Those looking to gift their loved ones something truly special have plenty of options to consider. Whether that’s a physical good to put under the tree (or five), some sort of experience such as a vacation, or an asset that may appreciate in value, we’re all different.
Most readers can fancy a guess that I tend to find myself in the latter group. For my kids, I focus on putting some capital away in their education accounts as their primary gift. The plan is to talk through the investing process with them when they’re old enough, and try to build up their sense of responsibility around money, and give them a solid understanding of personal finance and all the other psychological aspects that go into building wealth for them and their future families.
For those in such a grouping, deciding early on which investments should go into such funds is an important task. In this piece, I’m going to dive into three exchange traded funds (ETFs) I think provide folks who have truly long-term investing time horizons (such as two decades or so) I think are worth adding to such a portfolio.
Vanguard Total World Stock ETF (VT)
The world is a big place, and while your kids and grandkids may certainly be looking forward to some travel, the Vanguard Total World Stock ETF (VT) can allow them to benefit from global exposure earlier than they may feel comfortable climbing onto a plane.
This ETF tracks the entire global stock market, holding roughly 98% of all investable equities across the U.S., other developed nations, and a broad swath of emerging markets as well.
Thus, investors looking to truly benefit from strong global economic growth tailwinds can do so in one neat package. And importantly, this exposure can be had for an expense ratio of just 0.06% – a fee I’d argue is dirt cheap considering the breadth of exposure this ETF provides.
What I like most about investing in an ETF like VT is the “set it and forget it” ability this fund provides. This is the ETF I’d consider putting most of the long-term capital I’m stashing away for loved ones in, as it benefits from strong global growth in the largest companies and economies in the world (it’s market-cap weighted), but also can outperform other domestic portfolios in times when international equities are taking off.
SPDR Gold Shares (GLD)
In my personal portfolio, I hold a small amount of gold as a strategic portfolio hedge. For long-term portfolios, such as those designed for one’s kids or grandkids to benefit from when they’re older, I’d argue that such hedges could be even more valuable the more years (and cycles) one has to work through.
In this regard, the SPDR Gold Shares ETF (GLD) is a great option to consider. This spot commodity backed ETF is designed to track the price of gold very closely, and has done so successfully for a long time. While I view this ETF as a hedge, it’s also been true that GLD has been among the best-performing large-cap ETFs (at least ranked by assets under management) over the past year, as the price of gold has continued to skyrocket.
For those who think the structural and cyclical forces taking gold prices higher are likely to stay in place, GLD is a great option for the near and medium term. That said, I’m thinking longer-term with this holding, and view a smaller portfolio position as a market hedge as the way I’d go about viewing my exposure to GLD.
With inflation fears on the rise, other geopolitical and currency-based concerns peaking, and central banks looking to shore up their balance sheets, there are plenty of reasons why GLD could continue to rise over time.
Vanguard Total Bond Market ETF (BND)
Last, but certainly not least on this list of top long-term ETFs to consider gifting one’s loved ones, is the Vanguard Total Bond Market ETF (BND).
Along the same veins as the previous pick, what I like most about BND is the portfolio hedge and security this ETF provides. By providing investors with very broad exposure to investment-grade U.S. bonds, investors in such a fund are able to maintain exposure to a wide range of fixed income assets including Treasurys, agency securities, mortgage-backed securities, and other assets which provide yield.
Given where interest rates are right now, and the historically high yields investors can receive by putting their capital to work in a fund like BND, now could be one of the best times (at least over the past 15 years) to put capital to work in such a fund.
That’s perhaps more true if you share the view I do that interest rates are likely to decline from here. But even if interest rates do trend higher, I’d make the argument the portfolio diversification of owning such a fund could outweigh any sort of near-term losses (that is, until the Federal Reserve and other central banks cut to zero again).
With an effective duration around 5.8 years, and an effective maturity of over 8 years, I’d argue this fund is best suited for those with an investing time horizon longer than eight years. Those looking for defensive positioning for themselves or their loved ones at an expense ratio of just 0.03% (with a dividend yield around 3.8% right now) can’t go wrong owning this ETF in my view.