With market pullbacks driven by factors like geopolitical tensions, central bank policies, and fluctuating jobless claims, many investors are left wondering where to allocate their funds. While the allure of stock picking, especially in trending areas like AI, Chinese stocks, or energy, can be strong, it doesn’t suit every investor, particularly those looking for a more conservative, income-focused approach.
Investing in high-quality ETFs with an income component can offer a practical and reliable solution for long-term stability without constant portfolio monitoring. Even Warren Buffett, a staunch S&P 500 index fund advocate, suggests that ETFs are the best bet for most people. As he put it, "In my view, for most people, the best thing to do is own the S&P 500 index fund."
With that in mind, let's explore three that offer the long-term growth and income potential conservative investors seek. Each provides broad market exposure with the added income benefit, making them solid choices for a buy-and-hold strategy.
The Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (NYSE: VOO) is one of the most popular and reliable options for U.S. investors seeking stable, long-term returns. It's a perfect fit for those who prefer a "set it and forget it" strategy, as the fund tracks the performance of the S&P 500 Index, widely considered a vital benchmark of the U.S. stock market.
The ETF’s top holdings are led by the Magnificent Seven, which includes heavyweights like Apple, NVIDIA, Microsoft, and Amazon, providing exposure to some of the most influential companies in the market.
With a substantial $524 billion in assets under management (AUM), VOO offers a modest dividend yield of 1.14% and boasts a very low expense ratio of just 0.03%, making it one of the most cost-effective ETFs available. Ratings covering nearly 60% of its portfolio give the ETF a Moderate Buy rating, with a consensus price target suggesting a potential upside of around 10%.
VOO has delivered strong returns, up nearly 19.5% year-to-date and 32% over the past year, reflecting its ability to weather market fluctuations. The fund also provides diversified exposure across critical sectors, with 31.5% in technology, 13.2% in financials, and 12% in health care, offering a balanced approach for long-term investors looking for growth and stability.
The Energy Select Sector SPDR Fund
The Energy Select Sector SPDR Fund (NYSE: XLE) has gained notable traction recently, driven by escalating tensions in the Middle East, which threaten global oil production.
This ETF offers a strong income component and has broken out of a prolonged pullback, showing signs of continued upward momentum. This could be a timely opportunity for long-term investors to gain exposure to the energy sector.
XLE aims to track the performance of the Energy Select Sector Index, which includes companies from industries such as oil, gas, consumable fuels, and energy equipment and services. With a robust dividend yield of 3.44%, a low expense ratio of 0.09%, and over $37 billion in assets under management (AUM), XLE provides a cost-effective way to invest in energy.
The fund consists of 25 major energy companies, including household names like Exxon Mobil, Marathon Petroleum, and Chevron. Analyst ratings covering nearly the entire portfolio suggest a Moderate Buy rating, with a consensus price target forecasting a potential 13% upside. This makes XLE a compelling choice for those seeking long-term growth alongside income.
The Invesco High Yield Equity Dividend Achievers
The Invesco High Yield Equity Dividend Achievers ETF (NASDAQ: PEY) is a solid choice for investors seeking a high-yield, income-focused ETF. It tracks the Mergent Dividend Achiever 50 Index, including 50 stocks chosen for their strong dividend yield and consistent growth.
The fund allocates at least 90% of its assets to dividend-paying stocks from various sectors, including consumer discretionary, staples, energy, financials, healthcare, and information technology.
Though PEY has posted modest year-to-date gains of 1.56%, it has risen over 10% in the last three months, signaling a significant shift in momentum. It is approaching a critical resistance level near $22, which could signal a breakout, especially if the Federal Reserve continues cutting interest rates. With lower rates, high-yield stocks like those in PEY may become more attractive, potentially driving further gains.
The ETF offers a substantial 4.7% dividend yield and a reasonable expense ratio of 0.52%. Analysts covering 96% of the portfolio predict a 7.28% upside, making PEY an appealing option for income-seeking investors. High yield and potential capital appreciation could provide strong compounded returns over the long term.
