Estimated reading time: 9 minutes
Exchange-Traded Funds (ETFs) are a fantastic way to build a diversified portfolio with minimal effort, low costs, and reduced risk compared to individual stocks. Whether you’re a first-time investor or a seasoned pro, ETFs offer a passive investing approach that requires little homework while providing exposure to a wide range of assets. In this guide, we’ll explore the five most popular ETF categories that are go-to choices for investors in 2025, breaking down their key features, top picks, and why they matter.
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TABLE OF CONTENTS
Why ETFs?
ETFs are investment funds traded on stock exchanges, much like individual stocks. They track indices, sectors, or asset classes, offering instant diversification. Their key benefits include:
- Low costs: ETFs typically have lower expense ratios than mutual funds or unit trusts.
- Diversification: Spread your risk across multiple companies or markets.
- Passive investing: Minimal management needed, ideal for busy investors.
- Accessibility: Available through most online brokers, often with fractional shares.
Let’s dive into the five ETF categories that can anchor your portfolio, from reliable classics to global diversification plays.
S&P 500 ETFs: The Reliable One
The S&P 500 index is the gold standard for investors seeking steady, long-term growth. It tracks the 500 largest U.S. companies, serving as a benchmark for the U.S. economy. Think of it as a dependable car like Toyota, not the flashiest, but it gets you where you need to go without breaking down.
Why Choose S&P 500 ETFs?
- Reliability: Historically delivers consistent returns (around 12.66% annualized over 10 years).
- Diversification: Exposure to top U.S. companies like Apple, Microsoft, Amazon, NVIDIA, and Meta.
- Confidence builder: Proven track record.
Top Picks
Here are four S&P 500 ETFs to consider:
- VOO (Vanguard S&P 500 ETF): Low expense ratio (0.03%), managed by Vanguard, a trusted name with massive assets under management (AUM).
- SPLG (SPDR Portfolio S&P 500 ETF): Cheapest at 0.02% expense ratio, great for cost-conscious investors.
- IVV (iShares Core S&P 500 ETF): Solid option with a 0.03% expense ratio.
- SPY (SPDR S&P 500 ETF Trust): The most established but pricier at 0.095%.
(Source: Morningstar)
My Pick – VOO
VOO strikes a balance with a low expense ratio, high AUM, and Vanguard’s reputation. For example, a 5% annual return on a $10,000 investment would yield $497 with SPLG (0.02% fee) but only $491 with SPY (0.09% fee). Over decades, these small differences compound significantly.
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Nasdaq-100 ETFs: High Growth, Higher Volatility
If you’re chasing higher returns and don’t mind some volatility, Nasdaq-100 ETFs are your go-to. These track the 100 largest non-financial companies on the Nasdaq exchange, heavily weighted toward tech giants.
Why Choose Nasdaq-100 ETFs?
- High growth: Historically outperforms the S&P 500 with 17%+ annualized returns over 5 and 10 years.
- Tech-heavy: Top holdings include Apple, Microsoft, Amazon, NVIDIA, and Meta.
- Volatility: Higher risk due to tech sector exposure, but ideal for aggressive investors.
Top Picks
- QQQ (Invesco QQQ Trust): The most popular Nasdaq-100 ETF, with a 0.20% expense ratio.
- QQQM (Invesco Nasdaq 100 ETF): A newer, cheaper alternative at 0.15% expense ratio, with lower AUM but identical holdings.
(Source: Morningstar)
Key Considerations
QQQM’s lower AUM means slightly lower liquidity, which could lead to wider bid-ask spreads. For long-term investors, this is negligible, making QQQM the better choice for its lower fees.
Pro Tip: If you’re in for the long haul, QQQM’s cost savings outweigh minor liquidity concerns.
Dividend ETFs: Steady Income, Lower Risk
For investors seeking stability and regular income, dividend ETFs focus on companies that consistently pay dividends, often signaling financial maturity and lower volatility.
Why Choose Dividend ETFs?
- Income stream: Receive regular dividend payouts.
- Stability: Dividend-paying companies are often more established, reducing price swings.
