Back To Basics: 7 ETFs For Long-Term Investors

by on November 29, 2011 | Updated November 21, 2012 | ETFs Mentioned:

New exchange traded products continue to debut on the market by the cartload, as issuers have been ramping up activity on the product development front while ongoing innovation in the ETF industry is paving the way for one of a kind, first-to-market products. Investors can implement any number of strategies across a multitude of asset classes thanks to the ever expanding “toolbox”, which now features over 1,300 exchange-traded products [see 25 Things Every Financial Advisor Should Know About ETFs].

Like never before, investors have unprecedented access to a vast variety of granular, hyper-targeted products which offer very precise exposure. However, for many investors the simpler, “plain vanilla” ETFs which offer deep, broad-based exposure across core asset classes remain extremely useful and popular for a number of reasons. These “blunt” instruments allow for investors to easily tap into a corner of the market, while still taking full advantage of the numerous benefits associated with the ETF wrapper, including ease-of-use, transparency, and cost efficiency [see Six Noteworthy ETF Innovations]. 

While we certainly wouldn’t recommend relying on any ETF as a one-stop-shop solution, several products do come to mind which may offer investors an easy way to establish broad, well-diversified exposure without succumbing to hefty expense fees [see our Cheapskate ETFdb Portfolio]. For investors looking to gain cost-efficient exposure across key corners of the global financial market under one ticker, a number of broad-based ETFs can serve as essential core holdings for building a long-term investment portfolio.

Below we highlight seven exchange-traded products which hold  appeal as core “building blocks”, since they can easily, and effectively, help investors implement a long-term strategy, as well as helping those who are looking to beef up their current portfolio.

  • Vanguard Total World Stock Market Index ETF (VT): Equity exposure is essential for any portfolio, although some investors may feel overwhelmed given the numerous, and seemingly identical, equity ETFs available on the market. This offering from Vanguard can simplify the product selection process as it’s one of the “best deals” available to investors so to speak. VT falls on the very cheap end of the cost spectrum amongst Global Equity ETFs and it boasts an incredibly deep, well-rounded portfolio of holdings. This fund holds a basket of nearly 3,000 securities, spread out across 47 countries, including both developed and emerging markets. Additionally, VT is well-diversified across companies of all sizes and features allocations to virtually every economic sector.
  • Charles Schwab U.S. Small-Cap ETF (SCHA): Investors often times overlook the small cap segment when building out their portfolio’s equity component. However, demand for exposure to this corner of the market has increased considerably in recent years as this asset class has demonstrated the potential to deliver stellar gains and improve risk-adjusted portfolio returns over the long-haul [see our Small Cap ETFdb Portfolio]. SCHA is an excellent choice for investors looking to tap into the domestic small cap universe. This ETF holds just over 1,700 individual securities, and is by far one of the cheapest offerings from the Small Cap Blend Equities ETFdb Category, making it a compelling candidate as an all-in-one U.S. small cap ETF [see SCHA Realtime Rating].
  • Vanguard Emerging Markets ETF (VWO): This ETF is by far the most popular broad-based emerging markets ETF on the market and for good reasons too. VWO is the cheapest offering from the Emerging Markets Equities ETFdb Category, and it gives investors access to 900 emerging market stocks, well-diversified across market cap levels and several economic sectors. This ETF may further appeal to cost-conscious investors since it’s available for commission free trading on the Firstrade, TD Ameritrade, and Vanguard platforms.
  • Madrona Forward Global Bond ETF (FWDB): When it comes to fixed income exposure, many investors stop at U.S. Treasuries and investment grade corporate debt. This approach however is prone to serious drawbacks as international bonds, both sovereign and corporate, have demonstrated the potential to deliver uncorrelated returns. FWDB is best described as an all-in-one bond ETF, given its deep portfolio, which covers 12 segments of the global fixed income markets. This active ETF charges a fairly hefty expense fee of 0.95%, although it does provide investors with exposure to U.S. Treasuries, municipal bonds, emerging market debt notes, international inflation-protected securities, and everything in between [see Free 7 Simple & Cheap All-ETF Portfolios].
  • PowerShares 1-30 Treasury Ladder Portfolio (PLW): Investors looking for a well-rounded U.S. Treasury ETF need to look no further than this one-of-a-kind offering from PowerShares. PLW provides investors with easy access to basket of government debt notes with a twist. The fund’s underlying portfolio is comprised of approximately 30 equally weighted U.S. Treasury notes with fixed coupons, scheduled to mature in a proportional, annual laddered structure [see our Better-Than-AGG Total Bond Market Portfolio]. 
  • WisdomTree Emerging Markets Local Debt Fund (ELD): Emerging market exposure is essential for both the equity and fixed income component amongst investors’ portfolios. ELD is an intriguing instrument that can help investors beef up bottom-line portfolio returns as emerging market bonds can offer a vastly different risk/return profile relative to their developed market counterparts. Moreover, emerging market bonds denominated in the local currency can offer dollar diversification–and the potential for increased returns when currency exchange rates are unfavorable for the U.S. dollar. ELD makes its top allocations going to Brazil, Indonesia, Mexico, Malaysia, and Turkey [see ELD Fact Sheet].
  • United States Commodity Index Fund (USCI): Although deemed as being far “too risky” by some, an allocation to commodities has proven to enhance bottom-line portfolio returns over the long-haul as this asset class can deliver stellar, and often times uncorrelated returns relative to broad equity markets. USCI is one of the most unique commodity ETPs on the market thanks to its dynamic portfolio construction approach. While most commodity ETPs offer exposure to a predetermined lineup of commodity futures contracts that remains constant, USCI is unique in that the portfolio regularly changes based on market conditions, earning its repetition as a broad-based “contango killer” [see Closer Look At The "Third Generation" Commodity ETF].
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Disclosure: No positions at time of writing.