When you see one cockroach, there are probably more," he said. For now, most market watchers are characterizing the problems as idiosyncratic, meaning isolated instances of fraud, and see no infestation.

But as bankers comb through their ledgers for potential trouble spots, some are sure to appear. "Bear in mind that delinquencies within the credit market broadly are very low. We'll see an increase from below-normal delinquencies to normal levels as the cycle matures," says David Lefkowitz, head of U.S. equities at UBS Global Wealth Management. "That could be a headwind for regional banks — our investment preference is for money-center banks — but we don't think this is going to metastasize into something more troubling."

It's not particularly comforting that Savita Subramanian, head of equity and quantitative strategy for BofA Global Research, found similar sentiments when she reviewed commentary from the 2007 market peak prior to the global financial crisis. Back then, there was "cautiousness, but optimism overall," she says, "with some mentioning that risks are small and not likely to bleed into financial markets."

Looking at the U.S. stock market broadly, there's no getting around the fact that valuations are stretched. The S&P 500 benchmark trades at a price-to-earnings (P/E) ratio, based on estimated earnings, of 23. That's above the five-year average of just under 20 and the 10-year average of 18.6.

And BofA analysts are seeing an increase in bear-market warning signs. Six of 10 bear-market indicators have already triggered warnings; on average, 70% are triggered just before market peaks. Two that appeared in September indicate a sense of complacency on the part of investors and an increased appetite for speculation, says Subramanian.

The B-word surfaces

Investment bubbles are a thankfully rare but occasional fact of investing life, starting with the 17th century's tulip-bulb mania. Comparisons of today's AI-obsessed market with the internet-driven dot-com bubble of the late 1990s are proliferating. When that bubble burst in the spring of 2000, a nearly 50% bear market and recession ensued.

BofA reports that stock prices today eclipse March 2000 levels on nine of 20 valuation metrics, including the market value of the S&P 500 in relation to gross domestic product (GDP), average price-to-book-value ratio, average price-to-operating-cash-flow ratio and the market's median price-earnings ratio. A record 54% of fund managers surveyed by BofA say that AI stocks are in a bubble.

"Investors have been chasing mega-cap tech; they can't afford not to be in it. But at some point that will end, and I think that period is potentially closer than farther out," says BofA's Subramanian.

The massive numbers that define the AI boom specifically are mind-boggling and, therefore, have invited some skepticism about whether sufficient AI-related revenue will materialize soon enough to justify them.

The companies investing the most in AI — they're dubbed AI hyperscalers and include cloud-computing giants such as Amazon.com, Microsoft (MSFT) and Alphabet's (GOOGL) Google — have cumulatively increased capital expenditures from $153 billion in 2023 to an estimated $390 billion in 2025, according to Goldman Sachs analysts, accounting for 27% of capex for companies in the S&P 500. (Capital expenditures include spending on long-term assets such as property, equipment and technology. In this case, think AI infrastructure such as chips, power and data centers.)

Estimates of 20% growth in AI capex in 2026 are too low, according to Goldman. Without AI capex, business spending in the U.S. economy overall would be "weak," says Martin, at Oxford Economics.

Although AI adoption rates are "still quite low," overall, he says, they are growing, with usage rates in some sectors, such as finance and technology, much higher.

Ultimately, corporate America will have to realize significant AI-generated productivity gains to support the high levels of capital spending, says Martin. "It's very hard to forecast the magnitude of AI, and the timing. We continue to highlight the risk, but it's not something we're penciling in for the near term."

Results for the most recent quarter, however, provided a window into how investors can turn on a stock when they perceive a misalignment between AI spending and its potential payoff. After Meta Platforms (META) vowed to spend "aggressively" on AI, raising its forecast for 2025 capital spending to as much as $72 billion and signaling even more for 2026, the stock sank more than 11% the next trading day.

The bullish case for stocks

Given so much to worry about, why are we still bullish on stocks? Because a more nuanced look at the potential perils diffuses them somewhat. Although investors should certainly expect pullbacks in a market that has soared nearly 40% just since April, we'd rather make some portfolio adjustments to accommodate the growing risks than throw in the towel now.

"As in almost any year, you'll see some pullbacks, some news that makes people nervous," says Keith Lerner, chief investment officer and chief market strategist at Truist Wealth. "But pullbacks are the admission price for being in the market." (For more on Lerner's views, see our interview with the Truist CIO on what investors may face in the new year.)

Jeffrey Schulze, head of economic and market strategy at ClearBridge Investments, an asset management firm, agrees: "We're buyers of dips because we see the market continuing to move higher."

Start with the economy

The combination of fiscal stimulus for both consumers and businesses provided by the recently enacted tax and spending bill, together with lower interest rates courtesy of the Federal Reserve, provides a bullish backdrop typically seen only coming out of recessions, says Schulze. Much of the stimulus will come in the form of individual tax refunds. "That will help support low- and middle-income consumers in 2026, leading to a more uniform consumption picture," he says. "It's a reason to be optimistic on the consumer and the economy overall."

Still, Kiplinger expects only modest to moderate economic growth in 2026, as tariffs, federal workforce cuts and canceled contracts with government contractors, nonprofits and universities work their way through the economy. GDP growth should come in for the year at just under 2%, relatively unchanged from the 1.8% growth rate expected for 2025.

Meanwhile, there's nothing the market loves more than a Fed rate cut — especially when it arrives with no associated recession. At the end of December, traders expected the Fed to cut its benchmark target rate two more times in 2026, to a range of 3.0% to 3.25%.

In this case, there can be too much of a good thing, and the Fed will have to find a balance between disappointing the market by cutting rates less than expected and cutting too much — something to watch as a new regime takes shape at the central bank in May. "We're not concerned about a slowdown or recession," says Charles Tan, chief investment officer of global fixed income at fund company American Century. "We're more concerned about the Fed over-easing and the economy overheating."

Cutting rates too much could reignite inflation. It could also destabilize the stock market by injecting stimulus it doesn't need, says economist Yardeni, causing what he terms a market "melt-up."

Yardeni, among Wall Street's staunchest bulls, sees the S&P 500 ending 2025 at 7,000 and 2026 at 7,700. "Those targets would be exceeded sooner in a melt-up, forcing us to raise our odds of a bearish outcome — a correction, bear market or meltdown." In October, Yardeni raised his odds of a melt-up to 30%; he sees 50% odds of a healthier bull market and 20% odds of a bear.

Revving the engine

Corporate profits drive the stock market, and for the most part, they're accelerating. At the end of October, in the midst of third-quarter earnings season, 83% of S&P 500 companies that had reported by then had logged earnings that exceeded analyst expectations; 12% reported results below expectations, according to earnings tracker LSEG I/B/E/S.

In a typical quarter, 67% of firms beat estimates and 20% miss. In aggregate, reported profits were 8.3% above expectations, compared with a long-term average of 4.3%. Overall, Wall Street analysts were expecting year-over-year earnings growth for S&P 500 companies of 11.6% in 2025 and 14.1% in 2026.

The tech sector still leads with the highest expected earnings growth in 2026 (23%), followed by materials and industrials, with expected growth in profits of 21% and 19%, respectively, year over year.

"With the Fed cutting and a large fiscal package, the broadening of earnings that was supposed to materialize in 2025 is a greater possibility in 2026," says Schlulze. "But it's a show-me story for now."

The other B-word

Though fears of a bubble are widely discussed, many of the market watchers we talked to think "boom" might be a better descriptor — at least for today.

"Down the road, I think there is a substantial probability that we will see a bubble at some point, followed by a potentially gut-wrenching correction," writes Chris Buchbinder, an equity portfolio manager at Capital Group, in a recent note. "But I don't think we are there yet." For now, says the bullish Yardeni, "The only thing we have to fear is too much fear about bubbles."

Consider some of the quality markers that differentiate today's market from the dot-com bubble, for example, beyond the fact that today's market leaders, in contrast to their late '90s counterparts, boast robust profits. In addition, free cash flow yield (free cash flow divided by stock price) for the median large-cap stock was recently almost triple what it was in 2000, according to Morgan Stanley chief strategist Michael Wilson.

When adjusted for profit margins, the S&P 500 trades at a 40% discount to its price-to-earnings multiple back then. "Free cash flow generation, operational efficiency and strong profitability are all characteristics of a higher-quality index than what we saw during the late 1990s," Wilson says. BofA analysts note that S&P 500 companies today have lower financial leverage than their turn-of-the-century counterparts, and the index has a higher percentage of companies with quality ratings of B+ or better.

Moreover, according to Goldman Sachs, the AI infrastructure spending boom has yet to reach the profligate levels of previous innovation cycles. "We are not concerned about the total amount of AI investment," analysts wrote in a recent note. As a share of U.S. GDP, AI investment today is less than 1%, they note; during the electrification of manufacturing in the 1920s and the internet boom of the late 1990s, spending peaked at around 1.5% to 2% of GDP, and reached well over 3% with the buildout of railroads in the 1880s.

It's worth noting that mini-bubbles are inflating and deflating in other corners of the market with few ill effects overall, says Liz Ann Sonders, chief investment strategist at Charles Schwab. "I think there is a lot of speculative fervor in the market, but the good news, with quotes around ‘good,' is that recently the froth is more evident outside the mega-cap leadership names."

Quantum computing names, drone companies, meme stocks, micro caps, tech stocks with no profits and, recently, gold are all examples. "You can see some air come out of those bubbles without it causing major damage to the market," says Sonders.

Of course, major bubbles are only recognized in hindsight, after they burst. Let's say we're in one right now. Bubbles can inflate for years, and being out of the market while they do is costly.

The S&P 500 more than doubled from the time former Fed chair Alan Greenspan called out the market's "irrational exuberance" in late 1996 until it crashed in early 2000. "While I acknowledge the difficulty of assessing bubbles with foresight, I believe we are closer to 1998 than 2000," says Buchbinder, noting, for example, that we have yet to see an initial public offering boom in innovative start-ups such as OpenAI, the company behind ChatGPT.

Where (and how) to invest now

How will we know when the end of this phenomenal bull run is near? We won't. Back in 2001, Warren Buffett used the analogy of Cinderella at the ball to warn investors about overstaying in an overheated market. "The giddy participants all plan to leave just seconds before midnight. There's a problem, though," he wrote. "They are dancing in a room in which the clocks have no hands."

That's why it's crucial now to make sure your portfolio allocation is in line with your tolerance for risk — from both an emotional and financial standpoint. Can you withstand a 10% to 20% correction? How about the average bear-market drawdown of 38.5%? Or the 40%-plus average loss in what CFRA Chief Investment Strategist Sam Stovall calls a "mega meltdown"?

If the thought of any of that makes you uncomfortable, it's time to de-risk a bit. That doesn't mean dumping the winners that have fattened your portfolio over the past few years, but it does mean making sure they haven't taken over your holdings. Good investing habits, including staying diversified and rebalancing your portfolio by periodically trimming winners and buying laggards, are more important than ever.

Consider that the information technology sector currently accounts for 36% of the S&P 500; at the individual stock level, the top 10 stocks in the index, led by Nvidia (NVDA), Apple (AAPL), Microsoft and Amazon, account for 40%.

Although strategists at many investment firms continue to favor the technology sector, those at Wells Fargo Investment Institute recently recommended that investors trim holdings, downgrading the sector from "favorable" to "neutral" due to its rich valuations. They advised investors to shift some funds into utilities, industrials and financial stocks.

It may also pay off in 2026 to venture beyond large-company stocks generally. "A little bit down-cap offers a lot of opportunity," says Kara Murphy, chief investment officer at Kestra Investment Management. Smaller large-company stocks and midsize stocks look interesting, she says.

One way to access such stocks is through the Invesco S&P 500 Equal Weight ETF (RSP), an exchange-traded fund that weights each S&P 500 stock equally, reducing concentration risk and tilting toward smaller companies in the index. Or consider Dean Mid Cap Value (DALCX), recently added to the Kiplinger 25, the list of our favorite no-load mutual funds.

"The further down you go in market value, the more careful you have to be about quality," says Murphy. Look for companies with earnings to begin with, then zero in on those with high-quality, consistent earnings, she says. One place to start might be with the iShares Core S&P Small-Cap ETF (IJR), a member of the Kiplinger ETF 20, the list of our favorite exchange-traded funds. Firms must be profitable to be included in the index the fund tracks, in contrast to the popular Russell 2000 small-company benchmark.

Diversifying outside the U.S. paid off in 2025 and is still a smart move. "Looking forward, we think the non-U.S. space is going to do better than what we've seen over the last decade," says Schulze, at ClearBridge. International stocks will benefit from greater clarity on the trade front, and they still trade at a significant historical discount relative to U.S. stocks, he says. The Vanguard Total International Stock ETF (VXUS) gives you exposure to developed and emerging international markets for a low expense ratio of 0.05%.

Value stocks — those trading at bargain prices relative to earnings, book value or other measures — can provide some defense for your portfolio, complementing "growthier" tech stocks. And you don't have to make an all-or-nothing choice between the two.

"I am investing with the intent of fully participating in the powerful AI trends as they continue to unfold among dynamic, growth-oriented companies," says Capital Group's Buchbinder. "However, I am also playing defense, actively looking for companies that may be out of favor today but could do relatively well if the AI bubble pops." Stocks that fit the bill include energy companies, such as Halliburton (HAL) and Cenovus Energy (CVE), and cable firms, including Comcast (CMCSA) and Charter Communications (CHTR), he says.

Subramanian is also a fan of large and midsize value stocks, favoring "old-economy companies that are laser-focused on dividends and have a whole ethos built around maintaining that dividend." Real estate investment trusts (REITs) are AI-adjacent, says Subramanian, but haven't rallied to the degree that tech and utilities have. One worth exploring is data-center REIT Digital Realty Trust (DLR).

Among financials, Subramanian likes the large, regulated banks, which are better positioned than private lenders and regional banks for any sort of downturn, with healthier balance sheets and higher-quality loans. "And they have the potential for massive efficiency gains from AI," she adds. The Invesco KBW Bank ETF (KBWB) is a good choice. For a broader basket of value picks, consider one of our favorite value funds, Dodge & Cox Stock (DODGX), a Kip 25 member that ranked in the top half of its peer group in seven of the past 10 years.

If you've been buying utility stocks to supply the defense for your portfolio, Subramanian suggests you consider health care stocks instead; BofA recently downgraded the former and upgraded the latter. Medical supplies distributor Cardinal Health (CAH) has good prospects for the year ahead.

