The 4 Best ETFs for Young Investors

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best etfsTime is one of the best friends an investor can have.

But everyone knows George Bernard Shaw’s famous quote that says “youth is wasted on the young.” So many of us spring chickens aren’t taking full advantage of the extra time we have to build our nest eggs.

The longer you have to use the power of compounding, the more money you will have. That’s a proven fact. Not to mention time’s ability to help heal your portfolio after the markets various gyrations and volatility.

But time can also be a powerful ally in selecting investments in the first place.

That’s because some of the best ETFs out there are truly long term plays — sometimes decades long. And younger investors have the ability to truly benefit from these plays,  since we have the time needed to make these ideas come to fruition. After all, someone at retirement age may not be around long enough to get all that’s possible out of, say, an investment in emerging Nigeria or growing fuel cell adoption.

Here are four of the best ETFs for young investors, which hone in on several long-term themes. Chuck them in a Roth IRA and watch the gains compound over the long haul.

iShares MSCI Frontier 100 ETF

Expense Rbest etfs ishares etfatio: 0.79%

It’s no secret that China is an emerging market powerhouse and has grown into one of the largest economies on the planet over the last few decades. That fact has produced some huge gains for those investors who took the plunge early on and bet on the nation. Just imagine how big your portfolio could have been if you were one of those first adopters.

Well, you don’t have to imagine. The next “Chinas” are out there and ETFs are an easy way to participate in their growth.

Wall Street calls these emerging markets that have not fully emerged “frontier markets.” They include such nations as Vietnam, Nigeria, Croatia and Oman. Typically, these frontier environments are characterized by very fast-growing economies, rich commodity wealth and booming population growth, all combined with very small or hardly-existent equity markets.

Which makes the iShares MSCI Frontier 100 ETF (FM) one of the best ETFs for young investors.

This iShares ETF tracks 104 different firms from various faraway lands, all while providing zero exposure to more traditional “emerging” markets. Think of FM as the complement to its sister iShares ETF, the popular iShares MSCI Emerging Markets (EEM).

The nations FM tracks are only now beginning their economic journeys, which makes the fund tailor-made for young investors with time on their side.

EGShares Emerging Markets Consumer ETF

best etfsExpense Ratio: 0.85%

But what about those emerging markets that have already gotten the attention of investors and have moved on to the next phase of their evolution? Luckily, younger investors have the time to profit from this as well.

The consumerism boom in America took decades to develop — starting in the 1950s to reach today’s mix of chain stores, luxury automobiles and Apple (AAPL) iPhones. And that boom is just starting in the emerging world.

Fueled by rising income levels, increased financial security and optimism over their economic futures, consumers in the emerging world are finally beginning to open their wallets in a big way. According to analysts at Roland Berger, an estimated 26 million people will join the ranks of the middle class — with annual incomes over $15,000 — every year through 2030. By the time 2025 rolls around, India’s middle class alone will be larger than the U.S. and Europe combined.

All of this could mean a bet on the EGShares Emerging Markets Consumer (ECON) is in order.

One of best ETFs for young investors, this fund tracks 30 of the leading emerging market companies in the consumer goods and consumer services industries. That provides investors with direct exposure to the companies in the home markets of these newfound consumers. That actually a good thing as most EM consumers have an affinity for those brands located in their own backyards.

Overall, ECON could be the best ETFs for younger investors to profit from the developing theme.

Vanguard Dividend Appreciation ETF

best etfs vanguard etfsExpense Ratio: 0.10%

As we’ve said before, longer timelines benefit younger investors when it comes to compound interest. But what if you could “juice” that benefit even further? Following a dividend growth strategy will do just that.

At its core, dividend growth strategies involve buying stocks that regularly boost their dividend payments, reinvesting those dividends into more shares and then holding them for the long haul. Following such a strategy can be immensely lucrative and provide plenty of portfolio growth especially for younger investors.

For example, let’s say you own a company that pays $1,000 in dividends every year and grows that payout by 8% each year. After 40 years, you’ll get a check for about $20,000 annually. That’s not too shabby. But if you reinvest those dividends each year that income stream grows leaps to roughly $58,500 each year.

Plus, the cheap Vanguard Dividend Appreciation ETF (VIG) makes implementing such a strategy easy.

This Vanguard ETF tracks a basket of companies with a record of growing their dividends year over year. The fund’s 146 different holdings include stalwarts like McDonald’s (MCD) and PepsiCo (PEP). While the fund’s current yield isn’t super high (roughly 2.2%), the idea is that over time it will increase based on rising payments from these firms.

Add in the low cost of Vanguard ETFs, and VIG is clearly one of the best ETFs for folks with decades-long timelines.

PowerShares Cleantech ETF

best etfs powershares etfsWhen most investors think about getting “green” with their portfolios, they often first turn to the solar and wind industries.

However, the concept of cleantech encompasses so much more than just solar panel producers. A widely diverse segment of the technology industry, cleantech is used to describe products or services that still manage to provide operational performance, while reducing various costs, inputs, energy consumption or waste. This wide net includes investments in everything from water and energy efficiency to recycling efforts and pollution control.

Given just how much pressure is being placed on the planet from our rapidly growing populations, the PowerShares Cleantech (PZD) could be one of the best ETFs for young investors.

This small and ignored PowerShares ETF tracks 60 different firms that focus on cleantech ideals. While that does cover some small-fry start-ups like Silver Spring Networks (SSNI), the bulk of the holdings are in big global multinationals like ABB Ltd. (ABB). That provides plenty of balance for the fund and could make less prone to the whims of market volatility.

Overall, the mixture of various “green” ideals — rather than just solar power — could make it one of the best ETFs and a prime play for younger investors.

As of this writing, Aaron Levitt was long FM and VDAIX, which is the mutual-fund version of VIG.

Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2013/10/best-etfs-young-investors/.

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