Many stocks — and funds that invest in them — have continued to struggle in the third quarter of 2022. Soaring inflation, rising interest rates and mounting recession fears have taken an undeniable toll on the markets.
As a result, the S&P 500 and the Nasdaq Composite are down 11% and 18% year to date (YTD), respectively. The drop in the market has made investors nervous.
Yet, industry veterans, such as Warren Buffett, still recommend including index funds in portfolios. Leading asset management powerhouse Vanguard reminds us that most index funds are low-cost, enabling investors to keep more of their returns.
As index funds trade less frequently, their investors have less capital gains liability. Finally, it is possible to put together a diversified portfolio with a few funds only.
This dip in the market, like all dips, is temporary. But, more importantly, it provides the perfect opportunity to invest in index funds for the future. With that information, here are four index funds to buy and hold forever:
|ONEQ||Fidelity Nasdaq Composite Index ETF||$50.28|
|RYF||Invesco S&P 500 Equal Weight Financials ETF||$58.93|
|DIA||SPDR Dow Jones Industrial Average ETF Trust||$334.64|
|XSD||SPDR S&P Semiconductor ETF||$185.72|
Index Funds to Buy and Hold: Fidelity Nasdaq Composite Index ETF (ONEQ)
52-Week Range: $41.42-$63.11
Dividend Yield: 0.73%
Expense Ratio: 0.21% per year, or $21 on an initial $10,000 investment
The Fidelity Nasdaq Composite Index ETF (NASDAQ:ONEQ) tracks the returns of the tech-heavy Nasdaq Composite. The fund’s underlying index includes all domestic and international companies listed on the Nasdaq.
ONEQ was launched in September 2003. The fund is a growth play, implying elevated P/E and P/B ratios and smaller dividend payouts.
The ETF currently holds more than 1,000 stocks. In terms of sub-sectors, we see information technology leading at 44.73%, followed by consumer discretionary (16.36%), communication services (14.02%), and healthcare (8.22%).
The top 10 stocks account for more than half of its net assets of $4.1 billion. The leading holdings on the roster include Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Tesla (NASDAQ:TSLA) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
Risk-tolerant investors whose portfolios can cope with short-term volatility could consider a growth-focused fund like ONEQ. So far in 2022, ONEQ has declined by almost 17%. Price-earnings (P/E) and price-book (P/B) ratios currently stand at 23.3x and 5.2x.
Invesco S&P 500 Equal Weight Financials ETF (RYF)
52-Week Range: $51.40-$68.49
Dividend Yield: 1.97%
Expense Ratio: 0.4% per year
The Invesco S&P 500® Equal Weight Financials ETF (NYSEARCA:RYF) is an equally weighted fund that focuses on a broad range of U.S. financial shares. The ETF was first listed in November 2006 and currently boasts $450 million under management.
The fund’s equal-weighting scheme increases the impact of smaller firms in the portfolio at the expense of dominant players in the sector. Yet, an equal-weight fund could especially be appealing during earnings announcements. Moves in the share price of a single company cannot affect the index much.
RYF has 67 holdings and tracks the returns of the S&P 500 Equal Weight Financials Index. Capital markets stocks have the highest weighting with 33.64%. The fund also includes stocks from insurance (32%), banks (27%), and consumer finance (6%).
The top 10 names account for roughly 18% of the portfolio. Among them are the global technology company Nasdaq (NASDAQ:NDAQ), financial services provider MSCI (NYSE:MSCI), insurance play Arthur J. Gallagher (NYSE:AJG), global financial data and analytics group FactSet Research Systems (NYSE:FDS) and Goldman Sachs (NYSE:GS).
RYF saw an all-time high in January but has lost 9% so far in 2022. Trailing P/E and P/B ratios currently stand at 10.81x and 1.65x.
Index Funds to Buy and Hold: SPDR Dow Jones Industrial Average ETF Trust (DIA)
52-week range: $296.39-$369.50
Dividend Yield: 1.87%
Expense Ratio: 0.16% per year
The SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA:DIA) tracks the returns of the Dow Jones Industrial Average, which includes the leading 30 blue-chip U.S. companies. The DIA ETF is one of the most widely followed funds.
DIA is a highly liquid fund with huge assets. As the Dow Jones is price-weighted, higher-priced shares have a more significant impact on the value of the fund. Put another way, the weighting of the 30 companies may shift as their share prices change. Thus, there could be significant sector biases relative to the market.
The ETF started trading in January 1998, and net assets stand at $28.7 billion. Its top 10 holdings currently account for roughly 55% of the portfolio. They include UnitedHealth (NYSE:UNH), Goldman Sachs, Home Depot (NYSE:HD), Microsoft, McDonald’s (NYSE:MCD) and Amgen (NASDAQ:AMGN).
After hitting a 52-week high in the first week of January, the companies in DIA have come under pressure. So far in 2022, DIA is down almost 8%. The fund has a P/E ratio of 17.1x and a P/B ratio of 3.7x. The decline in price so far in 2022 provides a good buying opportunity in DIA.
SPDR S&P Semiconductors (XSD)
52-week range: $141.26-$250.82
Dividend yield: 0.36%
Expense ratio: 0.35% per year
The SPDR S&P Semiconductor ETF (NYSEARCA:XSD) is another equal-weighted fund that offers exposure to 39 semiconductor stocks stateside. This equal-weighting focus tilts the fund’s portfolio away from prominent semiconductor names toward smaller growth plays.
XSD was launched in January 2006. The top 10 stocks account for almost a third of its almost $1.2 billion in net assets.
These names include Impinj (NASDAQ:PI), First Solar (NASDAQ:FSLR), SunPower (NASDAQ:SPWR), Lattice Semiconductor (NASDAQ:LSCC), Monolithic Power Systems (NASDAQ:MPWR), and Texas Instruments (NASDAQ:TXN).
XSD saw an all-time high in early January. However, chip stocks in the fund have come under pressure so far in the year. The fund is currently down almost 25% year to date. Trailing P/E and P/B ratios are currently at 16.9x and 3.7x.
On the date of publication, Tezcan Gecgil, Ph.D., did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.