A lot of people tend to overcomplicate investing. They often try to chase large-scale gains by investing in small or micro-cap stocks. Or, they might pursue risky strategies like trading options or short-selling. Inevitably, the same thing happens, and they lose their shirts.
In reality, we want to invest the bulk of our money in blue-chip companies that will provide us with stable earnings for years. It might not seem like it, but these boring, mature stocks can generate wealth.
However, investing in individual stocks is tough, even at the blue-chip level. For that reason, many investors look to build a portfolio of blue-chip ETFs. These funds have low expenses, can be held for the long term, and allow an investor, for the most part, to set and forget their assets and watch them grow.
Trying to beat the market is risky, even with a portfolio filled with solid blue-chip stocks. Thousands of professionals try -- and fail -- each year to beat the market, weighed down by short-term thinking and hefty fees, which combine to drag down returns. What chance do amateurs have if professional investors can't beat the market?
Investors don't need to beat the market to achieve their financial goals. A portfolio that largely matches an index over the long term is a much better result than what most retail investors will deliver; people who unintentionally sabotage their long-term performance by selling at the wrong time, buying into bubbly hype, or following a can't miss stock tip from one of their friends who knows a guy.
Sure, you can dabble in a few high growth options, like say top AI ETFs or possibly even tech ETFs. However, blue-chip ETFs are likely to provide strong returns with lower volatility. Nothing is ever guaranteed, of course, but the probabilities are certainly higher.
Here are seven blue-chip ETFs, which are simple to buy, offer instant diversification across many different blue-chip stocks, and have the bonus of tiny management fees.
But before we take a closer look, we should note everything below is for informational purposes only. It is not investment advice. Even a blue chip ETF can be risky, and you could incur a possible loss.
What are the best blue chip ETFs to buy today?
- Vanguard S&P 500 Index Fund ETF (VOO)
- Invesco QQQ Trust (QQQ)
- SPDR Dow Jones Industrial AverageETF (DIA)
- Vanguard Total World Stock ETF (VT)
- Schwab U.S. Dividend Equity ETF (SCHD)
- Principal Focused Blue ChipETF (BCHP)
- Fidelity Blue Chip Growth ETF (FBCG)
Vanguard S&P 500 Index Fund ETF (VOO)
Let's start with one of the biggest and most liquid ETFs in the entire market today, the Vanguard S&P 500 Index Fund. VOO is one of the largest ETFs in the world when measured by assets under management, worth approximately $335B.
This ETF has several advantages for investors looking for a blue-chip ETF. It tracks the top 500 stocks trading on major U.S. stock exchanges. These are the largest, highest quality, and most recognizable stocks in North America and the world.
Top names held by this ETF include Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), NVIDIA (NVDA), and Alphabet (GOOG, GOOGL). Most of the remaining top 10 holdings are also invested in tech companies, with the ETF having a 28% weighting in technology stocks.
This exposure to technology has been a good thing, helping this blue-chip ETF achieve excellent returns. Since the ETF's inception in September 2010, until press time, it has returned 13.71% annually, or a cumulative return of some 430%.
Past performance is no guarantee of future results, of course. Still, many analysts and market pundits are bullish on technology stocks. And even if technology stocks don't perform as well in the future, this ETF is diversified enough that other sectors can outperform and drive returns.
Because Vanguard is a non-profit ETF asset management company, VOO has one of the lowest fees of any ETF. The management expense ratio (MER) is a mere 0.03%, meaning it'll cost an investor just $3 in fees per $1,000 invested.
In addition, some investors can trade in and out of this ETF for free, as many brokers have waived brokerage commissions on ETFs.
This ETF also pays out a reasonable dividend. The current yield is approximately 1.5%, and distributions are paid to investors every December.
Invesco QQQ Trust (QQQ)
The Invesco QQQ ETF has become one of the most popular ways investors invest in a basket of blue-chip technology stocks. There are plenty of NASDAQ ETFs out there, but this one is one of the more popular options.