Gold glittered in 2025, touching more than $4,000 per ounce, up more than 50% for 2025 through October. Look for a choppy period during which the yellow metal continues to digest its recent gains, says Lerner, the Truist strategist.

"We're not goldbugs, but we came into 2025 very positive because of geopolitical uncertainty, the falling dollar and more central-bank buying," he says. "We're still positive on gold as a portfolio diversifier, but we think things went too far, too fast."

A small stake is plenty for most investors; Lerner recommends roughly 2.5%. ETFs are an easy way to gain exposure: SPDR Gold Shares (GLD) is the biggest and most liquid; iShares Gold Trust Micro (IAUM), with an expense ratio of 0.09%, is among the cheapest.

Fixed-income investors will find a good balance of risk and reward in high-quality bonds of intermediate-term maturities. Murphy, the Kestra strategist, is cautious on high-yield IOUs, favoring investment-grade corporates. Yields on the short end of the yield curve will likely fall in line with the Fed's cuts, but what happens at the long end is still in question.

"I'd rather be in the belly of the curve," says Murphy, with maturities of three to seven years. Intermediate-term issues benefit by rates coming down, she says (because rates and prices move in opposite directions), but still have higher absolute yields. The Vanguard Intermediate-Term Corporate Bond Index Fund (VICSX), invested exclusively in investment-grade bonds, yields 4.7%.

Finally, if you're nervous about the stock market but still want to participate, consider a buffered ETF, which will cushion losses to a pre-determined degree in exchange for a cap on potential gains. Timing is important when you buy these funds; one we like now is the Innovator U.S. Equity Power Buffer ETF January Series (PJAN), which you can buy at the end of December.

You can contact the author at Anne.Smith@futurenet.com.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Invesco created its BulletShares suite of exchange-traded funds (ETFs) to help investors build bond ladders — a strategy that involves buying bonds with staggered maturity dates. But these funds can be useful in other ways.

In 2022, when we added Invesco BulletShares 2026 Corporate Bond (BSCQ) to the Kiplinger ETF 20, the list of our favorite ETFs, the fund met our objective of finding a short-term, high-quality corporate bond fund with below-average duration (a measure of interest-rate sensitivity).

Since then, the fund has exceeded expectations. From mid-2022 through October, BulletShares 2026 Corporate Bond returned 4.3% annualized, beating the 3.1% gain of the Bloomberg U.S. Aggregate Bond Index, with half the volatility.

But as its name implies, all the bonds in the fund mature in 2026. That means as the IOUs it holds are paid off over the course of the year, the fund's portfolio will slowly morph from a short-term corporate debt fund into a cash fund.

Starting in July, says Justin Danfield, former senior fixed-income ETF strategist at Invesco, the fund will cease buying new bonds, and the fund's stakes in cash and 13-week Treasury bills will increase. Finally, sometime in mid-December 2026, the fund will close, and shareholders will receive a cash distribution of their shares.

What should investors do now?

If you hold shares in this fund, and you're using it primarily as a place to park short-term cash, you can stay put. Bear in mind, however, that the fund's yield, currently 4.0%, will start to shrink a bit starting in July, says Danfield.

T-bill yields, nearly 3.8% recently, are competitive with money market funds for now, but Danfield expects T-bill yields to fall as the Fed continues to lower short-term lending rates in 2026.

Otherwise, you could consider shifting assets in the BulletShares fund into one of the Kip ETF 20 core bond funds, the Fidelity Total Bond ETF (FBND) or the State Street DoubleLine Total Return Tactical ETF (TOTL). Meanwhile, we'll be assessing alternatives for the BulletShares fund in the coming months.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Whether you're pleased or disappointed about the resumption of the Federal Reserve's rate-cutting cycle may depend on whether you are primarily a borrower or a saver. Regardless of where you fall on that spectrum, if you're an investor, now is a good time to review your portfolio and make some tweaks to accommodate — and capitalize — on a lower-rate regime.

The quarter-point rate cut from the Fed in September was the first since December 2024. The central bank followed this up with another one in October, and while it's too soon to call the December meeting, more rate cuts are expected in 2026.

Traders were recently betting that by next April, the federal funds rate (the interest rate that banks charge each other for overnight loans) would sink to a target rate of 3.25% to 3.5%, according to CME Group's FedWatch tool. That's a full percentage point lower than the Fed's benchmark rate in early September — two points lower than when the current monetary easing cycle began in September 2024.

The good news for investors is that lower interest rates are largely positive for stocks — even in the second year of a rate-cutting cycle. Dating back to 1990, the S&P 500 Index has gained an average 11% in price in year two of Fed rate cuts, according to Sam Stovall, a market historian and chief investment strategist at research firm CFRA.

Zeroing in on how the market performs following a pause of several months during a rate-cutting cycle, Ryan Detrick, chief market strategist at wealth management firm Carson Group, found that since 1970, the S&P 500 has been higher nearly 91% of the time in the year following the resumption of rate cuts, returning an average 12.9%.

Of course, a lot depends on the health of the economy and whether rate cuts are occurring when a recession is imminent or underway or when the economy remains relatively healthy. Looking at the 45 rate-cutting campaigns going back to 1954, market strategists at Glenmede, another wealth management firm, found that the average S&P 500 gain over the course of the cycle was 13%; with no recession the average gain was 24.2%, and with a recession it was just 6.6%.

"We look at the economy as still on fairly firm footing," says Detrick. Although there are signs of labor-market slowing, there is also evidence of stronger-than-expected retail sales, he notes. "We have an okay economy being led by very strong corporate earnings growth. A Fed rate cut is the cherry on top, and they are likely to cut well into 2026. That's bullish for equities," he says.

Strong stock sectors for Fed rate cuts

Historically, the sectors that have performed best in the second year of rate cuts include real estate, financials, tech, health care and consumer staples, according to CFRA. That might not be the case this time around: Although Stovall currently recommends investors overweight stocks in the financial and tech sectors (as well as communications services), he has an Underweight rating on health care stocks, and he sees real estate and staples shares merely keeping pace with the market.

It's simply too early to shift into sectors traditionally considered more defensive, says Detrick. He still likes large-cap stocks in the financial, tech and industrial sectors, which have been leaders in the current bull market. "We're sticking with the ones who brought us to the dance," he says.

Nonetheless, it's a good time now, especially if you're nervous about the market's highfliers, to make sure you have some exposure to midsize- and small-company stocks, he adds, as well as international fare.

Lower rates may be the catalyst long-suffering small-cap stocks have needed. Indeed, on the heels of the September rate cut, the Russell 2000 Index, a popular small-cap benchmark, hit its first new high since November 2021 — an interval when the S&P 500 set 89 new highs, according to Stovall.

As interest rates drop, "small-cap companies are likely to benefit disproportionately," note the strategists from Glenmede. That's because more than half of small-cap debt is issued at floating rates. "As interest expenses fall," they say, it "should provide a meaningful tailwind to earnings."

Moreover, small firms should see a more sizable benefit from corporate tax relief, while also being less exposed to the impact of tariffs than large companies, according to Glenmede. And despite the recent rally, valuations remain compelling compared with their blue-chip cousins. "Small- and mid-cap stocks could have a very long runway — well into 2026, we think," says Detrick.

A good way to add more exposure to mid- and small-cap stocks is with the iShares Core S&P Mid-Cap ETF (IJH) and the iShares Core S&P Small-Cap ETF (IJR). Both exchange-traded funds are members of the Kiplinger ETF 20, the list of our favorite ETFs. (Prices, returns and other data are as of September 30.)

Step away from cash

You've no doubt noticed that your cash is earning less. But further deterioration in the economy — continued weakness in the job market, say — could send cash yields to the basement. "The imperative to put cash to work is increasing," say strategists in the chief investment office at UBS Financial Services.

For short-term spending needs, stick with the modest yields on certificates of deposit and money market funds, they advise. For expenses that are one to three years away, consider a bond ladder, with IOUs of staggered maturities.

Cash earmarked for needs up to five years out can be invested in intermediate-term government or investment-grade corporate bonds, according to UBS. Baird Aggregate Bond (BAGSX), a longtime member of the Kiplinger 25, the list of our favorite actively managed no-load mutual funds, yields 3.9% and has ranked in the top half of similar funds in seven of the past 10 years.

Or, recommends UBS, consider a multi-sector bond fund, whose managers can pick and choose among a wide array of fixed-income assets.

One to explore is the Pimco Multisector Bond Active ETF (PYLD). The ETF, with a yield of 5.1% and a total return of 7.0% over the past 12 months, had a hefty stake in securitized assets (think pooled mortgage loans and the like) at last report.

Finally, investors looking to replace regular income from cash, and who can tolerate the higher risk of stocks, can seek out dividend payers, such as those found in the Kiplinger Dividend 15, our favorite dividend-paying stocks.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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The U.S. stock market has been notching new highs, which tends to kick up the likelihood of a market pullback (defined as a drop of 5% to 10%) or even a correction (a 10% to 20% sell-off). That's where the JPMorgan U.S. Quality Factor ETF (JQUA) comes in.

The fund – a member of the Kiplinger ETF 20, our favorite exchange-traded funds, invests in high-quality U.S. companies with robust profit margins and little debt. Over the past five years, the portfolio of 200-odd stocks has consistently held up better than the S&P 500 Index in down markets.

In the tariff swoon of early 2025, for instance, JPMorgan U.S. Quality Factor lost 16.7%; the S&P 500, 18.8%. The fund weathered 2022, a tough year, better than the broad-market benchmark, too. And yet, despite the fund's defensive characteristics, its five-year annualized return, 15.8%, has, for the most part, kept pace with the 16.5% climb in the S&P 500.

Quality hallmarks of this JPMorgan fund

But minimizing losses is just a fringe benefit of this index fund's quality focus. The fund's underlying benchmark starts with the 1,000 largest U.S. stocks and ranks them on 10 quality measures that touch on profitability, financial strength and earnings quality.

Companies with good return on equity (a profitability measure), free cash flow (money left over after operating expenses and spending to maintain or upgrade long-term assets) to sales, and cash flow interest cover (a gauge of a company's ability to pay its interest obligations using its operating cash flow), for example, will rank well. Low volatility and stable earnings, among other measures, also matter.

The firms that rank best in each quality measure, on average, make it into the fund, and stocks are weighted by average quality scores.

At last report, Nvidia (NVDA), Apple (AAPL), Alphabet (GOOGL), Microsoft (MSFT) and Broadcom (AVGO) made up the fund's top five holdings. But concentration at the top isn't a concern here: The five stocks account for just 11% of assets.

By contrast, the five biggest stocks in the S&P 500 — Nvidia, Microsoft, Apple, Amazon.com (AMZN) and Meta Platforms (META) —make up 28% of the index.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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In early July, like they've done so often before, investors focused on Warren Buffett, Berkshire Hathaway (BRK.B) and their latest 13F filing. A 13F is a quarterly disclosure of equity holdings by institutional investors with more than $100 million under management.

Most headlines focused on Buffett's new position in the troubled health care giant UnitedHealth Group (UNH), which was dealing with the assassination of a business unit CEO and a Department of Justice probe.

What caught some investors off guard, however, was new exposure to major U.S. homebuilders. The filing revealed roughly $800 million invested in Lennar (LEN) and about $190 million in D.R. Horton (DHI).

Immediate speculation suggested Buffett and Berkshire were betting on a cyclical rebound in home construction, supported by macroeconomic tailwinds – chiefly falling interest rates.

Lower mortgage rates reduce financing costs, stimulating new housing demand and boosting builders' margins. And this thesis is beginning to materialize.

In September and October, the Federal Reserve cut the target range for the federal funds rate by a total of 50 basis points to bring it down to 3.75% to 4.00%. Odds favor another 0.25% reduction at the next Fed meeting in December.

Homebuilder stocks have rallied modestly during this period, leaving room for investors who want to mirror Buffett's latest positioning.

For those who'd like to be efficient about it, the best homebuilder ETFs offer easy and diversified exposure at reasonable cost.

What are homebuilders?

Homebuilders don't merit a standalone sector under the Global Industry Classification Standard (GICS). They span several sectors, primarily consumer discretionary, industrials, materials, and real estate, like how infrastructure overlaps with utilities and energy.

At the center of the industry are the companies actually constructing new homes. Their business model is straightforward: acquire land, build residential properties and sell them for a profit.

Margins depend heavily on land costs, material prices and demand for housing, which fluctuates with mortgage rates and economic growth.

The biggest names include Lennar and D.R. Horton as well as NVR (NVR) PulteGroup (PHM) and Toll Brothers (TOL), often considered the "big five." These firms are highly cyclical, meaning their earnings and stock prices tend to rise during economic expansions and fall during downturns.

This volatility makes valuing them tricky, since price-to-earnings ratios can look deceptively high at cycle troughs and artificially low near peaks.

But the homebuilding ecosystem doesn't stop there. Those direct builders rely on a wide network of "enablers" that provide materials and services.

Sherwin-Williams (SHW), for instance, sells paints and coatings essential to new construction. Retailers such as Home Depot (HD) and Lowe's (LOW) are grouped here too, as they cater to both contractors and homeowners, a segment often called "home improvement retail."

The industry also includes suppliers of construction materials, furnishings, and building products ranging from HVAC systems and lighting to sofas and mattresses.

Many of these are mid-cap stocks and small-cap stocks, making them less familiar but vital parts of the residential construction chain.

Because this ecosystem covers such a range of activities and company sizes, investors need to pay attention to how homebuilder ETFs define their selection criteria. Some funds focus narrowly on direct builders, while others include related industries.

Weighting methods also vary. Market-cap-weighted homebuilder ETFs tilt toward large-cap stocks such as LEN and DHI, while equal-weighted versions give smaller players a larger role.

Regardless of approach, all homebuilder ETFs revolve around the same theme: capturing different stages of the residential construction process, from the first shovel in the ground to the final coat of paint.

How we picked the best homebuilder ETFs to buy

We had to adjust our usual criteria for evaluating ETFs – based on size, liquidity and fees – for the homebuilder category.

Unlike broad market or sector funds, the homebuilder ETF universe is small. As of November 10, VettaFi reported only six U.S.-listed homebuilder ETFs.

Applying strict filters for assets under management, expense ratios and bid-ask spreads would have left fewer than a handful of eligible funds.

