Motley Fool outlines three-ETF strategy for broad market diversification
The investment publication recommends a core S&P 500 holding supplemented by dividend and technology sector funds to balance growth and value exposure.
The Motley Fool has published a recommendation for a three-exchange-traded fund (ETF) portfolio designed to provide broad diversification, income, and growth exposure. The proposed allocation centres on the SPDR S&P 500 ETF Trust (SPY) or the Vanguard S&P 500 ETF (VOO) as a core holding, supplemented by the Schwab U.S. Dividend Equity ETF (SCHD) for value and income, and the State Street Technology Select Sector SPDR ETF (XLK) for technology sector growth.
The publication argues that holding at least 50 individual stocks is impractical for most investors, positioning ETFs as a simpler, instant diversification solution. The S&P 500 is described as a cap-weighted index encompassing over 80% of the total value of the US stock market. The article cites Standard & Poor’s data stating that approximately three-fourths of mutual funds underperform their benchmark index, and hedge funds perform even worse, making low-cost index funds a reliable strategy for long-term returns.
The Schwab U.S. Dividend Equity ETF (SCHD) is recommended to provide value exposure and income, offsetting the S&P 500's current overweight towards growth stocks. The ETF has a trailing yield of 3.3%. The article notes that while the S&P 500 theoretically provides balance, its reality is heavily skewed toward growth, creating a need for value exposure to mitigate potential headwinds when market cycles shift.
For technology sector growth, the State Street Technology Select Sector SPDR ETF (XLK) is included in the strategy. Historical performance data for XLK is cited, noting it has roughly tripled the gains of the S&P 500 over the past 20 years. The Invesco QQQ Trust (QQQ), which mirrors the Nasdaq-100 index, is noted as an alternative, though the article cautions that not all Nasdaq constituents are technology stocks.
The article includes a promotional segment for Motley Fool’s Stock Advisor service, claiming a total average return of 900% compared to 207% for the S&P 500. Specific examples of Netflix and Nvidia recommendations are provided to illustrate potential returns. The Motley Fool has a disclosure policy and holds positions in Vanguard S&P 500 ETF, while author James Brumley has no position in any of the stocks mentioned.