- Peace of mind: Ideal for conservative investors or those nearing retirement.
Top Picks
- VIG (Vanguard Dividend Appreciation ETF): Tracks companies with 10+ years of dividend increases. Expense ratio: 0.05%, dividend yield: ~1.9%.
- SCHD (Schwab U.S. Dividend Equity ETF): Tracks the Dow Jones U.S. Dividend 100 Index. Expense ratio: 0.06%, dividend yield: ~4.4%.
(Source: Morningstar)
My Pick
SCHD’s higher dividend yield (4.37% vs. VIG’s 1.93%) makes it the better choice for income-focused investors, despite VIG’s larger AUM. Note that U.S. dividend ETFs face a 30% withholding tax for non-U.S. residents without a tax treaty, so factor this into your calculations.
U.S. Total Stock Market ETFs: Broad Diversification
Want exposure to the entire U.S. market, including small, mid, and large-cap stocks? The U.S. Total Stock Market ETF is your answer, offering maximum diversification within the U.S. economy.
Why Choose the U.S. Total Stock Market ETFs?
- Broad exposure: Covers small, mid, and large-cap U.S. companies.
- Balanced risk: Less reliant on mega-caps like Apple or Microsoft.
Top Pick
- VTI (Vanguard Total Stock Market ETF): Expense ratio of 0.03%, tracks the entire U.S. market.
(Source: Morningstar)
Why VTI?
VTI’s low 0.03% expense ratio and broad diversification make it a near-perfect choice for betting on the U.S. economy as a whole. Its returns closely mirror the S&P 500, but with added exposure to smaller companies for potential growth.
Global Stock Market ETFs: Diversify Worldwide
For ultimate diversification, global stock market ETFs spread your investment across developed and emerging markets, reducing reliance on any single country or currency.
(Source: Visual Capitalist, World Federation of Exchanges, online research)
Why Choose Global Stock Market ETFs?
- Geopolitical diversification: Spread risk across countries like the U.S., Japan, UK, and emerging markets.
- Currency diversification: Exposure to multiple currencies, hedging against USD fluctuations.
- Growth potential: Capture opportunities in emerging markets.
Top Picks
- VT (Vanguard Total World Stock ETF): Tracks global stocks by market cap, with a 0.06% expense ratio.
- ACWI (iShares MSCI ACWI ETF): Covers large and mid-cap stocks in developed and emerging markets, with a 0.32% expense ratio.
(Source: Morningstar)
Why VT?
VT’s lower expense ratio (0.06% vs. ACWI’s 0.32%) makes it the clear winner for cost-conscious investors seeking global exposure. While returns are lower than U.S.-focused ETFs, the reduced risk through diversification is the primary goal.
Final Thoughts: Which ETF Is Right for You?
ETFs are a powerful tool for building wealth with minimal effort. There’s no one-size-fits-all ETF, so pick one (or a mix) that aligns with your financial goals. Choosing the right ETF depends on your risk tolerance, investment goals, and time horizon. Here’s a quick guide:
- S&P 500 ETFs (VOO): Best for reliable, long-term growth with moderate risk.
- Nasdaq-100 ETFs (QQQM): Ideal for aggressive investors chasing high tech-driven returns.
- Dividend ETFs (SCHD): Great for income seekers or those preferring stable, mature companies.
- U.S. Total Stock Market (VTI): Perfect for broad U.S. exposure.
- Global Stock Market (VT): Suits investors prioritizing maximum diversification and stability.
(Source: Morningstar)
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Moomoo MY is currently offering Welcome Rewards of up to *RM 1,900, and you can even get an additional RM 40 stock cash reward when you deposit using my exclusive KOL code “ZIET11”. Sign up now to claim yours!
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*T&Cs apply. All views expressed in this blog are the independent opinions of Ziet, which are not shared by Moomoo Securities Malaysia Sdn. Bhd. (“Moomoo MY”). No content shall be considered financial advice or recommendation. Moomoo MY links are included in this post, through which referrals are made and I may receive certain commissions. Please contact Moomoo MY for more information.