At the same time, broadening the screen too far would defeat the purpose of a focused comparison.

So we chose to highlight the five largest ETFs by assets under management.

Rather than ranking them outright, we'll walk through each fund's advantages and trade-offs using our standard criteria while noting historical performance where relevant for comparison.

Here are the best homebuilding ETFs to buy.

Data is as of November 10.

iShares U.S. Home Construction ETF

• Assets under management: $2.6 billion
• Expense ratio: 0.38%
• 30-day median bid-ask spread: 0.03%

The iShares U.S. Home Construction ETF (ITB), which launched in May 2006, is the largest fund in this narrow category. ITB tracks the Dow Jones U.S. Select Home Construction Index, a modified benchmark weighted by market cap.

The index gives top billing to the big five homebuilders – LEN, DHI, NVR, PHM and TOL – but ranks retail giants HD and LOW lower, given their indirect role in actual home construction.

Performance has been strong. Since the aftermath of the 2008 housing crisis, ITB has delivered an annualized 10-year total return of 15.63% with dividends reinvested.

The tradeoff is higher volatility: Its three-year beta of 1.52 means it’s about 50% more volatile than the S&P 500.

ITB is best for investors seeking direct exposure to leading U.S. homebuilders who are willing to tolerate higher cyclical risk for potentially stronger long-term gains.

Learn more about ITB at the iShares provider site.

State Street SPDR S&P Homebuilders ETF

• Assets under management: $1.5 billion
• Expense ratio: 0.35%
• 30-day median bid-ask spread: 0.04%

The State Street SPDR S&P Homebuilders ETF (XHB) is the runner-up to ITB in size but takes a different approach. XHB tracks the S&P Homebuilders Select Industry Index, which equally weights all 35 of its holdings.

That means company size doesn't matter: Each stock receives the same allocation, and weights reset every quarter. As a result, top holdings shift frequently based on which names outperform between rebalances.

This equal-weighting method has both advantages and drawbacks. Over the past decade, however, that tilt toward smaller names hasn't paid off, as large caps have dominated.

XHB has returned 14.19% annualized with dividends reinvested – solid, but below ITB's performance.

XHB is best for investors who seek diversified exposure across the entire homebuilding value chain, including mid- and small-cap names, with a disciplined equal-weighted structure.

Learn more about XHB at the State Street provider site.

Direxion Daily Homebuilders & Supplies Bull 3X Shares

• Assets under management: $591.7 million
• Expense ratio: 0.95%
• 30-day median bid-ask spread: 0.21%

The Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL) is not a typical buy-and-hold industry ETF.

It tracks the same Dow Jones U.S. Select Home Construction Index as ITB, but NAIL uses three times leverage to magnify daily moves. This leverage resets every trading day – meaning returns are based on the index's daily performance, not long-term trends.

For example, if the index rises 1% in a day, NAIL aims to rise 3%. But if it falls 1%, the ETF should drop 3%. To achieve leverage, the fund primarily holds derivatives such as index swaps rather than the underlying stocks, adding counterparty risk.

Over time, compounding can cause performance to diverge significantly from the index's overall direction, especially in volatile markets. The 0.95% expense ratio further erodes returns over longer holding periods.

NAIL is best for experienced traders looking to make short-term, bullish bets on the homebuilding sector's daily momentum

Learn more about NAIL at the Direxion provider site.

Invesco Building & Construction ETF

• Assets under management: $295.3 million
• Expense ratio: 0.57%
• 30-day median bid-ask spread: 0.33%

The Invesco Building & Construction ETF (PKB) is an alternative to the market-cap-weighted ITB or equal-weighted XHB. PKB tracks the Dynamic Building & Construction Intellidex Index, which takes a fundamentals-driven approach.

The 30-stock index screens for price momentum, earnings momentum, quality, management action and value. Sponsors reconstitute and rebalance quarterly, adding new stocks or removing old stocks and adjusting weights back to target levels based on updated data.

This approach gives PKB a more dynamic mix of holdings, but it doesn't guarantee outperformance – especially after factoring in its higher 0.50% expense ratio.

Still, the strategy has delivered strong historical results, with PKB narrowly trailing ITB with a 15.21% annualized total return. PKB's past success doesn't predict future results. But it validates the potential of a fundamentals-based strategy.

PKB is best for advanced investors who prefer a more actively constructed, fundamentals-driven way to potentially outperform ITB and XHB.

Learn more about PKB at the Invesco provider site.

Hoya Capital Housing ETF

• Assets under management: $34.7 million
• Expense ratio: 0.30%
• 30-day median bid-ask spread: 0.22%

The Hoya Capital Housing ETF (HOMZ) is a smaller, boutique ETF, it's one of the most unique in the housing category. HOMZ tracks the proprietary Hoya Capital Housing 100 Index, which includes 100 companies spanning the full housing ecosystem.

Alongside homebuilders and retailers such as HD and LOW, HOMZ also holds residential real estate investment trusts, or REITs, giving it a blend of growth and income exposure.

Performance has been competitive, with a 10.25% annualized five-year total return. Its 0.30% expense ratio is also lower than most peers.

However, its small size – less than $50 million in assets under management – invites concerns about liquidity and fund longevity. Even so, the ETF may appeal to income-oriented investors thanks to its 2.65% 30-day SEC yield and monthly distributions.

HOMZ is best for income-seeking investors who want diversified housing exposure spanning homebuilders, suppliers and residential REITs.

Learn more about HOMZ at the Hoya Capital provider site.

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Most kitchens are well-stocked with pantry staples, the foundation of all recipes. But every good chef knows that the best meals feature a variety of flavors, including some spice. Technique is important: Too much or too little of any single ingredient can make a big difference.

The same approach applies to portfolios. Earlier this year, many U.S. investors learned that their mix was off after foreign stocks significantly outpaced U.S. shares … just as the S&P 500 stumbled badly. It quickly became clear that many investors were underexposed to foreign markets and overexposed to the United States.

In a June survey, Schwab Asset Management found that moderate-risk individual investors held just 10% of their portfolios in foreign shares; U.S. stocks, by contrast, made up 61%. In short, investor portfolios weren't diversified.

It was a comeuppance long in the making. For nearly 15 years, U.S. stocks have been the place to be. Why bother to diversify — break up your investments across a variety of stocks, bonds and other assets — when the S&P 500 is beating everything?

"It can be easy to forget the benefits of diversification in a very sharp upward-moving market," says Andrew Altfest, a certified financial planner with Altfest Personal Wealth Management in New York City.

But over time, you'll find that a mix of investments can smooth your returns, strengthen your resolve as an investor, dampen risk in your portfolio and keep you exposed to whichever corner of the market is working at the moment — no crystal ball necessary.

In a truly diversified portfolio, some investments will be in favor while others are on the outs. "You will never own only winners, but you won't get stuck with only the laggards, either," says Jeff DeMaso, editor of The Independent Vanguard Adviser.

A smoother ride

A diversified portfolio can deliver less-volatile returns, which may help you stay the course during turbulent times — and arguably, that's half the battle in achieving your investment goals.

Moderate-allocation funds, also called balanced funds because they stabilize a 60% allocation of assets to stocks with a 40% stake in bonds, have been about one-third less volatile than an all-stock portfolio over the past 10 years.

"When the stock market sells off, investors tend to sell and move into cash. The problem there is, they've divested. So, we always say, stay invested and diversify," says Alessio de Longis, senior portfolio manager and head of asset allocation at Invesco Solutions.

Indeed, diversification isn't a strategy you turn on during rough markets and switch off in roaring bull markets. "It's something you should always have in your portfolio,” says Kristy Akullian, head of iShares investment strategy for the Americas at BlackRock.

Diversification can help ward against risk, too, of which there's no shortage these days. U.S. stocks are trading at high valuations. The economy looks to be slowing. Inflation remains sticky. And uncertainty lingers about the impact of new government policies and geopolitical risks. All of these challenges are chipping away at investor confidence.

Some advisers zero in on risks as a guiding principle for diversifying their clients' portfolios. Worried about a decline in the dollar? Add non-dollar assets — foreign stocks or bonds — to your portfolio. Concerned about an inflationary shock? Fold in a stake in commodities or real estate. A recession? Insert a slug of high-quality bonds or beef up on cash.

"Since I think all of these are potential sources of risk to the stock market, I put a lot of these diversified eggs into my clients' portfolio baskets," says Paul Winter, a certified financial planner at Five Seasons Financial Planning in Salt Lake City, Utah.

Another reason to diversify is that it's impossible to predict which investment will outperform in any given year — so it pays to own a mix of several. "The point of diversification is that you don't know what is going to happen," says Thomas Martin, of Globalt Investments, an Atlanta-based investment firm, but you can be prepared just the same.

The fact is, market leadership can shift dramatically from year to year. Though large-company stocks have topped the charts in many years recently, the winning asset class in any given year is often anybody's guess.

According to the Callan Periodic Table of Investment Returns, a colorful depiction of how asset returns can vary from year to year, small-cap stocks fared best in 2020. In 2018 and 2022, cash prevailed. And emerging markets stocks were the best-performing asset class in 2017; the next calendar year, they were the worst.

While there are rules of thumb to follow, a well-diversified portfolio is "very much an art, not a science," says Winter. For example, you want to own multiple kinds of assets, but that does not mean you own everything in equal measure. "Depending on your overall allocation, you might not need to go super-deep on every category," says Roger Young, a CFP at T. Rowe Price.

The good news: This is a great time to diversify. If, like many American investors, your portfolio is heavily weighted toward U.S. stocks, it's not too late to lighten the load and find opportunities in less-expensive pockets of the market.

"U.S. stocks are near their all-time highs, and that's a lot better time to diversify than, say, back in March 2009," the market's nadir during the Global Financial Crisis, says Winter.

Stocks, bonds and alternative assets are the main elements of a diversified portfolio. But you'll want to make sure you're diversified within those types of investments, too.

In this article, we'll walk you through the ingredients of a good diversification plan, with some timely moves to make now and tips on how to maintain your portfolio. Prices, returns and other data are as of August 31.

Stocks

Stocks can be risky but also rewarding. Over the past 10 years, the S&P 500, which represents more than 80% of the total U.S. stock market, has returned a whopping 15% a year.

But the stock market doesn't move as a monolith — and within your stock holdings, you should assemble a broad mix, considering a number of factors.

Company size

The market can favor companies of a particular size — sometimes for years — depending on economic factors, industry innovations or even just market sentiment.

Over the past decade, thanks to globalization, large companies have ruled, ranking as the top-performing asset class in five of the past 10 years and among the top three performers in eight of the past 10, according to the Callan table.

"The big just got bigger," says Jake Schurmeier, a portfolio manager at Harbor Capital. That makes exchange-traded funds (ETFs) that invest in small and midsize companies, such as the iShares Core S&P Mid-Cap (IJH) and the iShares Core S&P Small-Cap (IJR) — members of the Kip ETF 20, our favorite exchange-traded funds — good diversifiers for the large-cap S&P 500.

Some strategists see an opportunity in midsize-company stocks, especially these days. The middle tier of the U.S. stock market "is uniquely positioned to capitalize on growing demand for American-made goods and infrastructure solutions in a reshoring and energy-independent economic landscape," says Dina Ting, head of global index portfolio management at Franklin Templeton.

Plus, on a price-to-earnings basis, mid-cap stocks now trade at an atypical discount to large caps.

Concentration

Large-company stocks' recent run has included the meteoric rise of tech stocks in general and anything related to artificial intelligence (AI) in particular.

A group that includes Nvidia (NVDA), Microsoft (MSFT) and Apple (AAPL), known as the Magnificent Seven, accounts for one-third of the value of the S&P 500 Index. Thus, what might look like a diversified collection of U.S. stocks is in reality an outsize bet on a dazzling few.

A simple way to mitigate such overconcentration is the Invesco S&P 500 Equal Weight ETF (RSP). In this fund, every company gets an equal share of assets. So, while Nvidia accounts for 8% of the traditional market-cap-weighted index, it makes up just 0.24% of the Equal Weight fund.

Investment style

Professional investors typically hew to a certain methodology. These approaches break down into two broad styles: value and growth. Value managers favor stocks that trade at a discount to various metrics; growth managers prefer companies that are growing faster than average.

The two styles wax and wane at different times, and the cycles tend to last for long stretches. Value won the period from the start of 2000 to 2009. But since then, growth has dominated, though it's worth noting that value stocks held up better during the most recent bear market from January to October 2022.

Because it's difficult to predict when one style is going to outperform the other, even in a bear market, it's important to maintain a toehold in both growth and value strategies.

Chances are, however, that you've got plenty of exposure to growth stocks these days. Consider adding a value-driven fund such as Dodge & Cox Stock (DODGX), a mutual fund that has outpaced the S&P 500 over the past five years, or Capital Group Dividend Value (CGDV), an ETF that has beaten the S&P 500 over the past three years.

Both are actively managed, but index-fund lovers could look at the Vanguard S&P 500 Value ETF (VOOV). The ETF holds its own among a peer group of value-oriented large-company stock funds.

Geography

You need both U.S. and non-U.S. stocks in your portfolio, although many years of U.S. out-performance made that idea unpalatable. That changed in 2025: After lagging the U.S. stock market for nine of the past 11 calendar years, the MSCI EAFE Index, a popular international-stock benchmark, is up nearly 23% so far this year, beating the S&P 500 by more than 12 percentage points.

Most strategists agree that U.S. investors need to boost their exposure to international stocks. The timing is good. A weakening dollar tends to magnify gains in foreign shares (because they translate into more dollars stateside). And foreign stocks are still cheap relative to U.S. stocks on a price-to-earnings basis, even after a strong run so far this year.

Foreign stocks include those in both developed and emerging markets. You can zoom in on a region — Europe, Asia, Latin America, say — or a single country, such as Japan, India, Germany or China. And of course, at every level, you can focus on company size or value or growth approaches.

Start with the Vanguard Total International Stock ETF (VXUS). It's an inexpensive way to get instant exposure to nearly every foreign stock in developed and emerging markets. Morningstar analyst Zachary Evens calls it "wall-to-wall foreign-stock exposure." The fund has gained 23% since the start of the year.

Add an emerging-markets index fund. The iShares Core MSCI Emerging Markets ETF (IEMG) tracks an index of 20-odd developing markets. "A weaker dollar is good for EM stocks," says Richard Cook, a portfolio manager of Cook & Bynum fund. A recent rebound in Chinese stocks — 27% of the index — has helped the fund return 18% over the past 12 months.