It tracks the NASDAQ 100 Index, the benchmark index for technology companies in the United States. No other index offers such a diverse offering of top tech stocks, so the QQQ is commonly used by investors worldwide to get exposure to the top technology stocks. Many institutional investors use this ETF for trading purposes to make quick bets on the technology market.
The top holdings of the QQQ ETF are quite similar to an S&P 500 ETF, with Apple, Microsoft, Amazon, and NVIDIA taking up the top four spots in both ETFs. But an S&P 500 ETF only has a 28% technology weighting. The QQQ has over half its portfolio dedicated to technology companies, with a 57% weighting towards tech.
The weightings are a little bit misleading, too. Nearly 19% of assets are invested in the consumer discretionary sector. Still, a look under the hood sees the top investments in that category are Amazon, Tesla, Costco, and Netflix. Except for Costco, those stocks sure look like tech stocks to me.
This ETF has also delivered stellar returns over the long term. A $10,000 investment has grown to over $56,000 over the last decade, ending June 30, 2023. That translates into a CAGR of more than 18%. No wonder so many investors are fans of this blue-chip ETF.
Fees are reasonable, too, with an MER of just 0.2%.
However, investors should note that with great returns often comes greater risk. Technology stocks are volatile and will turn negative when investor uncertainties dominate popular thought. 2022, for instance, was a poor year for many technology stocks.
SPDR Dow Jones Industrial Average ETF (DIA)
Investors looking for an ETF without much tech exposure can look to an ETF that tracks an index many view as old, stale, and outdated -- the Dow Jones Industrial Average.
The Dow Jones Industrial Average is filled with different kinds of stocks than the S&P 500 or NASDAQ 100. It has a more old-school feel, with top holdings such as UnitedHealth Group (UNH), Goldman Sachs (GS), and Microsoft.
This ETF tracks the 30 companies that comprise the Dow Jones Industrial Average. Unlike most other indexes, the Dow Jones is price-weighted, not market-cap-weighted. So, there are reasons why it's an imperfect index.
But the Dow Jones Industrial Average ETF is filled with blue chip stocks, just in a little different form than investors are used to. It gives outsized exposure to sectors like healthcare, financial services, and industrials. In short, it's a much different ETF than the first two profiled on this list.
With more than $29B worth of assets under management, this ETF has some serious clout. Many investors consider it a way to diversify away from tech-heavy holdings in other ETFs. They're also not giving up much in current performance to do so -- the DIA ETF has grown its net asset value (NAV) by more than 11% annually over the last decade. This ETF also pays more of a dividend than the others featured. The current yield is right around 2%.
The MER is also pretty reasonable, coming in at 0.16%.
Vanguard Total World Stock ETF (VT)
One problem with blue chip investors putting all their eggs into an American basket is such a strategy will automatically make them underweight other economies.
Although the United States has the world's most robust economy, there have been long periods where investing in the U.S. hasn't worked. For instance, an investment in the S&P 500 on January 1, 2000, would still have been underwater on December 31, 2011. That even includes reinvested dividends. That's a long time, although folks who dollar cost averaged into such an investment did much better.
Remember, the U.S. doesn't have a monopoly on blue chip stocks. Nations like Canada, Japan, South Korea, and Australia are also home to great companies, never mind the dozens of excellent equities that trade on the various European exchanges.
Perhaps the easiest (and most cost-effective) way to get exposure to a diverse portfolio of worldwide blue chip stocks is the Vanguard Total World Stock ETF, which holds positions in an eye-popping 9,572 different stocks. And it only charges a minuscule 0.07% MER for this diversification.
I'm the first to admit there aren't 9,500+ blue chip stocks worldwide. But this ETF is market cap weighted, meaning its largest positions will be the world's largest companies. Investors will get exposure to names like Apple, Microsoft, or Berkshire Hathaway but also will have smaller positions in more unknown names like Johnson & Johnson (JNJ), BHP Group (BHP) and Sanofi (SAN).
