Best ETFs to Buy for Your Portfolio [2024 Comparisons] | Top Dollar (2024)

Are you having trouble deciding which ETFs are best for your portfolio in 2024? I can’t blame you. After all, there are currently over 11,000 Exchange Traded Products in existence, with over 3,000 listed on U.S. exchanges. Choosing the best ETFs is not very complicated, but there are a lot of bad ETFs that investors should avoid. This no-nonsense guide will cut through the bias and give you the best exchange traded funds you should consider for each asset category.

Take Me To The Lists!

What Makes An Exchange Traded Fund Good?

With over three thousand ETFs to choose from, it can be tricky to figure out where to start.

So what makes an ETF better or worse? Well, we primarily look for two crucial criteria as investors to determine the best ETFs:

Stock Market Liquidity

ETFs trade just like stocks on stock market exchanges (NYSE, NASDAQ, etc.). Liquidity refers to how an ETF is quoted in the stock market, and the more competitive the prices, the better. The difference between the specified price a market maker is willing to buy or sell an ETF is known as the spread.

This spread directly impacts an investor every time they buy or sell an ETF, as this cost is burdened on the investor and profited by the market maker. Highly actively traded and popular ETFs attract more professional market makers who, in turn, make the price spreads more competitive.

I would only recommend an investor to buy ETFs with high liquidity, which is a primary criterion for my list of best ETFs.

Expense ratio (annual management fee)

The expense ratio is the second and most important factor for evaluating an ETF, also known as the annual fee or management fee. The expense ratio is deducted daily little by little and will directly reduce the return of a fund. Recently, there has been a race to the bottom as these fees are quickly approaching zero.

In most cases, all else equal, choose the fund in a given category with the lowest management fee. In many cases, two or more ETFs track the same index, and paying a higher fee means paying more for the same product. In other cases, the ETFs are highly correlated but use slightly different benchmarks; however, reducing expenses is the most straightforward way to minimize investment drag and maximize returns.

Common Mistakes When Investing In ETFs

Assets Under Management

Assets Under Management denotes the total value of the fund’s holdings within a particular ETF. The goal of any fund issuer or manager is simply to maximize AUM, so they earn management fees on more money. Issuers promote large AUM as validation, but other funds often provide the same exposure at lower costs.

Aclear example of well marketed, large AUM ETF is SPY, the largest ETF in the world, with AUM of $340 billion. Nevertheless, VOO is the better ETF because of its lower expense ratio, even though its assets are just $250 billion.

Looking at Past Performance

Comparing two or more similar ETFs based on past performance is not an intelligent indicator of future performance. The main benefit of investing in passive index ETFs is the diversification gained across a broad asset class. Similar ETFs within a category will often overlap in over 80% of the stocks they hold, so variations in past performances are based on small holding differences within a fund’s portfolio. However, these minor differences in holding weights often do not stay consistent within a given ETF because index methodology changes annually. In most cases, you would be making decisions based on holdings that are no longer relevant.

Appropriate Cost of Annual Management Fees

Let’s first establish that there are many terrible ETFs that you should never buy as an investor. Unfortunately, excessive management fees are widespread and need to be carefully avoided in many instances.

ETFs can track any underlying index from any asset class. Because certain assets can be more expensive or complicated to buy and manage, the asset class will directly impact the management fee.

U.S. Index ETFs

Many popular ETFs only track U.S. listed stocks. These ETFs passively invest in major U.S. indices (S&P500, Dow Jones Industrial Average, Nasdaq100). These funds are where the race to zero annual fees has been most pronounced. There is no reason to pay a higher fee for these funds.

There are many U.S. sector ETFs that seem to track every possible market sector- from high dividend yield to consumer staples to marijuana stocks. These sector funds charge unnecessary high management fees, so I don’t recommend them for long-term investors. However, some sectors, which are more challenging to invest in or offer exposure to international companies within an industry (such as mining), can justify a slightly higher expense ratio, so they are included in my analysis.

International ETFs

International stocks are often less liquid and have various tax structures and exchange fees than U.S. stocks. Because of these complexities, international stock ETFs require higher annual management fees than U.S. stock funds. Nevertheless, they are also becoming more competitive, and developed markets (Europe, Canada, Australia, etc.) have more competitive fees than emerging markets (China, India, Brazil, etc.). Even with higher fees, I believe international ETFs provide valuable exposure to the broader market and so deserve to make up a slice of a diversified portfolio.

