The best ETFs to buy now can change wildly based on current market conditions and your personal portfolio. But while there are no universal truths about ETF investing, I admittedly tend to talk about the same small group of exchange-traded funds as a good opportunity right now.
That’s because these five ETFs to buy now all fit together very nicely to form a good foundation for your portfolio — and individually, these five funds all offer a lot of upside potential regardless of your investment goals.
My methodology is simple: find the best ETFs to buy based not just on macro trends across 2015, but also regarding their diversification requirements and the lowest-possible fees.
So if you’re looking for how to invest now, here are five ETFs that cover just about everything you need to make the most of the stock market in 2015:
Best ETFs to Buy Now #1: SPDR S&P Biotech (ETF) (XBI)
The SPDR S&P Biotech (ETF) (NYSEARCA:XBI) is up about 21% year-to-date to trounce the major indices. Healthcare is the best sector for investors, hands down. There is built-in growth thanks to the demographic push of baby boomers who need more care as they age, and continued expansion of modern medicine into emerging markets.
There is also built-in stability since patients will cut back on just about any other spending before they forgo drugs or therapies that extend their lives and reduce their pain.
This SPDR biotech fund is uniquely positioned to benefit from these trends, since it focuses on smaller companies developing the next generation of treatments instead of big blue chips like other healthcare ETFs. It’s also cheaper and more diversified than its peers among biotech-focused ETFs.
Best ETFs to Buy No #2: Guggenheim S&P 500 Equal Weight Technology ETF (RYT)
The continued recovery in the U.S., both businesses and consumers should continue opening their wallets for high tech products in 2015 at a good clip. But sadly, many tech ETFs are weighted in just a handful of big-name stocks — I’m looking at you, Apple Inc. (NASDAQ:AAPL).
So for investors who want to play tech without piling into a few big names, the Guggenheim S&P 500 Equal Weight Technology ETF (NYSEARCA:RYT) is a great investment option. Only one stock — First Solar, Inc. (NASDAQ:FSLR) is worth more than 2% of the entire portfolio and only four other positions are allocated at more than 1.75%. It’s also spread across the tech sector nicely, with the largest subsectors shaking out to be IT services at 24%, semiconductors at 23% and software at 17%.
Best ETFs to Buy Now #3: Vanguard Dividend Appreciation ETF (VIG)
The Vanguard Dividend Appreciation ETF (NYSEARCA:VIG) doesn’t have the big yield like other dividend funds, but it does have a lot more stability thanks to a focus on “dividend achievers.” Stocks must show a strong track record of increased payouts over 10 years and meet strict liquidity requirements to join this fund’s list of holdings.
And since this is a typical Vanguard fund that is passively linked to an index, this strategy costs you just 0.1% in expenses, or a mere $10 per year on each $10,000 invested.
Other dividend ETFs cherry-pick the highest yield stocks, but VIG holds a diversified list of 163 companies with only about 35% allocated in its top 10 positions. Its 2.1% yield doesn’t burn the house down, sure, but it’s moderately higher than the 1.8% yield of the S&P 500 index and is in line with the 10-year Treasury yield right now.
Best ETFs to Buy Now #4: Vanguard Total International Stock ETF (VXUS)
As the name and ticker imply, the Vanguard Total International Stock ETF (NASDAQ:VXUS) is an ETF that focuses on global investments outside of America.
An international fund is a crucial part of any portfolio because in this globalized economy an investor can’t afford to only be focused on U.S. companies. Consider that VXUS is up 2.6% since Jan. 1 while the S&P 500 index is flat in the same period, even amid all the kerfuffle about a “grexit.”
As the U.S. dollar remains strong and U.S. stocks continue to bump against valuation ceilings, it would behoove all investors to consider a little exposure to overseas opportunities. VXUS allows you to do this cleanly by keeping its portfolio ex-U.S. and avoiding duplication of large-cap stocks from other funds you may own.
This Vanguard ETF also mixes conservative and more aggressive global investing. There is a 19% allocation to emerging markets, giving it enough exposure to tap into places such as India but without the risk of a dedicated country fund.
And like all Vanguard funds, the costs are dirt cheap with an expense ratio of just 0.14%, or $14 per year on every $10,000 you invest.
Best ETFs to Buy Now #5: iShares U.S. Preferred Stock ETF (PFF)
If you want income investments to give off good yield without high risk, the iShares U.S. Preferred Stock ETF (NYSEARCA:PFF) is a powerful option. It trounces other preferred stock funds in terms of assets under management, and, as a result has the scale to offer smaller management fees. The fund charges a competitive 0.47% in expenses, or $47 annually on $10,000 invested.
Preferred stock is a kind of hybrid security between a stock and a bond, which doesn’t move as much in share price but offers a bigger yield. You’ll find most of the components of PFF in finance, with about a third of this fund’s assets in banks and another 16% or so in diversified financial services.
Still, despite this sector weighting — which is actually common among preferred stock funds, because the capital structure of financial-related businesses is more accommodating to preferred stocks than other sectors — individual positions are evenly spread out; only three positions have a weighting of more than 1.5% of the portfolio.
It all adds up to a juicy yield of 5.6%, making PFF a good income-generating ETF for many investors.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.