It's also an excellent way to hedge a little in case U.S. equities don't continue the outperformance they've delivered over the last decade.
Schwab U.S. Dividend Equity ETF (SCHD)
A large group of investors have a slightly different investment strategy. Instead of prioritizing the greatest increase in the principal value of their investment, these people prefer to maximize investment income. This strategy is especially popular among retirees.
Generally, these folks invest in stocks with similar characteristics. They're looking for blue-chip stocks with a history of paying consistent dividends and increasing them over time. This strategy has not only delivered the dividend income these folks are looking for but has also delivered solid total returns.
One of the most popular blue chip dividend growth ETFs on the stock market today is the Schwab U.S. Dividend Equity ETF, which aims to invest in equities that are high quality and with sustainable dividends.
Top holdings include healthcare stocks Amgen (AMGN), Abbvie (ABBV), and Merck (MRK), with the rest of the top five rounded out by Pepsico (PEP) and Chevron (CVX).
SCHD has delivered solid returns over the last decade, with 10-year trailing returns of more than 11% per year as of press time. It has also outperformed many of its peers during that period. It typically pays a dividend in the 3.5% range and has grown its overall payout by more than 100% since its 2013 inception. Dividends are paid to investors quarterly.
Finally, this ETF offers one more quality that makes it a solid recommendation for those looking for a blue chip income producer -- it has a mere 0.06% MER.
Principal Focused Blue Chip ETF (BCHP)
The Principal Focused Blue Chip ETF differs slightly from the other ETFs on this list. According to its prospectus, this ETF focuses on blue-chip stocks run by leaders with a large ownership stake in the company. Owner-operators tend to be passionate, cost-conscious, have longer-term outlooks, and have better capital allocation skills. After all, it's their money at stake.
This translates into better investment returns, or at least that's the theory of the fund's manager, Principal Financial Group. Time will tell how this fund performs -- it has only traded for a few months -- but the principles behind it are sound.
Most of the richest people in the world achieved their wealth by taking an owner-operator approach, and there is evidence that these stocks tend to outperform their peers.
However, this ETF has some additional risks that investors should know. Its top holdings are concentrated, with approximately 45% of assets invested in its top five holdings. It also has a highly active trading basket that complements the passive core equity holdings. This strategy could mean shares of the ETF would be more volatile than blue-chip ETFs.
It also has a relatively high MER of 0.58%.
Still, it's an interesting strategy, and Principal Global Investors' other investment products are similarly unique. Investors looking for something a little different should take a closer look.
Fidelity Blue Chip Growth ETF (FBCG)
The Fidelity Blue Chip Growth ETF is the smallest ETF on this list, with assets of just over $800M as I write this. This translates into a lack of liquidity for the ETF's shares on the market, which has led to other similar ETFs trading at either a premium or discount to their (NAV), depending on what kind of mood investors are in.
Approximately 200,000 shares of this ETF trade daily, meaning it should have ample liquidity for retail investors. Professional traders might be more interested in another blue chip ETF.
This ETF's methodology is to make equity investments in blue-chip companies poised to deliver higher-than-average expected growth. It has 173 holdings as of July 31, 2023, although it is relatively concentrated, with the top 10 holdings making up some 57% of assets.
The good news is the top holdings are true blue chips, companies like Apple, Microsoft, Alphabet, and Meta (FB), among other well-established technology names.
The performance data on this ETF doesn't go back very far since it has only existed for about three years. Still, it has performed well, with a $10,000 initial investment worth about $14,500 as I write this. That means this ETF's shares have returned approximately 14% per year since inception, an excellent result.
One thing against this ETF is its relatively large expense ratio. It is the most expensive of all the ETFs on this list, with its annual MER of 0.59%. While that is high, results have still been excellent despite investors paying the elevated fees.
A 14% annual return target going forward is likely unrealistic. Still, with such a large exposure to technology, this fund could continue to outperform if that sector remains hot.