Commodity ETFs

Many commodity ETFs have additional management fees because of needing to manage commodity futures contracts and in some cases, physical storage and insurance of physical commodities (such as precious metals). Commodity products (ETPs) can often be structured in different ways other than funds- such as commodity trading pools, which is not a critical consideration for investors.

Although a commodity ETF should not make up a large portion of a portfolio, they provide diversification and a general hedge against inflation. However, because they invest in the commodities futures market (a longer-term, easier way to invest in commodities), their performance can often deviate significantly from the spot market (what’s usually being discussed on CNBC and Bloomberg by journalists).

Another method I offer investors to gain exposure to commodities is to buy commodity-exposed stock ETFs, which hold companies highly exposed to commodity prices. These ETFs (and the stocks they invest in) often take on characteristics of both the stock market and the commodity market. Commodity stocks are a way to gain exposure to the inflation hedge achieved with commodities, often at a lower expense ratio and without the risk of hidden negative roll-yield.

ETFs To Avoid For Investors

Active Management ETFs

According to S&P Global Research, 90.03% of active large cap funds in the U.S. underperformed the S&P 500 over the past ten years. Additionally, when you consider that actively managed funds charge a considerably higher management fee to support their research and active efforts, I can’t understand how so many investors still think they can somehow outperform the market over the long run.

I am not against value investing or choosing individual companies for sophisticated investors, and I believe improved risk-adjusted returns or outperformance can be realized in some cases. Nevertheless, I do not unnecessarily support paying higher fees for an actively managed fund.

If you are convinced you need greater exposure to individual stocks, you can always buy it outright without paying an expense ratio. Note that you can see the listed holding data for any active ETF and view the exact composition of the fund.

Leveraged ETFs or Inverse ETFs

Leveraged ETFs work by using derivative products to provide exposure of 2 or 3 times the daily return of an index fund. Inverse ETFs do the same but provide exposure in reverse by shorting futures or arranging bearish index swaps.

These are tools suitable only for short-term traders and wall street professionals. They not only have high management fees, but they also suffer from tracking errors which lose money in the long run because of how daily return products work. The tracking error becomes more pronounced over time, leading to underperformance in the leveraged/inverse product vs. the index performance. It would be ill-advised investment advice for even sophisticated investors to hold these funds for any significant amount of time.

Best Exchange Traded Funds Lists [2024]

ETFs are smart, tax-efficient financial instruments to choose for your investment. I strongly support your sensible investment decision! Here are the top ETFs to invest in, broken down by asset class and subcategory.

Best U.S. Stock ETFs

Best U.S. Broad Market Stock ETFs

Broad market exchange traded funds generally have over 1500 individual stocks, so no particular stock has a large weight. They are the most diverse of all U.S. Stock ETFs and typically encompass about 80% large cap, 14% mid cap, and 6% small cap stocks.

Best U.S. Large Cap Stock ETFs

Most U.S. large cap ETFs track the largest 500 publically traded companies, which is the general target of the S&P 500 index. The S&P 500 is the most widely used benchmark for the U.S. large cap market and has displaced the antiquated Dow Jone Industrial Average, which is not nearly as diverse with only 30 stocks.

Best U.S. Mid Cap Market Stock ETFs

I do not think a mid-cap fund is necessary as the stocks generally perform somewhere between large and small cap companies. Nevertheless, there is nothing wrong with investing in these companies. If you are not investing in a broad market ETF, you may be interested in these ETFs for additional diversification.

Best U.S. Small Cap Market Stock ETFs

The top small cap ETFs all track different indices, but I wouldn’t get too caught up in the nuances or number of the holdings. All of the funds I rank are plenty diverse. So I would choose the lowest management fees available as my primary criterion.

Best U.S. Large Cap Growth Stock ETFs

Large Cap growth companies generally include technology and high growth commerce companies and sectors, which often trade at higher valuations because of their anticipated potential to grow. Think Amazon, Google, Tesla, etc. These companies often trade at increased market sensitivity. They usually overperform in a bull market and underperform in a bear market. Growth stocks also generally have a lower dividend yield compared to value stocks.