Baron Emerging Markets (BEXFX) — a member of the Kiplinger 25, our favorite no-load mutual funds — is actively managed, growth focused, and has gained 19% over the same period.

These days, many strategists, including T. Rowe Price's Charles Shriver, see opportunity in small, foreign companies. They typically trade at a premium to their larger brethren, but not now. And "small-cap international stocks will benefit from domestic economic growth in home countries and are less sensitive to tariffs," he says.

We have our eyes on the Avantis International Small Cap Equity ETF (AVDS) and the Dimensional International Small Cap Value ETF (DISV). The Avantis fund invests in a mix of growth and value small companies, with a focus on valuation and profitability. Over the past 12 months, it has gained 23%. The Dimensional exchange-traded fund focuses on bargain-priced small stocks in developed countries and has returned 25% over the past 12 months.

Bonds

Bonds provide ballast to the stock side of any portfolio, generally speaking, because when stocks fall, bond values tend to rise. That didn't happen in 2022, when a precipitous rise in interest rates pushed both stocks and bonds down (bond prices and yields move in opposite directions). The S&P 500 fell 18%, and the Bloomberg U.S. Aggregate Bond index sank 13%.

It was the worst year ever for bonds, but a few fixed-income sectors held up better. Bank-loan funds, for instance, lost 2% on average; short-term bond funds dipped just 5%. Ergo, in 2022, a diversified bond portfolio would have outperformed the Agg index.

Broadly speaking, there are four major bond sectors: government, corporate, securitized debt (bundled IOUs such as mortgages or auto loans, say, that are sold as a single security), and municipal bonds, which pay income that's exempt from federal and sometimes state taxes.

A diversified bond portfolio will include a mix of sectors. The Agg index, for instance, is diversified as far as sectors go: Government bonds make up just less than half of the index, corporate and securitized debt combined are another 50%, and the rest sits in cash and muni IOUs. But there are more layers of bond diversification to consider.

Credit quality

Credit ratings reflect a borrower's financial ability to repay debts. The higher the rating, the more creditworthy the issuer is, and vice versa. That's why investment-grade bonds, rated between triple-A and triple-B, are considered high quality — there's little risk of default. Debt rated between double-B and triple-C is often called junk or high yield — there's a higher risk of default, and therefore yields are higher to attract investors.

Bond portfolios should hold mostly high-quality debt at their core. The Vanguard Total Bond Market ETF (BND) and the iShares Core U.S. Aggregate Bond ETF (AGG) are the biggest index-based high-quality bond ETFs. But we prefer active strategies, such as Baird Aggregate Bond (BAGSX) and Dodge & Cox Income (DODIX). Both mutual funds are members of the Kiplinger 25.

Then consider adding lower-quality debt, which can boost the overall yield of a bond portfolio. In late August, for instance, U.S. high-yield corporate debt yielded 6.7%, and bank loans, issued by companies with low credit ratings, yielded 8.6%.

Our favorite high-yield corporate fund, Vanguard High-Yield Corporate (VWEHX), favors higher-quality, double-B junk bonds. But with economic uncertainty ahead, we're partial these days to short-term high-yield bond funds such as the Pimco 0-5 Year High Yield Corporate Bond Index ETF (HYS). Its short-term focus can help dampen default risk, a concern if the economy slows.

Duration and maturity

Investors often confuse duration, a measure of a bond's sensitivity to interest rate moves, with maturity, the length of time a bond will pay interest before it repays the principal. They're not the same, but they are connected.

Maturity plays a part in the calculation of duration. The longer the maturity, the longer the duration and the more sensitive a security is to interest rate shifts.

The typical long-term government bond fund, for example, has an average maturity of 20 years and a 16-year duration. That implies if rates were to rise by one percentage point, the net asset value of long-term government funds would decline 16%, and vice versa. Short-term government bonds have an average maturity of three years and a duration of 2.6 years.

Generally, low-duration bonds are a defensive bet when interest rates are rising, and high-duration bonds stand to benefit most when rates fall. These days, however, even though cuts in short-term rates are on the docket, a fall in long-term rates isn’t guaranteed, says Akullian, the iShares strategist. That's why she favors intermediate-maturity bonds for now.

The iShares 3-7 Year Treasury Bond ETF (IEI) sports a 4.3-year duration. Since the start of the year, it has returned more than 5%. The actively managed Vanguard Intermediate-Term Bond ETF (BIV) favors bonds with maturities of five to 10 years and has a duration of 6.1 years. Its portfolio holds government and corporate debt of medium maturities. So far this year, it has gained 6.4%.

Finally, the Fidelity Investment Grade Securities ETF (FSEC) holds mostly triple-A-rated securitized debt and has a duration of 5.5 years. Its return so far this year is 5.3%.

Geography

For much of the 2010s, foreign bonds sported negative yields. "That's a hard sell," says Schurmeier, the Harbor Capital portfolio manager. But now, foreign bonds offer positive yields, as well as a potential return boost from a weakening dollar. The Vanguard Total International Bond ETF (BNDX) holds high-quality, foreign corporate and government bonds.

Emerging-markets debt offers fatter yields, but these IOUs tend to be more volatile, too, so buyer beware. Our favorite emerging-markets bond fund, Vanguard Emerging Markets Bond (VEMBX), invests in dollar-denominated debt, which becomes easier for developing countries to repay as the dollar weakens.

Alternatives

This catch-all category includes nontraditional strategies that seek to hedge stock and bond market returns, or at least to generate returns that don't move in lockstep with them.

Alternative strategies might focus on gold, commodities, cryptocurrencies, or the debt or equity of private companies. They might employ techniques to limit losses in a downturn but crimp bull market gains. Others balance bets on undervalued stocks by short-selling overpriced names.

"Many alternative strategies weren't even a thing 10 years ago, but they are today," says Winter, the Salt Lake City CFP.

Consider carving out a small slice from the bond side of your portfolio to devote to alternative assets — no more than 5% to 10% of your overall portfolio, says de Longis. One approach to choosing an alternative strategy is to figure out what kind of risk you're trying to hedge against, such as those listed below, and invest accordingly.

Inflation

To hedge inflation, for instance, beyond the protection the stock side of your portfolio may offer, consider commodities. These funds proved their mettle in 2022, returning 16%, on average.

The First Trust Global Tactical Commodity Strategy Fund (FTGC) has outperformed its peers in four of the past five calendar years, with below-average volatility. Neuberger Berman Commodity Strategy ETF (NBCM) boasts above-average returns with below-average volatility, and its expense ratio is below average, too.

Instability

To ward against uncertainty, consider gold. "Gold is a safety net for chaos," says Schurmeier. Trade-war fears have fueled 29% gains in the iShares Gold Trust Micro (IAUM) and the SPDR Gold MiniShares Trust (GLDM, $68, 0.10%) so far this year.

Volatility

To smooth out your returns, consider one of a new breed of ETFs called defined-outcome funds.

One we're eying is the Innovator Defined Wealth Shield ETF (BALT). Using options, the fund provides a 20% buffer on losses in the S&P 500 every three months in exchange for a cap on gains. You can hold the ETF indefinitely. The 20% buffer and cap on gains resets quarterly, in January, April, July and October. The cap set in early July was 2.2% after expenses. Over the past three years, Defined Wealth Shield has returned 7% annualized with less volatility than the Agg index.

Bear in mind that diversified portfolios, in contrast to Tolstoy's happy families, are not all alike. As always, everything depends on your time horizon and your risk tolerance.

"If you're relatively young and are primarily invested in stocks, you might want to make sure your diversification is robust on the stock side, but on the bond side, your small piece in bonds could be a straightforward U.S. investment-grade type of bond fund portfolio," says T. Rowe Price's Young. Similarly, those who are nearing retirement or already retired will want to pay special attention to some inflation hedges.

Over time, your portfolio will need some fine-tuning. Some tweaks are related to age or life stage, says Christine Benz, director of personal finance and retirement planning for Morningstar.

At age 50, for instance, you'll want to de-risk your portfolio a bit around the edges. Tilt toward high-quality, large-company stocks over small-cap fare, for instance. Or favor dividend payers. By your late fifties or early sixties, start shoring up your portfolio with safer assets. On the bond side, for instance, lean into high-quality short and intermediate-term bonds and build up your cash position.

Other adjustments may be tactical, such as investing more in large and midsize companies than in small firms if a recession looms, or favoring short-term bonds over long-maturity debt when interest rates are climbing. Keep the tactical moves to no more than five to 10 percentage points up or down from your overall portfolio targets, says Invesco's de Longis. Any bigger, and you risk derailing your asset-allocation plan.

Finally, review your portfolio asset mix and rebalance, if necessary, once a year. "The more diversified your portfolio, the greater the potential benefits of rebalancing," says Winter. Just don't go overboard. Think of your portfolio like a bar of soap, suggests Benz: "The more you touch it, the smaller it's going to get."

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Two years ago, we removed a thematic fund focused on alternative energy from the Kiplinger ETF 20, the list of our favorite exchange-traded funds, and replaced it with the SPDR S&P Kensho New Economies Composite ETF (KOMP), which spreads its bets across a variety of new-new things, including green energy, drones, smart homes and electric vehicles.

Since then, the Kensho ETF has returned a cumulative 25.7%. That doesn't beat the S&P 500, which has gained 45.0%, but it's far better than the cumulative 39.6% decline in the Invesco WilderHill Clean Energy ETF (PBW), the fund that the Kensho ETF replaced. In other words, a more diversified approach to investing in innovative technology, products and services has paid off.

The list of Kensho New Economies' top 10 holdings is loaded with stocks that have more than doubled in price over the past 12 months, including aerospace firms Elbit Systems (ESLT), up 136%, and Kratos Defense & Security Solutions (KTOS), up 187%.

Aerospace and defense firms, at 9% of assets, are the fund's biggest sector, followed by application software companies and firms that make electronic equipment and instruments.

Investors need to buckle up

Make no mistake: This index fund can still be volatile. Over the past 12 months, Kensho New Economies has been 60% more volatile than the S&P 500. From the start of 2025 through early April, worries about a trade war dragged the fund down 19.5% – a bigger decline than in the broad market benchmark.

But since April, investors have largely pushed aside any qualms related to tariffs, and growth stocks have begun to dominate the U.S. stock market again. Since the market's April 8 nadir, Kensho New Economies has soared 43%. That's well ahead of the S&P 500, which returned 30%.

And some of the fund's worst performers during the early 2025 swoon are now its biggest gainers, including Ouster (OUST), an electronic component company, which has risen 332% since early April, and communications equipment firm Viasat (VSAT), which has climbed 320%.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Shares of asset manager Invesco (IVZ) have been volatile during the second half of 2025, rising and falling on news about one of its largest and most well-known funds, the Invesco QQQ Trust (QQQ).

An October 24 shareholder vote to approve the conversion of QQQ from its legacy unit investment trust (UIT) structure into a more modern exchange-traded fund (ETF) governed under the Investment Company Act of 1940 has been adjourned until December because management has not secured the required number of votes.

The UIT model, an older structure that predates ETFs, comes with strict limitations. UITs can't reinvest dividends or alter their portfolios once set, and they must replicate the benchmark exactly.

The structure also restricts how sponsors earn revenue. QQQ can only collect reimbursements for marketing and administrative expenses, not profits. Given that QQQ manages roughly $388 billion in assets, that restriction leaves a lot of money on the table.

Converting QQQ to a 1940 Act ETF would change that. It would slightly lower the fund's expense ratio from 0.20% to 0.18%, a small win for shareholders. More importantly, it would allow Invesco to earn management fees directly. ETF.com estimates the conversion could generate an additional $160 million in annual revenue for the firm.

When the proposal was announced in July, Invesco's stock surged intraday as investors anticipated the impact. Now, Invesco is using the delay to aggressively solicit votes. Still, QQQ doesn't define Invesco, and Invesco isn't just QQQ.

As prominent as QQQ is, the firm manages 239 other ETFs across equities, fixed income, commodities, and alternatives – many of which are growing in both size and popularity.

Understanding Invesco's ETF lineup

As of October 30, Invesco offers 240 U.S.-listed ETFs. While there are many ways to classify ETFs, Invesco organizes its lineup by overarching strategy, which is then divided by asset class.

One area seeing fast growth since the 2022 bear market – when both stocks and bonds fell as rates and inflation rose – is alternatives.

This category broadly includes anything outside of traditional equities and fixed income, such as absolute return (strategies seeking positive returns in all market conditions), bank loans (floating-rate, first-lien debt), commodities (futures-based funds tied to energy, metals or agriculture), currency (baskets of foreign currencies such as the euro, yen or pound).

It also includes digital assets (currently bitcoin and ether), hedged strategies (equity ETFs using options to limit downside risk), MLPs (midstream energy partnerships), preferreds (hybrid securities paying dividends), even real estate (REITs that generate income).

Still, Invesco's largest segment remains equity ETFs, which are mainly grouped by geography, sector, industry, factor and size. Sector ETFs include areas such as technology, energy and health care, while industry ETFs drill down into niches such as semiconductors or biotechnology.

Factor ETFs focus on styles including value, growth, quality, low volatility or dividend yield, while size-based funds target small-, mid-, or large-cap companies. Many combine these traits – for instance, a U.S. small-cap value ETF.

The same structure extends to fixed-income ETFs, where Invesco covers a range of durations, credit qualities and geographies. Offerings span traditional Treasuries and corporates to inflation-protected, municipal and securitized bonds such as collateralized loan obligations (CLOs).

A key feature of Invesco's fixed-income lineup is its "BulletShares" series – defined-maturity bond ETFs that hold bonds to a target maturity date, making them useful for laddering or income planning.

Finally, Invesco's growing thematic ETF family sits between sector and industry exposure, focusing on broad megatrends such as artificial intelligence (AI), genomics, water and clean energy.

Altogether, investors can find nearly any ETF to fit a specific thesis within Invesco's lineup. The firm's strategy aims to keep investors within its ecosystem by offering specialized choices well beyond its flagship QQQ.

How we chose the best Invesco ETFs to buy

Selecting the best Invesco ETFs isn't straightforward. With such a large lineup, the right choice depends on each investor's risk tolerance, time horizon and financial objectives.

