Top 9 Best Robinhood Index Funds (ETFs)
So by far one of the most popular commission free trading apps available today is called Robinhood. One of the most popular forms of investing is purchasing something called an etf so in this video today we’re going to cover what are the best Robinhood index funds or exchange traded funds available today that you may decide to invest in.
What is an ETF?
Rather than investing in individual stocks or companies an index fund or an ETF owns numerous different companies within one fund so when you purchase an etf you own a small piece of every single company held within that fund. Now there’s a lot of different etf’s to choose from in fact on Robinhood alone there are around 500 different ones. We’re going to break it down into a couple of categories and share what some of the best options are that you may want to consider and lastly if you don’t have a Robinhood account yet and you’re interested in opening one if you use our link here you will get a free stock when you sign up. Now before we get into what are the best ETF’s or index funds on Robinhood let’s first talk about what types of ETF’s are available to investors because you may not even know what is currently available to you. First of all there are sector-specific ETF’s which allow you to invest in one particular area of the economy, for example you could find a semiconductor specific ETF that solely invests in companies in the semiconductor industry then there are dividend ETFs which put a priority on companies that pay high dividend yields so for people looking for income from their investments dividend ETFs may be a good fit for you. Then there are bond ETFs as well as REIT ETFs which are going to own assets outside of just equities, and lastly there are some investment style ETFs out there that follow a specific style of investing, for example a value type investing ETF. So you need to be aware of the different categories of ETFs available when doing your search because you might find something that specifically fits the need you are looking for. For example earlier this year I personally decided to invest in the Jets ETF which is a sector-specific ETF which owns a small piece of all the major airlines both here in the United States and globally.
Now since there are literally hundreds of different sector-specific ETFs and investment style ETFs we’re not going to cover them here but just understand they are available and if you’re looking for something specific it may already exist. So instead we’re going to focus on three categories here:
1. Broad market ETFs or index funds
2. Dividend ETFs
3. Bond ETFs
Before we get started we have to give you our legal disclaimer: We are not providing financial advice nor are we a financial advisor and you should always do your own due diligence before making any investment decisions such as purchasing an index fund or ETF.
1. Broad Market ETFs or Index Funds
Let’s talk about Broad Market ETFs and before we get into my picks here i want to give you guys a couple of pointers, first of all when looking at these funds there are two things you want to pay attention to and consider in particular. Number one, the first thing is the expense ratio or how much money you are paying in fees and second of all you want to look at what the underlying index is, also known as what is that fund tracking, is it U.S. companies, global companies, or something different entirely. So that being said here are my top picks for broad market ETFs on Robinhood.
1. VOO (Vanguard S&P 500 ETF)
So the first index fund we’re going to talk about is coincidentally the most popular Index Fund or ETF available on Robinhood and that is VOO (Vanguard S&P 500 ETF). As you can see in the video over 126, 000 people on Robinhood have VOO within their investment portfolio. If we jump over to the vanguard page here we can get a bit more information about this ETF essentially VOO replicates as closely as possible the S&P 500 index which is the 500 largest publicly traded companies in the United States. Now as far as this ETF goes there is more growth potential because you are 100% invested in stocks, however share value is going to go up and down more sharply than more conservative investments like bonds. So according to this site here it is more appropriate for long-term goals where your money’s growth is essential, but understand in the short term this could go up and down and experience some price movements that somebody who’s more conservative may not be looking for as far as the expense ratio goes it comes in at 0.03 percent which is extremely low, something Vanguard is well known for. Lastly this fund is a dividend payer with a current yield of around 1.81%, so if you invest your money in this fund you will earn a quarterly dividend which you have the option to reinvest back into the issuing stock or fund in order to earn compound interest.
2. VTI (Vanguard Total Stock Market)
The next ETF I want to discuss is the fourth most popular ETF on Robinhood and that is VTI (Vanguard Total Stock Market) and as you can see here over 65,000 people have VTI within their investment portfolios on Robinhood now the biggest difference between VOO and VTI is that VOO invests your money in the 500 largest publicly traded companies while on the other hand VTI invests your money in all publicly traded U.S companies. What this does for you is it gives you a mix of both large cap, mid cap, and small cap exposure. If you guys aren’t familiar with what that means, essentially you own large companies, medium-sized companies, and smaller ones. Therefore, you’re not just invested in the largest 500 you also own the smaller companies that are not part of the S&P 500. Again this is another vanguard ETF so it has a very reasonable expense ratio of 0.03% and it is a dividend payer with a yield of 1.78%, meaning you will earn dividends from this fund which of course as mentioned previously, you can reinvest if you choose to. Overall there’s really not much of a difference between VTI and VOO other than the fact that you’re investing in a larger pool of companies.