Best U.S. Large Cap Value Stock ETFs

Large cap value companies generally include utilities, consumer staples, basic materials, and lower growth sectors. Think Berkshire, Johnson & Johnson, Exxon, and Cocacola. These companies often trade at lower valuations, so they are considered ‘defensive,’ meaning they won’t usually go down as hard as value companies during a market crash. Large cap value companies are generally in the mature phase of their business cycles, so their earnings and valuations are more predictable, and they often pay higher dividend yields.

Best U.S. High Dividend Stock ETFs

People love stocks with high dividend yields; I’m not a huge fan. Companies that pay dividends often don’t have much growth potential and see no better reinvestment options for their earnings than to pay it out to shareholders.

I rather buy particular stocks that aim to reinvest their earnings to deliver returns (which also avoids double taxation). If I need a cash distribution, I could always sell some shares of a company that had retained its earnings instead of paying a dividend. In this manner, I only take the tax hit as a capital gain when I need the cash.

Best International Stock ETFs

In the international exchange traded fund world, underlying indices can vary composition more than in the U.S.. Nevertheless, I don’t see any particular shortcomings or significant benefits among the underlying indices of any of the specific ETFs I have ranked.

Best International Broad Market Stock ETFs

International broad market ETFs include both developed markets and emerging markets. However, developed markets will comprise significantly more weight than emerging markets. Nevertheless, specific top holdings within these funds can still be emerging market companies such as Samsung and Taiwan Semiconductors.

Best International Developed Market Stock ETFs

Developed markets outside the U.S. usually include Canada, Western Europe (plus UK + Ireland), Japan, Australia, Singapore, and Hong Kong.

Best Europe Market Stock ETFs

Best International Emerging Market Stock ETFs

Developed markets outside the U.S. usually include China, India, Taiwan, Saudi Arabia, Brazil, Mexico, Colombia, Chile, and smaller allocation is a few other Latin American and Asian countries.

As of 2022, Russian investment has been halted by outside investors, creating some frozen holdings in certain ETFs which have been marked down.

South Korea has traditionally been considered an emerging market, but several issuers and index providers have upgraded South Korea to a developed market. Some funds do not include Korean holdings in their emerging market funds.

Best International Small Cap Stock ETFs

Want small cap exposure in the international sector? I don’t personally consider it a necessary holding in my portfolio, but here are the rankings based on (tiny) demand. Note that VSS fund includes some minority emerging market exposures, while the other funds only have developed market stocks.

See Also

Model Portfolios for Vanguard Investors

Best U.S. Bond ETFs

I have included average maturity instead of the underlying index for the bond ETFs. I believe it’s more important and useful to understand where on the yield curve you are investing. Unfortunately, many new investors don’t think of bonds as risk assets that move as stocks do, but be aware bond prices can move significantly. Nevertheless, bonds are generally considered to have low volatility compared to other investments.

Bond prices move inversely to yield, so as rates (yield) go up, bond prices (and bond ETFs) go down. The greater the maturity, the greater the fund prices move relative to changes in interest rates (the technical measurement is called duration). Know that higher maturity funds will be more sensitive to changes in interest rates. In 2022 during rising rates, the prices of bond funds fell more significantly than they had in the past ten years.

Bond ETFs are still a valuable component of a well-diversified portfolio that pay regular dividends. Bond ETFs provide ample exposure to fixed income for investors who need to generate income or reduce volatility in their portfolios.

Best U.S. Government Bond ETFs

I have included funds in the 2-10 year range, as I believe these are more suitable for most investors looking for bond exposure. Long-term bond ETFs are available, such as TLT, which tracks close to 30-year yields, but this has significant duration risk and is not a suitable investment for unsophisticated investors.

Best U.S. Corporate Investment Grade Bond ETFs

Investment grade corporate bonds usually pay a higher yield than equivalent term government bonds but typically have greater credit risk (risk of default).

Best U.S. Corporate High Yield Bond ETFs

High yield (aka junk bonds) are not suitable for most investors. These ETFs will inevitably include some bonds that default, as they are rated as significantly riskier by credit agencies. Nevertheless, they pay higher returns for the anticipated risk of default, and I have included them due to demand. I do not personally hold any High Yield bond ETFs.