For example, QQQ is easily the firm's most recognizable product and one of the best performers historically. But its heavy exposure to growth and technology may not suit lower-risk or income-focused investors looking for stability or yield.

Because of this, we focus on ETF attributes that should appeal to any investor, regardless of the underlying exposure. These are the usual three-part criteria of fees, size and liquidity.

Fees: We set a maximum expense ratio of 0.20%, ensuring cost efficiency remains front and center.

Assets under management: ETFs needed at least $1 billion in assets to qualify. Larger funds typically offer greater trading stability and a lower risk of closure.

Liquidity: We required a 30-day median bid-ask spread of 0.05% or less to make sure investors can enter and exit positions efficiently without incurring excess trading costs.

The goal isn't to simply rank funds by size or return, but to highlight "best in breed" options suitable for a wide range of investor profiles.

Here are the best Invesco ETFs to buy.

Data is as of October 30.

Invesco NASDAQ 100 ETF

• Assets under management: $67 billion
• Expense ratio: 0.15%
• 30-day median bid-ask spread: 0.01%

Until the flagship Invesco QQQ Trust converts from its legacy UIT structure, Invesco continues to offer the Invesco NASDAQ 100 ETF (QQQM) as a modern, buy-and-hold alternative.

QQQM undercuts QQQ's 0.20% expense ratio by five basis points, though it lacks QQQ's robust options market, which makes the latter better suited for active traders. For long-term investors, QQQM's lower costs and tax efficiency – supported by a modest 0.48% 30-day SEC yield – make it the smarter choice.

The portfolio includes the 100 largest nonfinancial companies listed on the Nasdaq, with heavy representation from the Mag 7 and more than half of its weight in technology.

That concentration has driven strong results, with a three-year annualized return of 31.91%. But it also introduces valuation and sector risk.

Learn more about QQQM at the Invesco provider site.

Invesco S&P 500 Equal Weight ETF

• Assets under management: $72 billion
• Expense ratio: 0.20%
• 30-day median bid-ask spread: 0.02%

If concentration risk in mega-cap tech stocks concerns you, the Invesco S&P 500 Equal Weight ETF (RSP) offers a simple remedy. Instead of weighting by market capitalization like the standard S&P 500, RSP gives every stock an equal 0.2% weight when rebalanced quarterly.

The result is a systematic "buy low, sell high" mechanism that keeps the portfolio diversified across all 11 GICS sectors.

Practically speaking, this curbs the dominance of technology while boosting exposure to financials, industrials and health care.

Over the last decade, RSP has lagged the S&P 500 slightly due to mega-cap outperformance and higher fees. But since its inception in April 2003, returns are within 30 basis points of the traditional index – a strong case for long-term consistency.

Learn more about RSP at the Invesco provider site.

Invesco MSCI USA ETF

• Assets under management: $9.4 billion
• Expense ratio: 0.04%
• 30-day median bid-ask spread: 0.02%

Invesco doesn't compete directly with Vanguard or iShares in the ultra-low-cost space, but the Invesco MSCI USA ETF (PBUS) is one of its most affordable offerings for core U.S. equity exposure.

For just 0.04% in annual fees – or $4 per $10,000 invested – PBUS provides broad access to more than 500 U.S. stocks weighted by market capitalization.

Although its composition looks similar to S&P 500 ETFs, the benchmark rules differ, creating slight variations in holdings and performance.

This distinction also makes PBUS a useful tax-loss harvesting partner for investors holding S&P 500 ETFs, as it avoids "substantially identical" classification that triggers the IRS's wash-sale rule.

Learn more about PBUS at the Invesco provider site.

Invesco S&P 500 Quality ETF

• Assets under management: $15 billion
• Expense ratio: 0.15%
• 30-day median bid-ask spread: 0.02%

Among Invesco's lineup of large-cap U.S. equity ETFs, the Invesco S&P 500 Quality ETF (SPHQ) targets the quality factor: companies with strong fundamentals and durable balance sheets.

Each stock is assigned a "quality score" based on return on equity, accruals ratio and financial leverage. Only the 100 highest-scoring companies are included, resulting in a narrower, higher-quality portfolio.

Industrials currently represent the largest sector weighting, followed by consumer staples, giving SPHQ a more defensive tilt compared with the tech-heavy S&P 500.

Historically, performance has trailed the broader market slightly due to lower technology exposure and higher fees. But the ETF may hold up better in downturns thanks to its focus on profitability and stability.

Learn more about SPHQ at the Invesco provider site.

Invesco S&P 500 Momentum ETF

• Assets under management: $13.3 billion
• Expense ratio: 0.13%
• 30-day median bid-ask spread: 0.02%

Momentum has been one of the most persistent equity factors over the past decade, and the Invesco S&P 500 Momentum ETF (SPMO) is built to capture it.

Fund managers select 100 stocks from the S&P 500 with the highest "momentum scores," calculated by dividing their 12-month price change by volatility. Constituents are weighted by both momentum score and market capitalization.

SPMO is reconstituted (eligible stocks are added and removed) and rebalanced (allocation weights are reset to maintain target exposure) twice a year, in March and September.

Over one- and three-year periods, the ETF has outperformed the S&P 500, though with higher volatility. SPMO leans cyclical, with about 34% in technology and 20% in financials.

Learn more about SPMO at the Invesco provider site.

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Investor attention over the past decade has concentrated on mega-cap names even as many midsized public companies have quietly held their own.

The famous Magnificent 7 trade — including Alphabet (GOOGL), Amazon.com (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) — has been driving the market. But history suggests the mid-cap universe is consistently full of opportunities.

A 2025 white paper from State Street Investment Management found that mid caps have outperformed both small and large caps over the past 30 years.

According to State Street, mid-cap stocks offer investors “a unique blend of growth potential and stability . . . promising opportunities without taking on outsized risk.”

In short, mid caps uniquely combine stability with room for expansion.

Many mid-cap ETFs use S&P Global's indices as benchmarks, but they aren't the only options. Competing index providers have their own definitions of what qualifies as “mid cap.”

How these indices are constructed can lead to meaningful differences in ETF performance. Understanding those distinctions is key before identifying the best mid-cap ETFs to buy.

Understanding the mid-cap space

There's no single definition of what qualifies as a mid-cap stock. For instance, Investopedia defines mid caps as companies with market capitalizations between $2 billion and $10 billion.

But for investors, narrowing the focus to a specific benchmark is often more practical. It allows for better comparisons of sector weights, valuation metrics and historical performance.

For beginners, the S&P MidCap 400 Index is a useful starting point. To be included in the index, a company must have a market cap between $8 billion and $22.7 billion. A company can't appear in both the S&P 500 and S&P 400 at the same time, which prevents overlap between the large- and mid-cap universes. Each index is overseen by a committee that applies screens for earnings consistency, profitability and trading liquidity to ensure investability.

The composition of the S&P 400 differs meaningfully from large-cap benchmarks such as the S&P 500. Mid caps tend to have heavier exposure to industrial stockss, financials and technology and less to real estate and material stocks.

These allocations reflect where mid-cap firms typically operate: industries that require physical assets, regional infrastructure and steady growth rather than global platform dominance or network effects.

Valuations also diverge. As of June 4, the S&P 400 traded at 2.8 times book value and 23.24 times earnings, compared with 5.6 and 30.24, respectively, for the S&P 500. That gap suggests mid caps are priced far more modestly relative to fundamentals, potentially offering better value without the extremes of small-cap volatility.

These characteristics apply specifically to how S&P defines mid caps. Other providers, such as Russell and MSCI, use slightly different size cutoffs or inclusion rules that can widen or narrow the range of eligible companies.

Still, across methodologies, mid caps generally share a few traits: less overlap with major large-cap benchmarks, greater diversification across industries and a balance between growth potential and financial maturity.

How we picked the best mid-cap ETFs to buy

As usual, the selection process begins by deciding which types of ETFs to exclude.

For mid caps, that means dropping actively managed funds. Despite reasonable valuations and less analyst coverage in this segment, active managers still struggle to deliver consistent long-term outperformance.

Evidence from the S&P Indices Versus Active (SPIVA) scorecards is clear. Over the preceding 15 years, 84.49% of all actively managed mid-cap funds underperformed the S&P MidCap 400 benchmark.

With those odds, it made sense to limit our picks to low-cost, index-tracking ETFs that deliver reliable exposure.

From there, we apply three main criteria: liquidity, assets under management and fees.

Liquidity: We focused on ETFs with a 30-day median bid-ask spread of 0.05% or less. Narrow spreads make it easier and cheaper for investors to trade without losing performance to transaction costs.

Assets under management: To ensure fund stability and lower closure risk, we required at least $1 billion in assets. Larger funds also tend to have better secondary market liquidity.

Fees: We capped expense ratios at 0.20%. Mid-cap ETFs are a highly competitive segment, so investors don’t need to pay up for exposure. This is a stricter standard than we’ve used for more specialized thematic or sector ETFs, where higher costs are harder to avoid.

Here are the best mid-cap ETFs to buy.

Data is as of June 6.

iShares Core S&P Mid-Cap ETF

• Assets under management: $118.5 billion
• Expense ratio: 0.05%
• 30-day median bid-ask spread: 0.01%
• 10-year annualized total return: 10.53%

The iShares Core S&P Mid-Cap ETF (IJH) is the most popular mid-cap ETF by assets, offering straightforward, low-cost exposure to the S&P 400 MidCap Index. It's also a member of the Kiplinger ETF 20, our favorite exchange-traded funds.

IJH distributes dividends quarterly, currently trading with a 1.27% 30-day SEC yield. And it trades more than 12 million shares on average per day, making it among the most liquid ETFs in the U.S. market.

While IJH might seem like a “buy the haystack” option for mid caps, its underlying benchmark isn't purely size-based.

The S&P committee applies additional screens for profitability, liquidity and financial viability, which filter out weaker companies and make the index more curated than the name implies.

Learn more about IJH at the iShares provider site.

Vanguard Mid-Cap ETF

• Assets under management: $218.8 billion
• Expense ratio: 0.03%
• 30-day median bid-ask spread: 0.01%
• 10-year annualized total return: 11.51%

In typical Vanguard fashion, the Vanguard Mid-Cap ETF (VO) slightly undercuts IJH on costs with a 0.03% expense ratio, just two basis points cheaper, but meaningful for large portfolios or long-term compounding.

Liquidity is similar, but performance has been stronger over the last decade.

VO tracks the CRSP US Mid Cap Index, a benchmark that targets companies between the 70th and 85th percentile of investable market capitalization.

Eligible stocks must have a total market cap above $15 million, a public float exceeding 12.5% and sufficient trading volume to ensure liquidity. The fund fully replicates the index, holding roughly 290 companies.

Learn more about VO at the Vanguard provider site.

iShares Russell Mid-Cap ETF

• Assets under management: $54.4 billion
• Expense ratio: 0.18%
• 30-day median bid-ask spread: 0.01%
• 10-year annualized total return: 10.74%

The iShares Russell Mid-Cap ETF (IWR) is the sponsor's alternative to IJH.

While more expensive, IWR is slightly more liquid and may appeal to traders. It tracks the Russell MidCap Index, one of the broadest mid-cap benchmarks, with more than 800 holdings.

Despite the higher cost, IWR serves a useful role for tax-loss harvesting. Investors who sell IJH to capture losses can swap into IWR without violating the IRS wash-sale rule, because the two track different indexes and are not considered “substantially identical.”

Learn more about IWR at the iShares provider site.

Vanguard S&P Mid-Cap 400 ETF

• Assets under management: $3.6 billion
• Expense ratio: 0.07%
• 30-day median bid-ask spread: 0.06%
• 10-year annualized total return: 11.19%

If you prefer to stay within Vanguard's ecosystem, the Vanguard S&P Mid-Cap 400 ETF (IVOO) is its version of the S&P 400 MidCap Index tracked by IJH.

On paper, IVOO is slightly less appealing, with a higher expense ratio and a wider trading spread. The difference comes down to ownership structure. Vanguard operates as a cooperative owned by its fund shareholders, while iShares is part of profit-driven BlackRock.

It's a subtle distinction, but some investors may prefer Vanguard's alignment of interests over the long run.

Learn more about IVOO at the Vanguard provider site.

Schwab U.S. Mid-Cap ETF

• Assets under management: $14.4 billion
• Expense ratio: 0.04%
• 30-day median bid-ask spread: 0.03%
• 10-year annualized total return: 11.29%

For investors prioritizing ultra-low costs, the Schwab U.S. Mid-Cap ETF (SCHM) is among the cheapest options in the mid-cap category.

Its 0.04% expense ratio translates to just $4 annually on a $10,000 investment. When competition is this tight, even a single basis point can matter over time.

SCHM tracks the Dow Jones U.S. Mid-Cap Total Stock Market Index, which includes about 500 companies. This distinct benchmark also makes it a good tax-loss harvesting candidate for investors holding IJH, VO or other mid-cap ETFs as the indexes differ.

Learn more about SCHM at the Schwab provider site.

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The defined outcome exchange-traded fund (ETF) market has exploded in recent years, with assets growing from virtually nothing a decade ago to more than $70 billion today.

But despite their growing popularity, this investment category remains widely misunderstood by both advisers and investors.

Some view defined outcome ETFs as too complex for average portfolios, while others see them as silver bullets that have the potential to eliminate risk entirely.

The reality lies somewhere in between. Advisers who understand how these products actually work can use them strategically to help address specific client needs.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

The mechanics of defined outcome ETFs

Defined outcome ETFs (also referred to as buffered ETFs) promise specific return profiles over predetermined time periods, usually one to two years. Fund managers use options strategies to deliver outcomes that fall between traditional equity and fixed income investments.

In most cases, the fund includes a broad equity index while simultaneously buying protective puts and selling call options to create what's essentially a collar strategy packaged as an ETF with some additional subfeatures depending on the desired outcome.

This structure creates three key characteristics that differentiate them from traditional investments:

Downside protection. While risk can never be 100% eliminated, defined outcome ETFs offer various ways to help mitigate risk through the use of buffers, barriers and floors.

Upside participation. Unlike traditional principal-protected products, defined outcome ETFs allow investors to participate in market gains up to a predetermined cap, usually ranging from 8% to 15% annually, or in some other cases, you can get an "uncapped" profile while giving up some initial gains on the first few percentage points.