VT (Vanguard Total World Stock Market )
The third broad market ETF I want to talk about is VT (Vanguard Total World Stock Market ) it’s certainly not the most popular one on Robinhood as you can see there are about 7,600 people have this fund within their portfolio the biggest difference between VT and the other two ETF’s we have discussed so far is that VOO and VTI only invest in U.S. companies whereas VT the Vanguard Total World Stock ETF is going to invest your money globally not just in the United States. As you can see VT tracks a market cap weighted index of global stocks covering 98% of the domestic and emerging market capitalization. So rather than just investing in your own home country stocks or if you’re not from the U.S. and you’re just investing in U.S. markets you are now investing in global markets as well, including emerging markets where there may be more growth opportunity. VT does have a slightly higher expense ratio at 0.08% versus 0.03% so that is something you should consider when making a decision about this ETF. Also the dividend yield is a little bit higher here at 2.08 percent which is something you may want to consider as well, but essentially the idea behind investing in a fund like VT is rather than investing in just the U.S. stock market you are diversified globally. So if you had concerns about the U.S. stock market or you thought there were better growth opportunities in global markets this fund gives you the best of both worlds.
The last broad market ETF I want to talk about is being offered by Powershares and that is QQQ and it’s quite popular with about 43,000 people having this as part of their investment portfolio. now this Powershares QQQ ETF tracks a modified market cap weighted index of 100 Nasdaq listed stocks. Now if you’re not familiar with that, you have two major stock exchanges which are the New York Stock Exchange and Nasdaq and most tech companies are listed on the Nasdaq. So essentially QQQ gives you diversified exposure to 100 Nasdaq listed stocks most of which are in the tech industry. Now one thing you should know about this fund as well, is it does not own any companies in the financial industry, so there are no bank stocks or anything like that within this fund. So based on the companies held within this fund 63% of them are tech related, so if you’re somebody who is bullish about tech companies like Facebook and Amazon and things like that, but you don’t necessarily know which ones you want to choose, or if you’re looking for diversified exposure this is a great ETF to consider. Obviously, this has been a big year for tech companies, as you can see over the last year this fund is up about 38% because of the massive rally with tech, the dividend yield is a little bit lower here at 0.61% now lastly the expense ratio is 0.2%, which when we compare that to the vanguard ETFs at 0.03 percent it is significantly more expensive. However it still falls within the average of what most companies charge as an expense ratio for their ETFs.
2. Dividend ETFs
There are three things that you want to keep in mind here with Dividend ETFs.
- The expense ratio, how much you’re paying in fees
- The asset mix to see how well diversified you are
- The dividend yield
So that being said let’s take a look at some Dividend ETFs now….
1.The first dividend ETF I want to talk about is also the third most popular ETF on Robinhood with over 86,000 people holding this ETF within their portfolio. This is none other than SPHD (Powershares S&P 500 High Dividend Low Volatility) ETF and the name is basically self-explanatory. I like this ETF in particular because it’s a great beginner friendly investment. Based on the fact that it is lower volatility companies which essentially means there is less up and down price movement than you might see with a riskier company. For example like a growth stage company these are more well-established financially stable companies that experience less price fluctuation with their share price now, essentially this ETF looks at a short list of the 75 highest dividend yielding stocks on the S&P 500, then from that list of 75 they pick the 50 least volatile companies and they add them to this fund. So essentially you are investing in the Top 10 of the S&P 500 in terms of high dividend yield and low volatility. now the expense ratio for this fund is a little bit higher at 0.3 percent, so it’s roughly 10 times higher than the expense ratio for some of those Vanguard ETF’s, however if you’re looking for a high dividend yield this may be a fund that you want to consider and currently it pays a dividend yield of around 5.48 percent.