If you are interested in investing in high-yield bonds, these ETFs are one of the best ways to invest because of the diversification provided by the large basket of bonds in each fund.

Best U.S. Inflation-Protected (TIPS) Bond ETFs

TIPS are bonds tied to inflation (specifically the Consumer Price Index). TIPS can protect against rising or high inflation; their principal value goes up as CPI increases.

Best Municipal Investment Grade Bond ETFs

These ETFs hold municipal bonds, but they often do not provide all thetax benefits of municipal bondsbecause they are not specific to individual investors’ jurisdictions. Because of the benefits for muni bondholders to invest within their own municipalities, municipal bond ETFs often come up short vs. buying individual muni bonds within a brokerage account. Also, many major online brokers do not provide access to individual muni bonds, often requiring customers to work with a financial advisor within advisory or brokerage services.

Best Commodity ETFs

Best Broad Commodity ETFs

The S&P GSCI Commodity Index includes 24 futures in over 5 commodity sectors.

The GSCI currently has over 50% of its weight in energy commodities. DCB is a bit modified and is more balanced across the groups. Additional DBC also holds more futures over longer terms to try to lessen the impact of roll yield, but whether that justifies the higher expense ratio is difficult to conclude.

DBA is purely an agriculture commodity fund but mentioned here if this is a unique exposure you find necessary, as some investors may be looking for commodity options without investing in petroleum products.

Best Precious Metal Commodity ETFs

I primarily use gold ETFs as my primary commodity exposure and inflation hedge in my portfolio. Again these should not be majority holdings by any means but often help build a well-diversified portfolio.

Best Oil & Gas Commodity ETFs

Crude oil and natural gas funds hold baskets of futures and should only be used by sophisticated investors. Roll yield can become very pronounced in contango or backwardation and could cause these funds to perform quite differently than the spot markets.

USO has seen significant changes to its composition following the 2020 covid-induced oil plunge. As a result, USO now holds significantly more longer-term futures, reducing its exposure to front-month oil movements and slightly dampening the roll yield effect.

Best Commodity Exposed Stock ETFs

As mentioned above, investing in individual stocks which are highly exposed to commodities is an alternative to investing directly in commodities. I have included my top-rated ETFs for several different commodity exposures in this category.

Best ESG Stock ETFs

Environmental, social, and governance concerned investing has become all the rage over the past few years. The nature of these funds means they will overlap with many holdings from traditional U.S. stock ETFs you probably are already investing in, so just understand this is not a separate category.

Best U.S. Real Estate (REIT) ETFs

While the first 5 ETFs on the list comprise broad REIT ETFs and have significant overlap, MORT and REZ are quite unique.

The ticker symbol MORT focuses on mortgage REITs- which earn money on the mortgage side of real estate investing. These companies participate in originating loans or buying mortgage-backed securities. MORT’s focus results in significantly higher dividend yields but quite a different business model and risk exposures than other typical REITs.

REZ is another specialty REIT ETF that focuses on residential and multisector real estate investments. REZ primarily focuses on storage units, manufactured homes, single-family homes, and healthcare real estate.

The annual expense ratio of MORT and REZ should not be directly compared to the other REIT ETFs as they invest in quite different companies. Instead, they are ranked lower primarily because they are more specialized and not suitable for just any investor who does not understand what exposure they are holding.

Best International Real Estate (REIT) ETFs

Are you looking for real estate exposure abroad? These are your best two bets to gain access. However, be aware they have a wider spread, so I do not recommend actively trading in and out of them.

Disclosure:

Consider your own unique risk tolerance and investment goals before making any investment decisions. Perform your own research and make educated investment decisions based on how they relate to your personal situation. Consult a licensed financial or tax advisor should you need professional advice.

The author (Josh Dudick) currently has positions in many of the ETFs listed, and may purchase additional shares within the next weeks or months. This article should not be viewed as a solicitation to purchase shares in any security and is provided for informational purposes. Investors should consult a financial advisor or exercise their own due diligence before making any investment decision.

Have any questions or comments? Feel free to contact me.

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