Time sensitivity. The protection and participation features apply only if the ETF held for the full outcome period. Selling early can potentially expose you to some or all of the volatility of the underlying reference assets. It's usually somewhere in between, depending on the time left.

Common misconceptions

Many advisers hesitate to recommend defined outcome ETFs to individual investors because of persistent myths and misunderstandings about their complexity and suitability. Understanding the facts helps separate legitimate concerns from unfounded fears.

Myth No. 1: They're too complex for average investors.

While the underlying options mechanics are sophisticated, the end result is straightforward: known upside potential with limited downside risk over a specific timeframe.

Investors don't need to understand options theory any more than they need to understand bond mathematics to own fixed income funds.

Myth No. 2: The fees are prohibitively high.

Expense ratios average 0.78%, higher than broad index funds but reasonable given the active options management required.

More importantly, the fee structure is transparent and predictable, unlike some structured products with hidden costs.

Myth No. 3: They eliminate all investment risk.

Defined outcome ETFs still carry market risk within their protection parameters. If the underlying index falls 20% and the ETF has 10% downside protection, investors still lose 10%.

There's also a risk that protection may not apply if the fund is sold before the outcome period ends.

Strategic applications in client portfolios

Defined outcome ETFs work best when used strategically rather than as core holdings, addressing specific client concerns that traditional asset allocation struggles to solve.

Consider clients approaching retirement who worry about market timing and sequence of returns risk. They face a challenging dilemma: They need continued equity exposure for growth, but they can't afford significant losses that might derail their retirement plans.

Defined outcome ETFs can bridge this gap between accumulation and distribution phases, providing meaningful upside participation while limiting the downside.

These products offer a different kind of value for anxious clients who struggle to stay invested during volatility. There's a psychological benefit to knowing the maximum loss, and this benefit often outweighs the opportunity cost of capped returns.

Interested in more information for financial professionals? Sign up for Kiplinger's new twice-monthly free newsletter, Adviser Angle.

Rather than watching nervous clients bail out of the market during corrections, advisers can use defined outcome ETFs to help keep them invested with downside protection that can help provide emotional comfort.

Defined outcome ETFs also serve as effective tactical allocation tools. Rather than trying to time the market with cash positions that earn nothing, advisers can use these products to maintain equity exposure while providing some protection during uncertain periods.

This approach can help keep clients invested in growth assets while acknowledging legitimate concerns about market conditions.

Implementation considerations

Success with defined outcome ETFs requires careful attention to timing and client communication. Unlike traditional mutual funds that can be purchased anytime, these products work best when initiated near the beginning of their outcome periods.

The protection and participation features reset with each new series, typically launching quarterly. Advisers should track upcoming launches and time purchases accordingly, rather than buying at random points during the outcome period.

Client education is equally important. Investors need to understand that these products are designed to be held for specific timeframes and that early redemption can expose them to options volatility that undermines the protection features.

Setting appropriate expectations

Defined outcome ETFs represent a middle ground between the full upside potential of traditional equity investing and the capital preservation focus of fixed income. They are most valuable for investors who prioritize downside protection over maximum return potential.

Investors need to be aware that there is a trade-off of capped upside participation for protection against significant losses. During strong bull markets, traditional index funds will outperform, while protection features provide meaningful value in severe bear markets.

Advisers would be wise to position these products as tools for specific situations rather than replacements for traditional asset allocation. They work well for risk-averse clients, those approaching major financial transitions or as tactical allocations during periods of heightened uncertainty.

As always, the key is matching the tool to the client's specific needs and timeline. For investors who understand the trade-offs and can commit to the outcome period, defined outcome ETFs offer a compelling way to participate in market growth while managing downside risk in ways traditional portfolios cannot replicate.

AE Wealth Management, LLC (AEWM) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. Information regarding the RIA offering the investment advisory services can be found on brokercheck.finra.org. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. The personal opinions expressed by Ben Sullivan are his alone and may not be those of AE Wealth Management or the firm providing this report to you. This information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security or insurance product. CFP Board owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the U.S. 4809206 – 9/25

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When a CEO is in his nineties, you'd think investors wouldn't be caught off guard when he says it's time to hang it up. But Mr. Market seems to be displeased by Warren Buffett's announcement in May that he would hand over the reins at Berkshire Hathaway (BRK.B) at the end of 2025. (Buffett, who turned 95 on August 30, will remain as chairman.)

Since that day, Berkshire's "B" shares have fallen 12.6% — even as the broader market notched new highs, with the S&P 500 Index returning 11.8%. (Prices and returns are as of July 31, unless otherwise noted.)

You may be wondering if there's an alternative to a post-Buffett Berkshire. A few Berkshire Hathaway clones are on the market — firms with insurance at their core and portfolios of businesses and stocks built for long-term returns. Some funds either explicitly or implicitly follow the Warren Buffett way.

We looked at some of the options below. Fair warning: Replacing Buffett may be as difficult for your portfolio as it is for Berkshire.

Very little of the Berkshire transition was a surprise. Buffett has had stock-picking help for some time from Berkshire execs Ted Weschler and Todd Combs.

And Greg Abel, the man Buffett tapped as the next CEO, was first named a potential successor in January 2018. But Abel built his career as an energy executive, not a portfolio builder.

That seems to have spooked Buffett acolytes, who wonder whether Berkshire's magical long-run returns — a compounded 19.9% from 1965 through 2024 — can continue.

"Buffett is able to take his huge balance sheets and turn $1 into $2," says Vitaliy Katsenelson, a money manager and author of The Intellectual Investor. "I don't know how good Greg Abel is."

That sums up the uncertainty. But Buffett boosters suggest shareholders should remain patient.

Christopher Bloomstran, a St. Louis–based money manager, does not believe the stalled stock price "has anything to do with the likelihood that Greg is not going to do a bang-up job. I think he will. I think he's absolutely phenomenal."

Buffett's Canadian counterpart

Though Abel was born in Alberta, the man widely called "the Canadian Warren Buffett" is 75-year-old Prem Watsa, who founded insurer Fairfax Financial (FRFHF) in 1985 and serves as its chairman and CEO.

The stock trades over the counter in the U.S., and on the Toronto Stock Exchange (FFH), accessible via some brokers, including Fidelity, Interactive Brokers and Schwab. In either case, charges may apply.

With a $39 billion market value, Watsa's company has developed a similar — albeit smaller — following to Berkshire's. The Fairfax annual meeting is a multiday affair that attracts value-oriented investors from Canada and other countries.

A fan blog, the Corner of Berkshire & Fairfax, is dedicated to value investing forums and discussion of the similarities between the two companies.

Fairfax's results suggest why: The company's book value per share increased an average 18.7% per year from 1985 to 2024, while the share price increased at an annualized rate of 19.2%.

Watsa may be even more of a bargain hunter than Berkshire, and that has occasionally led to picking losers. Fairfax's portfolio has muddled along for years with a large position in BlackBerry (BB), the mobile-phone pioneer that has struggled to reinvent itself.

Fairfax has had some winners recently, though. A large position in Canadian steelmaker Stelco paid off handsomely when Cleveland-Cliffs (CLF) bought the company in 2024. Fairfax's one-third stake in Greece's Eurobank increased in value from $2.3 billion at the end of 2023 to $3.2 billion on March 31.

Stephen Boland, an analyst at brokerage Raymond James, says Fairfax is one of the most diversified insurers, both in the number of countries in which it operates and in the lines of insurance it sells.

The company is "still exposed to California wildfires — it took a big loss for that in 2024 — but it has tended to diversify the business really, really well on the insurance side," says Boland, who recommends the shares.

With what he believes was a "stellar" second quarter for the company's investment portfolio, the stock is his top pick in the Canadian insurance sector. It trades at about 10 times earnings for the year ahead, according to S&P Global Market Intelligence.

Berkshire Hathaway's insurance operations largely target consumers — its Geico subsidiary causes some analysts to categorize Berkshire as an auto insurer.

Markel (MKL), by contrast, is a "specialty insurer," with sophisticated customers. It sells products such as collectible-car insurance, liability policies for corporate boards of directors, and insurance against damage to offshore oil rigs.

Like Fairfax, Markel has encouraged comparisons to Berkshire. For 35 years, the company, headquartered in Virginia, has held a brunch in Omaha on the weekend of the big Buffett bash. More than 2,500 people reportedly attended the 2025 event.

Over the past 38 years, the company's share price has increased at an annualized rate of roughly 15%.

Berkshire stock is the single largest holding in Markel's portfolio, accounting for $1.7 billion worth of assets on March 31 — three times the size of the second-largest position. Alphabet (GOOGL), Brookfield (BN), Deere (DE) and Amazon.com (AMZN) round out the top five, with each position worth about $400 million to $500 million.

Markel's portfolio of stocks, like Berkshire's, accounts for a heavier proportion of assets than for most insurers, which tend to focus on bonds. A separate division, Markel Ventures, holds 100% ownership in 20 companies, many of which are manufacturers.

Analysts say they like Markel in the long run, but a recent spike in the shares, coupled with underwhelming insurance results, has cooled them on its near-term performance.

Activist investor Jana Partners disclosed in December 2024 it had taken a stake in Markel and wanted the company to spin off its ventures unit so that it would be a more attractive takeover target for a conventional insurer.

The Jana news boosted Markel's stock price, and it trades at about 20 times earnings for the year ahead, according to S&P. Just one of seven analysts who cover Markel rate it a Buy.

Given depressed profits, "I think they're trading kind of where they should be now," says analyst Robert Farnam, of investment firm Janney, who has a Hold rating on the shares.

But the stock may have appeal for investors who buy on dips or who have a long enough time horizon. "I consider Markel to be a terrific long-term investment," says Farnam. "This is the type of stock that you basically put into retirement accounts and forget about."

Loews (L) has an insurance company at its core and owns multiple businesses, including hotels and an energy pipeline company, so it, too, has drawn comparisons to Berkshire. But in many ways, Loews is more of a family conglomerate.

Benjamin Tisch, named CEO this year, is the third generation of his family to run the company, a component of the S&P 500, and members of the Tisch family own roughly 20% of the stock.

"Even though Loews is in the 500, there's low investor interest" because of the Tisches' outsize stake, says Catherine Seifert, an analyst with CFRA who stopped covering the company more than two years ago. "And they're not as diversified as Berkshire anyway. Honestly, if you want to replicate Berkshire, you're probably better off doing it with a series of exchange-traded funds."

Following Buffett's path

There are a handful of ETFs that explicitly follow Berkshire; but with the Buffett premium seemingly dissipating at Berkshire, you might be better off looking for other funds that incorporate Buffett-esque investing principles, such those focused on companies that enjoy wide "moats," says Aniket Ullal, head of ETF research and analytics at CFRA.

When Buffett explains his desire to invest in businesses with a long-term competitive advantage, he has long used the word moat, as in a waterway that surrounded castles of the Middle Ages.

A moat keeps potential competitors away from your business — in economic terms, it's called a barrier to entry. Berkshire's wholly owned subsidiary BNSF Railway, for example, has a moat: Only four major railroad companies remain in the U.S., and the probability that a new one will try to lay thousands of miles of track to compete is nearly zero.

The largest and oldest moat ETF is the VanEck Morningstar Wide Moat ETF (MOAT), which tracks the Morningstar Wide Moat Focus Index. The 52 companies in the index as of May 31 were the cheapest of what Morningstar considers wide-moat stocks, based on their discount to the research firm's estimate of their fair value.

The ETF's top three holdings at last report were Estée Lauder (EL), military shipbuilder Huntington Ingalls Industries (HII) and Allegion (ALLE), an industrial security firm.

Compared with similar funds, the portfolio is overweight in health care and consumer staples stocks and has less invested in consumer discretionary and financial services names, according to Morningstar.

In a market that has seen years of exuberance for high-growth names, however, the fund's philosophy has had a mixed track record. It returned 7.5% over the past 12 months, compared with 16.3% for the S&P 500.

Four times in the past decade, it has been in the top 6% of its fund category (U.S. large-company stocks with a blend of growth and value characteristics). But it had a poor 2024, ranking in the bottom 5%. The fund's expense ratio is 0.47%.

Another approach is to zero in on funds that focus on metrics that typically point to the kind of high-quality companies that Buffett favors.

We prefer the JPMorgan U.S. Quality Factor ETF (JQUA), a member of the Kiplinger ETF 20, the list of our favorite exchange-traded funds. The fund tracks an index that sifts for companies that meet 10 criteria, including measures of profitability such as strong earnings and cash flow; financial risk (low debt, high interest coverage, low share-price volatility); and earnings quality (consistent accounting practices).

It has returned 13.6% over the past 12 months, and its 0.12% expense ratio makes it one of the cheapest funds of its kind. Top sectors are technology, financial services and consumer discretionary stocks. Nvidia (NVDA) was the fund's top holding at last report. Berkshire Hathaway places in the fund's top 10.

Then again, perhaps you should follow Buffett's own investment advice for individual investors. In 1994, he told shareholders that by "periodically investing in an index fund, a know-nothing investor can actually outperform most investment professionals."

At Berkshire's 2020 annual meeting, he elaborated: "In my view, for most people, the best thing to do is to own the S&P 500 index fund. People will try to sell you other things because there's more money in it if they do." He has specifically suggested the low-cost Vanguard S&P 500 ETF (VOO), with an expense ratio of 0.03%.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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When I last wrote about China — five years ago, in the midst of COVID — some readers were critical. Why encourage us to invest in an adversary? China has certainly been a bad actor, threatening Taiwan, supporting the Russian invasion of Ukraine, suppressing dissent, oppressing ethnic and religious groups. But the U.S. is not at war with China; we allow Chinese firms to list on our exchanges, and we encourage Chinese investors to buy U.S. Treasuries (current holdings: $757 billion).

The Trump administration’s official position on China, according to the State Department’s website, seems reasonable: “The United States seeks a constructive, results-oriented relationship with China…. The United States uses a range of exchanges, dialogues, and people-to-people ties to pursue its goals.” I would argue that one of those exchanges involves stocks. But if you feel strongly about not investing in Chinese companies, then don’t. As Warren Buffett says, you don’t have to swing at every pitch.

Still, I find it hard to ignore China. It is the world’s second-largest economy in nominal terms (gross domestic product not adjusted for inflation) and first in purchasing-power parity (that is, based on what people in different countries can actually buy) — $10 trillion ahead of the U.S., according to the International Monetary Fund. The Economist projects 4.4% GDP growth this year, compared with less than 1% each for the U.S., Europe and Japan. Also, China has become not just an imitator but an unquestionable innovator.