VYM (Vanguard High Dividend Yield)
2. Next up we have VYM (Vanguard High Dividend Yield) which is another Vanguard ETF which is quite popular on Robinhood as well. Being in the Top 10 with over 45,000 people currently owning this fund as part of their portfolio for those who are looking to pay less in fees this is a great option because Vanguard Index Funds are almost always the most inexpensive option when looking for broad market exposure. The expense ratio for this fund is just 0.12 percent versus 0.3 percent for the SPHD fund we discussed first, now this fund does own a lot more companies coming in at 393 High Yielding Dividend stocks excluding REITS versus the other fund that owns just 50. So you are more diversified with this fund, but since you own a much larger pool of companies the dividend yield is lower and that yield comes in at 3.63 percent. So if you want to be more diversified across more stocks and you also want to pay less in fees this may be an option to consider.
VNQ (Vanguard Real Estate)
3.The last high dividend EFT I want to talk about is another Vanguard fund which is VNQ (Vanguard Real Estate) it’s still pretty popular on Robinhood with about 22,000 people having this as part of their portfolio. Now this here is a very different investment than anything we have discussed so far because everything up until this point has been related to owning stocks, all of those previous EFT own stocks. However, the vanguard VNQ fund actually owns real estate not stocks which is a great area to earn income from your investments in the form of dividends. So this fund owns a portfolio of different REITS or real estate investment trusts which is essentially real estate that is actually owned by companies. It trades just like a stock on the major exchanges, now one of the benefits to investing in real estate is that there is generally less overall correlation to the overall stock market and you are diversified into different asset classes. In order to be classified as a REIT 90 percent or more of the taxable earnings from the company must be distributed to the shareholders in the form of dividends. So oftentimes the yields on these REITS and REIT funds are quite appealing. So the current dividend yield for this fund is 3.95 percent and the expense ratio is 0.12. So it’s right in line with what Vanguard generally charges, very reasonable with fees so if you want to invest and diversify outside of the stock market with relative ease this is a great option to consider.
3. Bond ETFs
Lastly we’re going to cover some Bond ETFs which are pretty boring investments, but they work well for your basic stock and bond allocation type portfolios. Now there’s a few things to look at when purchasing a Bond ETF, first of all what type of bonds do you own? Is it municipal corporate bonds or treasuries? Second of all what is the expense ratio associated with that investment? And third of all is it just the U.S. market or is it global market in terms of where you are purchasing these bonds? With that being said let’s get into those picks right now…
BND (Vanguard Total Bond Market) and VTEB (Vanguard Tax-Exempt Bond)
- The first Bond ETF on our list here is BND (Vanguard Total Bond Market) and it is also the most popular Bond Fund on Robinhood with around 11,800 people holding this within their investment portfolios. Now, generally speaking bonds tend to be more boring investments but depending on where you are at in your life. You may want to have some bonds in your portfolio so for example as you can see here over the last three months there’s been a return here of just about two percent with this fund. But if we take a look at the last five years during that most recent stock market crash these bonds held up substantially better during that market correction. So that is why people tend to own bonds, they are less volatile and more certain and you’re exposing yourself to less potential downside during the event of a stock market crash or correction. Now BND essentially gives you exposure to the entire U.S. bond market with 60 percent of the fund invested in U.S. treasuries, the rest of the money is invested in corporate bonds. It’s a very boring investment but it’s a great option if you’re looking for a basic stock and bond portfolio and since it is Vanguard it comes in with an expense ratio of just 0.035 percent. Now many of these bonds have interest payments which are passed along to shareholders in the form of dividends and the dividend yield of this EFT is 2.44.
- The last bond EFT I want to discuss here is VTEB (Vanguard Tax-Exempt Bond) which is an ETF based on the fact that this is a very unique investment that a lot of people are unaware of. The reason is because this fund holds local and state municipal bonds which are tax exempt on a federal level as well as in some states. Now this is essentially some tax code that was written to encourage people to invest their money back into their local governments and states, and this is only based on the current tax laws, but if you’re looking to lower the taxable income paid on your investments VTEB may be a fund that you want to consider. However I will say this, it is a very boring and conservative investment and over the last five years it has had a return of around 9.29 percent. You do earn a dividend yield but for a young person this is most likely way too conservative and one thing to mention here it’s only the interest income that is going to be generally tax exempt which is what you are earning in dividends. If you buy this fund for a certain price and sell it for a higher price down the road you do pay taxes on that, so it’s only the interest income which is tax-free on a federal level and within some states.
There you have it those are some of the best ETFs or index funds currently available on the Robinhood investing app.
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