China now accounts for 29% of the world’s manufacturing output, up from just 9% in 2004 and greater than the next four countries (U.S., Japan, Germany, and India) combined.

According to the World Economic Forum, China’s “culture of techno-optimism, coordinated institutions and economic readiness has allowed artificial intelligence to scale with unprecedented speed.” Cutting its coal dependency by one-fourth and boosting renewables, China increased its electricity-generating capacity — essential for AI and advanced manufacturing — two and a half times from 2010 to 2024, while the U.S. and the EU practically stood still.

China is jumping hurdles

China has problems, among them a glut of unsold real estate and the enmity of the U.S. Both Donald Trump and Joe Biden have hit China with big tariffs and export controls on technology.

So far, China has proved resilient, in part because U.S. industry needs China’s rare earths and more-prosaic components for manufacturing and because consumers demand low-cost Chinese goods. In May, because of tariffs, Chinese exports to the U.S. fell 35% but still rose globally by 5%.

Markets are impressed. After three years of double-digit losses, Chinese stocks recovered in 2024 and are far outstripping U.S. shares in 2025. (Stocks mentioned here trade as American depositary receipts. Prices and returns in this column are as of June 30; securities I like are in bold.)

China’s government is encouraging new industries, and it leads the world in industrial robotics and electric vehicle production. Though effectively banned from the U.S. because of 100% tariffs, Chinese EV maker BYD (BYDDY, $94) is number one in the world, eclipsing Tesla (which was allowed to sell 637,000 EVs in China last year).

BYD is also the world’s largest producer of rechargeable batteries. Its new technology adds 250 miles of range in five minutes; no competitor comes close. BYD benefits from government subsidies, but it has also figured out how to produce EVs cheaply. It sells a model in China for $8,000, in the U.K. for $26,000 and in Mexico for $21,000. The cheapest Tesla in the U.S. is $42,000.

Buffett’s Berkshire Hathaway invested in BYD stock in 2008, and since then, according to Morningstar, the original stake has increased in value by at least 25 times. Shares are pricey, but the business has more than tripled its revenues in three years.

Another Chinese company, Xiaomi (XIACY, $39), created a sensation in June with an electric SUV that drew 289,000 orders in the first hour. Xiaomi is also the world’s third-largest smartphone maker, after Samsung and Apple, and makes home appliances and TVs. Shares have more than tripled in 12 months, partly because of threats that tariffs will drive the iPhone’s price higher.

A smaller, premium EV company, XPeng (XPEV, $18), has 4,000 orders for a flying car — combining a ground vehicle with an aircraft module — which will enter production next year. The stock has more than doubled in the past year, but it remains far below its late-2020 high.

Food-service company Meituan (MPNGY, $32) has interests in health care and travel as well. It is using low-altitude drones to deliver meals in Beijing, Hong Kong, Dubai and dozens of other cities. In the most recent quarter, revenues rose 18% from the same quarter a year ago. Its business is mostly domestic, insulating Meituan from trade wars.

NetEase (NTES, $135) is one of the world’s largest providers of video games. After being flat since COVID, shares took off this year, returning 53.0%. But like many Chinese stocks, NetEase, with a market capitalization (shares outstanding times price) of $85 billion, is moderately priced.

China’s Amazon.com

Shares in Alibaba (BABA, $113) offer more opportunity — and more risk. When the e-commerce and cloud-computing giant, akin to Amazon, went public on the New York Stock Exchange in 2014, it was valued at more than $200 billion, a record. But in the three years after the Chinese government’s 2021 crackdown on high-flying tech firms, and with questions swirling about Alibaba’s finances, the stock lost three-fourths of its market cap. Shares have made a comeback over the past 12 months, and my guess is that Alibaba will live up to its original promise. The price-earnings ratio is only 12.

Such low valuations are a big part of China’s appeal to investors right now. MSCI, the index provider, reports that the forward P/E of its China index, which captures 85% of the country’s stock universe, is just 11.

China ETFs

The best way to own China is through diversified exchange-traded funds such as iShares China Large-Cap (FXI, $37), which returned 29.0% in 2024 and is up 21.7% so far this year. Another good choice, SPDR S&P China (GXC, $88), has returned 31.3% over the past 12 months — more than twice as much as the S&P 500.

Also attractive is Franklin FTSE China (FLCH, $22), which has been an excellent performer and has a lower expense ratio (0.19%) than its competitors. The fund’s top asset is Tencent Holdings (TCEHY, $65), the gaming and social media company that, like Alibaba, took a dive during the government’s big-tech crackdown but has been rising briskly over the past year. In the most recent quarter, Tencent’s revenues rose 13% and profits went up 14%. Tencent is also making a big bet on AI.

China is hoping to capitalize on the chaos the U.S. has unleashed on global markets. But the nation still lacks a robust domestic consumer market, a reputation for rule of law and a group of trillion-dollar Silicon Valley–style tech companies whose cutthroat competition generates mutual benefits. In short, these are still early days for the Chinese economy — a condition that holds both danger and opportunity for investors.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. He owns none of the securities mentioned here. You can reach him at JKGlassman@gmail.com.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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The Securities and Exchange Commission (SEC) is on the verge of allowing major changes to the way exchange-traded funds (ETFs) and traditional mutual funds are structured.

Specifically, an SEC ruling could allow dozens of asset managers to offer existing mutual funds as ETF share classes.

That might sound like technical minutiae … a distinction without a difference. Investors already have thousands of ETFs and mutual funds from which to choose. What difference would it make if the ETFs themselves were simply a share class of a mutual fund?

Some of this comes down to taxes. There are very real differences in the ways that ETFs and mutual funds are taxed, so the SEC's decision — expected to come down within the next several months — will matter a lot for most folks investing in a regular taxable brokerage account.

It's also a potential win for fund managers, as it opens their existing strategies to a broader pool of investors.

Are there benefits for investors? Are there any drawbacks that investors should be aware of?

Let's take a look.

What is the SEC considering when it comes to mutual funds and ETFs?

It's normal for mutual funds to have multiple share classes that vary based on fees, sales loads or account minimums.

Back in the early 2000s, Vanguard patented a clever setup that let an exchange-traded fund be just another share class of an existing mutual fund.

This meant one mutual fund could offer both traditional mutual fund shares and ETF shares that were both backed by the same underlying portfolio, management and performance record.

That patent expired in 2023, leading to a flood of requests from other fund managers. To date, more than 60 have petitioned the SEC for regulatory relief that will allow them to issue ETFs as share classes of existing mutual funds.

The SEC doesn't have a reputation for moving quickly. As with most government regulators, there is a process, and that process is often slow and bureaucratic.

We're starting to see movement, though. In March, then-Acting SEC Chairman Mark Uyeda instructed staff to prioritize reviewing these petitions.

Given the Trump administration's preference for deregulation, the likelihood is that a decision will happen within the next few months that will open the floodgates for ETF share classes of existing mutual funds.

Why do mutual funds want ETF share classes?

There are plenty of reasons for fund companies to petition the SEC to allow for ETF share classes of mutual funds.

To start, this allows them to keep their track record of fund performance, which in some cases can stretch back decades, as the ETF would be considered part of the existing fund as opposed to a new one.

This would also be true of existing ETFs that wanted to offer mutual funds for 401(k) plans. As things stand now, an ETF with a great long-term performance wouldn't be able to mention the track record if an identical strategy was created in a mutual fund format.

It's also potentially cheaper and faster to create a new share class than to launch an entirely new product.

But mostly, it's about taxes.

Mutual funds and ETFs are taxed differently because of how investor flows are handled.

In a mutual fund, when investors redeem shares, the fund often has to sell securities to raise cash. Those sales can generate realized capital gains, which must be distributed to all shareholders — whether they sold shares or not — creating a potential tax bill for all fund holders.

I sell my shares, and you get stuck with the tax bill. It's not exactly an ideal situation.

By contrast, ETFs use the in-kind creation/redemption process. Large institutional investors can exchange baskets of the underlying stocks for ETF shares (and vice versa) without the fund selling holdings.

This allows ETFs to get rid of appreciated securities without triggering taxable gains inside the portfolio and soaking their investors.

Because Vanguard had ETFs as share classes of its existing mutual funds, its mutual funds were able to piggyback on the ETFs' tax advantages. The Vanguard 500 Index Fund (VFIAX), for instance, hasn't paid a capital gains distribution since 2003.

Why this matters to investors

It's always nice to have options at your disposal, and having an ETF version of your favorite mutual funds isn't a bad thing.

Existing investors in mutual funds might also get a tax break. As we saw in the case of the Vanguard S&P 500 index fund, the mutual fund was able to shift would-be capital gains into its ETF share class and avoid making capital gains distributions.

Other mutual funds could potentially be able to do the same, though it should be mentioned that having an ETF structure of an existing fund doesn't guarantee that capital gains distributions will be eliminated.

If a fund manager trades aggressively to the extent that the gains can't be offset by in-kind redemptions, there might still be taxable distributions to deal with.

It can also go the other way. Just as mutual fund investors might benefit from ETF tax efficiency, exchange-traded fund investors could end up dealing with mutual fund tax inefficiency if the assets are comingled.

This would be a particular risk in cases in which the ETF share class was a relatively small part of the overall fund and the fund generated substantial realized capital gains.

In a tax-advantaged account such as an IRA or 401(k), none of this is a major concern. A tax-paying investor should consider this, particularly for a new ETF share class of a large existing mutual fund that does a lot of active trading.

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Bond investors can be forgiven for feeling a little intimidated these days. This year's disconcerting volatility is enough to give anyone pause. Plus, investors must sort through a vast array of choices that go well beyond U.S. Treasuries – such as emerging-markets debt, mortgage securities and bank loans to companies, to name a few.

Making the right choices among all these types of assets is difficult, let alone finding the bond funds to suit your needs.

One solution may be actively managed, multisector bond exchange-traded funds (ETFs), which offer a kind of one-stop shop for investing in debt. Unlike passive funds that follow a bond index, these ETFs are run by managers who pick and choose among a wide range of assets, some of which have previously been available only to big institutional investors.

The funds have "democratized a lot of categories that were hard for individual investors to access," says Aniket Ullal, the head of ETF research and analytics at CFRA.

To be clear, multisector bond mutual funds have been around for decades. But the ETF versions of the strategy are relatively new, with nearly half of the ETFs included in Morningstar's multisector bond category trading only since the beginning of 2024.

But that doesn't mean they have no track records to review. Some companies converted their multisector bond mutual funds into ETFs, bringing along their return history. And many of the new ETFs have the same managers and strategies the companies have used for years in mutual funds.

So far, investors seem to like what they see. In 2024, these ETFs pulled in almost $13 billion in assets, up from just $3 billion the year before. That made multisector bond ETFs one of the fastest-growing ETF categories of the year.

Multisector bond ETFs provide a little extra oomph for investors

Multisector funds aim to provide more return than a traditional bond fund, without too much extra volatility.

On a spectrum of risk, industry experts say, a multisector bond fund falls between a "core-plus" fund, in which traditional bond investments are supplemented with slightly riskier assets, and a high-yield fund, in which very few of the holdings are investment-grade debt.

Most of the multisector bond funds Kiplinger examined for this article have about one-third to one-half of their money in assets that have single-A ratings or better from the debt-ratings services.

Multisector bond funds "are incrementally more risky, but they're going after incrementally more reward," said Daniel Sotiroff, an analyst at Morningstar Research Services. He likens them to "free-range bond funds: They can kind of invest in a little bit of everything, and they don't really have a lot of constraints."

That freedom to invest in all sorts of debt, however, means investors "really do have to look under the hood and figure out what's in them," says Kirsten Chang, an analyst at ETF research firm VettaFi.

We did just that below with funds we think are worth exploring. Prices, returns and other data are as of May 31, unless otherwise noted.

Five multisector funds for investors to consider

One of the top funds in the category is the JPMorgan Income ETF (JPIE). Andrew Norelli, one of the fund's managers, developed JPMorgan's multisector bond investment strategy in 2014; the ETF debuted in late 2021.

Norelli has invested heavily in securities backed by residential and commercial mortgages, many of which come with a government guarantee.

His allocation to these securitized products is more than twice the average for the category, according to Morningstar. With the government backing, just over half the portfolio is in assets rated single-A or above.

Norelli says the securitized assets he's been buying are "much cheaper" than corporate bonds that are similar in risk. "It's the not-so-secret way that we have been able to keep the volatility of the portfolio low" while producing returns similar to a high-yield bond fund, he says.

The fund has an average duration (a measure of interest rate sensitivity) of about 2.8, which is lower than many funds in the category and well below the duration of 6 for the Bloomberg U.S. Aggregate Bond Index, Norelli says.

A duration of 2.8 implies that the fund's value will fall by roughly 2.8% if interest rates rise by one percentage point – or will rise by a like amount if rates fall by one point.

Uncertainties in the geopolitical and monetary climate have "encouraged us to keep the interest rate risk of the portfolio relatively low," he says.

The fund yields 6.3%. Its expense ratio of 0.39% puts it among the very cheapest in the category, and its one-year return of 7.6% ranks in the top third of the category.

Bond giant Pimco has an even longer history. Sonali Pier, one of the managers of the Pimco Multisector Bond Active ETF (PYLD), says her company began the strategy more than two decades ago.

Although the ETF is a newbie, debuting in June 2023, it's already the second-biggest ETF in the category, with more than $5 billion in assets.

The Pimco fund holds about half as much corporate debt as the typical fund in the category, according to Morningstar, and it has less in bank loans and emerging markets than its peers. It also has more securitized mortgage debt than the typical fund in the category, focusing on assets that are government guaranteed.

Pier says the portfolio holdings represent a choice to be "positioned with resilience" in high-quality assets, with an eye to scooping up higher-yielding corporate debt if it becomes more attractive.

"You can build a diversified, high-quality portfolio with a pretty attractive yield without having to go really deep into economically sensitive areas," she says.

The fund yields 5.5%, and its expense ratio of 0.69% makes it costlier than many of its peers. Its one-year return of 8.8% puts it in the top 9% of funds in the category.

A category giant

Though parent BlackRock launched it only a little more than two years ago, the iShares Flexible Income Active ETF (BINC) has more than $9 billion in assets.

The fund is managed by Rick Rieder, BlackRock's global chief investment officer for fixed income and Morningstar's 2023 Outstanding Portfolio Manager. "He's kind of a rock star manager," says VettaFi's Chang.

More than 50% of the portfolio is invested in securities rated single-A or higher. More than one-fourth of the assets are currency derivative contracts, which funds can use to hedge the currency risks in international holdings or bet on the movement of one currency relative to another.

The fund's huge size and iShares' longtime focus on affordable products gives it an advantage on annual expenses, with a ratio of 0.40%. The fund yields 5.8%, and its one-year return of 7.1% puts it in the middle of the category.

The TCW Flexible Income ETF (FLXR) debuted in June 2024, but it's actually older than that: It was converted from a mutual fund that launched six years earlier.

"It's one of the few funds in the space that actually has a track record going back to 2018," says co-manager Jeffrey Katz. "The team and the strategy have been consistent since its inception."

Changing from a mutual fund to an ETF was rocket fuel. The fund had about $300 million in assets before the conversion; it has now more than tripled in size, topping $1 billion.

Morningstar analysts say an early bet on securities backed by commercial mortgages drove the fund to category-leading performance from 2018 to 2024 – something they say "is unlikely to be repeated."

Still, the fund's performance is holding up: It yields 5.9%, and its 9.4% one-year return puts it in the top 4% of its peers. Its expense ratio, at 0.40%, is among the category's best.

Katz says the market is being "complacent" about risk, so he has moved the fund into higher-quality assets than he'd hold in a normal market.

The fund is about one-third government debt – greater than the category average of 22%, although Katz says most of that is higher-yielding securities insured by the government. "We're not sitting in Treasuries; we have less than 3%."

The fund holds fewer corporate bonds than a typical fund in the category. "As we move into what we think is a slowing economy, I'd much rather own something that is not going to be impacted by weakening economies," says Katz.

The Hartford Strategic Income ETF (HFSI) is taking a different tack that appeals to investors with a bit more of an appetite for risk.

According to Morningstar, the fund has larger stakes in high-yield bonds, emerging-markets debt and bank loans compared with other funds. Just 42% of the fund is in assets rated single-A or above, a smaller proportion than many of the category's leaders.

"You're almost getting into that high-yield bond sort of category, but you're not quite there," says Morningstar's Sotiroff.

Wellington Management runs the fund for Hartford. Campe Goodman, a co-manager of the fund, is a 25-year veteran of Wellington who launched the company's multisector bond investment strategy in 2012.

"Wellington Management's team and resources rival the industry's best," says Morningstar analyst Tom Murphy.

Goodman says he typically loves U.S. high-yield corporate debt, but he isn't finding many good values there now. Instead, he's looking at corporate bonds in emerging markets.

"Over the past few years there has been a lot of concern about growth and macro-economic issues in emerging markets, but there have been a lot of companies that have done very well."

Examples are power utilities, telecoms and water and sanitation companies, which don’t have their fortunes tied to exports.

The fund is also finding opportunities in Europe, such as real estate debt and Eastern European banks. "You can always say there are babies being thrown out with the bathwater."

The fund yields 6.1%, and its one-year return of 8.7% puts it in the top 11% of funds in the category. Its expense ratio of 0.49% is cheaper than the category average.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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As grills get hot and coolers fill up over the summer, one thing remains clear: Across America, people have strong opinions about how to barbecue. Charcoal or gas? Dry rub or marinade? Burgers, ribs or something a little more adventurous?

After two decades in the ETF world, I can't help but see the similarities between barbecue season and investing. In both cases, there is no single right approach.

In 2025, ETF investors are mixing things up more than ever, building portfolios with the same kind of personal flair you find on a backyard grill.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

The no-fuss griller

Some keep it simple. They go with a propane grill, classic beef patties with a dash of salt and pepper and reliable sides. Nothing flashy, but this method generally allows for reliable results. That's the passive ETF investor.

These portfolios lean on broad, low-cost market exposure and often include international allocations. In a year where diversification matters more, we've seen growing interest in ETFs that go beyond U.S. borders to capture opportunities in developed and emerging markets.

This is especially relevant in 2025, as U.S. equity valuations remain high and investors seek more balanced risk-adjusted returns.

Index-based ETFs are the foundation for many portfolios, and they continue to attract inflows because of their clarity, efficiency and low costs. For investors looking to "set it and forget it," passive ETFs still make a lot of sense.

The recipe-follower

Then there are those who have perfected their recipe over time and know exactly what goes into the mix. My Uncle Mike's burgers, for example, include egg, corn flakes and garlic salt, all added in careful proportion to the amount of 80/20 ground beef.

This approach takes more effort upfront, but it consistently produces expected results.

The same applies to investors who use factor-based ETFs to screen for attributes like quality, value or momentum. Their strategy is rules-based and designed to optimize outcomes over time.

Factor investing has had a resurgence in 2025, as volatility, dispersion and sector rotations have created opportunities for more precise portfolio tilts. Investors are leaning into strategies that can target specific outcomes, whether that's downside protection, income generation or long-term growth potential.

The pitmaster tinkerer

Finally, some grill masters bring their own flair. They may know the basics, but they like to adapt. They test new marinades, rotate dishes depending on the crowd and fine-tune their technique as they go.

That's the active ETF investor in 2025. These investors want professional insights and flexibility in one wrapper, and they are increasingly using actively managed ETFs to adjust in real time to what the market presents.

The appeal of active ETFs is growing fast, particularly in areas where research-driven insights and nimble decision-making offer potential advantages.

This includes fixed income, where duration positioning has been critical as interest rate expectations shift, as well as equity strategies that aim to sidestep frothy parts of the market.

What the 2025 flows show

Through the first half of the year, U.S. ETFs brought in hundreds of billions in net inflows. According to Morningstar:

• Roughly 55% of those flows went to traditional passive strategies
• About 8% went to smart beta or factor-based ETFs
• And nearly 37% went to active ETFs

That kind of split reflects what many investors already know — there is no single way to invest, and today's ETF market gives you the tools to build your own recipe.

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It also shows that ETFs are no longer synonymous with just indexing. The wrapper has evolved, and today it houses strategies that span the full spectrum, from core market exposure to highly tailored active approaches.

Whether you're seeking global diversification, tactical plays or outcome-oriented strategies, ETFs offer a format that delivers cost efficiency, transparency and accessibility.

Freedom to invest your way

The ETF marketplace today is like a packed grill. Some investors want a simple approach, others prefer to follow a detailed playbook, and plenty prefer the freedom to adapt.

ETFs can support all three styles, and the data shows that investors are embracing the full menu.

As August kicks off, it's a good time to reflect on the flexibility today's markets offer and the freedom investors have to build portfolios that match their goals.

Whether you are a seasoned investor or just getting started, ETFs give you the flexibility to build a strategy that fits your goals, your preferences and your level of involvement.

Remember, your portfolio can be just as flexible as your grill menu.

Enjoy the rest of summer, stay invested and stay well diversified with ETFs.

All investments involve risks, including possible loss of principal. The value of investments can go down as well as up and investors may not get back the full amount invested. Generally, those investments offering potential for higher returns are accompanied by a higher degree of risk. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors or general market conditions. For actively managed ETFs, there is no guarantee that the manager's investment decisions will produce the desired results.

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The first half of 2025 was spent waiting for the Federal Reserve to resume dropping its benchmark interest rate.

Yes, following a full point-reduction to the federal funds rate's target range across three cuts in 2024, the Federal Open Market Committee (FOMC) signaled a slower pace of play earlier this year.

But, under pressure from President Donald Trump and the White House as well as in response to moderating inflation and a weakening labor market, lower interest rates became a theme in the second half of the year.

We're awaiting a third straight rate cut of 25 basis points at the December Fed meeting.

But there's still time for tactical investors to get in front of lower interest rates by entering a number of exchange-traded funds (ETFs) that, for one reason or another, would benefit from another rate cut this year and a couple more in 2026.

Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds. SEC yields reflect the interest earned after deducting fund expenses for the most recent 30-day period and are a standard measure for bond and preferred-stock funds.

Data is as of December 8.

Will rates fall? Perhaps this fall.

As most Wall Street economists expected, the Fed responded to a slowing labor market with a quarter-point cut to the target range for the federal funds rate in September. The Fed followed up in October by trimming its benchmark by another 25 basis points.

Although market participants are optimistic about another 0.25% move, they wonder whether it means more cuts in 2026.

"The uncertainty of the nature of the Fed cut expected this Wednesday has put the market in a wait-and-see mode," Louis Navellier of Navellier & Associates observes.

Investors, traders and speculators are almost 90% certain of a December rate cut, but that probability is "clouded by the expectations that the cut will be highly contentious internally and whether the rhetoric will be hawkish enough to bring serious doubts about any further cuts until Chairman Powell is replaced in May," Navellier notes.

Absence "of complete economic data due to the catch-up from the extended government shutdown also makes reaching conclusions difficult."

As of December 8, CME FedWatch, which uses 30-day federal funds futures prices to track the probabilities of changes to the central bank's benchmark rate, projects an 88% chance we'll see another 25-basis-point rate cut in December, with probabilities of 68% and 35% for follow-up cuts in January and March.

All this is just projection and analysis, with some price action involved. Meanwhile, forecasts for the next Fed meeting are clouded by that government-shutdown-created data gap.

Still, if you believe "full employment" will take precedent over "price stability," and you're a bit more active with your portfolio than the average buy-and-holder, there are a few ETFs you can consider buying in advance of more rate cuts.

Vanguard Short-Term Bond ETF

• Assets under management: $39.2 billion
• SEC yield: 3.8%
• Expenses: 0.03%, or $3 annually for every $10,000 invested

Normally, such a list would be chock full of bond ETFs of varying lengths because as rates on new bonds decline, prices of existing bonds generally improve.

While the fed funds rate has more of a direct impact on short-term interest rates, long-term rates (over time) also tend to move in the same direction more often than not.

But we're only listing two, as this time might be different. Here's what David Payne, economist with The Kiplinger Letter, says in his latest interest-rate outlook:

"Bond investors' concern that an economic slowdown looms is shown by the fact that current one- to seven-year Treasury notes have lower yields than short-term Treasury bills, which mature in a few months. But 20- and 30-year bond yields have picked up more than the 10-year yield has in recent months, indicating that both long-term inflation and government deficits are a rising concern among bond traders."

For now, we're likely safer looking at the short end of the yield curve, even if it won't give us the kind of wiggle longer-term bonds theoretically could.

The Vanguard Short-Term Bond ETF (BSV) is a dirt-cheap index fund that provides extremely broad exposure to investment-grade short-term debt.

The fund invests in more than 2,900 bonds with an average maturity of from one to five years; the portfolio's current average effective maturity is a hair below three years.

The lion's share (70%) of BSV's assets are invested in U.S. Treasuries or government agency debt, with another 25% in domestic corporate issues, and the remainder in dollar-denominated international bonds.

Duration, a measure of risk, is a low 2.6 years. That effectively means that for every one-percentage-point increase in market interest rates, BSV would decline by 2.6%, at least in the short term. That works the other way, though, as a one-point decline in rates would lift BSV by 2.6%.

That's not nearly as much motion as you'd get from a longer-term bond fund, but as mentioned above, longer-term bond funds might not react much to a September rate cut; BSV would appear to provide a better chance of enjoying at least some upside.

It's also a fairly stable fund, given its high quality and short duration, and it yields a respectable 3.8% right now.

Learn more about BSV at the Vanguard provider site.

Fidelity Total Bond ETF

• Assets under management: $22.9 billion
• SEC yield: 4.5%
• Expenses: 0.36%

If you wanted to be more aggressive without completely selling out to the long end of the yield curve, consider an intermediate-term bond ETF such as the Fidelity Total Bond ETF (FBND), one of two products on this list that merit inclusion in the Kip ETF 20.

More specifically, if one cares about Morningstar terminology (and we do), FBND is an intermediate core-plus bond fund.

These funds will mostly own investment-grade U.S. debt, including government, corporate and securitized debt. But they have more flexibility than core funds to look at other types of bonds, including corporate high-yield ("junk"), emerging-markets debt, bank loans and more.

The "intermediate" part refers to a duration of from 3.5 to six years; if duration isn't available, average effective maturities of four to 10 years.

In short, these funds are more aggressive than the likes of BSV in several ways.

The Fidelity Total Bond ETF's eight-manager team has compiled a portfolio of more than 4,400 predominantly investment-grade bonds.

Despite a pretty long leash, FBND is largely sticking to the "core" categories right now, with a roughly even three-way split of securitized, corporate and government debt (and a sprinkling of cash). That's largely investment-grade, but not entirely. A little more than 10% of those bonds have junk ratings.

An average weighted maturity of almost nine years and a duration of six years both put FBND on the longer end of the intermediate-term spectrum. If longer-term bonds don't respond to a Fed rate cut, FBND might not do much … but if they do, it has a lot more upside potential than BSV.

At least you're getting paid 4.5% annually to wait and see.

Learn more about FBND at the Fidelity provider site.

Schwab U.S. Dividend Equity ETF

• Assets under management: $71.2 billion
• Dividend yield: 3.8%
• Expenses: 0.06%

Another market principle is that the lower interest rates (and thus bond yields) go, the more attractive dividend stocks look.

If your primary concern is income, a 4% yielding dividend stock (which can be susceptible to market volatility) won't look nearly as good as the 4% that you can get out of even short-term bonds right now, and they tend to be a lot less volatile.

But if all interest rates head lower, and even if just short-term rates decline, the Schwab U.S. Dividend Equity ETF (SCHD) and its nearly 4% yield will look increasingly tempting.

SCHD tracks the Dow Jones U.S. Dividend 100 Index, a group of 100 dividend stocks that have paid a cash distribution for at least 10 straight years. Components are also screened by metrics including yield, dividend growth, return on equity and free cash flow vs total debt (free cash flow is the money left after operating expenses and spending on assets).

Said differently, SCHD prioritizes above-average but sustainable dividends.

This float-adjusted market cap-weighted portfolio is populated with big, value-oriented blue chip stocks, with top holdings, including the likes of Merck (MRK), Chevron (CVX) and Cisco Systems (CSCO).

Learn more about SCHD at the Schwab provider site.

Vanguard Real Estate ETF

• Assets under management: $33.7 billion
• Dividend yield: 3.5%
• Expenses: 0.13%