Young Investing in 7 Best ETFs to Buy for Young People

Dear Happy Investor, are you young and interested in investing? Forward-looking ETFs are a great start to seriously growing your wealth over the long term. But what are the best ETFs for when you’re young? In this article, we’re going to talk about the 7 best ETFs for young investing. It’s part of a few upcoming articles on young investing, where I want to help young people towards higher returns in the long run.

Feel free to ask your questions and/or comments in a comment at the bottom of this article. Let’s get started!

Contents:

Personal Guidelines for Young Investing in ETFs
The 7 best ETFs for Young Investing with a long-term horizon

Invesco QQQ Trust Series 1 ETF (QQQ)
ARK Innovation ETF (ARKK)
BlackRock Science and Technology Trust (BST)
VanEck Vectors Semiconductor ETF (SMH)
iShares Russell 2000 Value ETF (IWN)
VanEck Vectors Video Gaming and eSports ETF (ESPO)
Wisdomtree Cloud Computing UCITS ETF (WCLD)

Personal Guidelines for Young Investing in ETFs

If you are young and want to invest, time is in her favor. Time in the market is more important than timing of the market. The longer you can make the compound interest effect work for you, the richer you will become.

The ETFs in this list are suitable for future investing. This means that the degree of innovation is high and mainly focused on technology. Typically, these types of stocks are riskier, and that means the ETFs should also be considered riskier. A disadvantage of this is higher price volatility in the short term. An advantage of this is a potentially higher return in the long run. Nonetheless, it is wise to spread risk as with Value and Dividend ETFs, for example. Also, ETFs with a sustainable character are not included in this article.

However, it is important that you know what you are doing. If you want to read the full list of guidelines, also read this article on tips for safer investing.

Although all guidelines are important for higher returns, long-term thinking is the most important for young investing in ETFs. Buy ETFs for a long term of at least 7 to ideally 15 years. Yes, this is a long time. But by the end of it, you may have realized exponential returns. Especially if you buy when prices fall sharply (buy the dip).

Another prominent guideline is to look closely at the ratio within your portfolio. For some, 30% in ETFs is risky (high risk aversion) and for others it is low risk (low risk aversion). Depending on your risk aversion, supplement your portfolio with other good investment opportunities.

Now let’s look at a selection of the 7 best ETFs for young investing.

The 7 best ETFs for Young Investing with a long-term horizon

The younger you are, the more risk you can take because time works in your favor. Especially if you follow the guideline above. In the list below you will find a selection of the 7 best ETFs for young people to invest in. Please note that these are quite risky ETFs. On the other hand, ETFs are less risky than individual stocks. However, it is up to you to judge whether or not you want to take the risk by buying an ETF.

Note: they are listed in no particular order.

1. Invesco QQQ Trust Series 1 ETF (QQQ).

My personal favorite ETF for young investing: Invesco QQQ Trust Series 1 ETF (QQQ). It’s not just my favorite, by the way. By now, this fund contains over 140 billion (!) in market capitalization and it is widely regarded as one of the best ETFs.

Thanks to this ETF, you can simply and easily invest in the 100 largest non-financial companies that have a high degree of innovation. Also, this best ETF for young investing has been voted by Lipper as the top 1% best performing ETF for 15 years in a row. Thus, since its inception, the tracker has achieved an average annual return of approximately 8.8%. Over the past 10 years (2011 – 2021), it has averaged +20%. And over the past 5 years (2015 – 2021), this was even +23%. That’s seriously high!

But note that about 30% of the portfolio is in just three companies (Apple, Microsoft, and Amazon). And 45% of the total is in the top 10 positions. This is a disproportionate distribution, which will hopefully become more balanced in the coming years. On the other hand, this also explains the success of the past few years.

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2. ARK Innovation ETF (ARKK).

ARK Innovation ETF (ARKK), like QQQ, is entirely focused on innovation. This makes it an excellent ETF for young people who want to invest in the future. The ETF buys and sells companies characterized as “disruptive innovation.” In my personal investment strategy, I use the same principle when looking for unique stocks that can deliver +300% over the long term. Disruptive innovation leads to a unique strategic position where companies partially create a new market. From a strategic standpoint, this leads to rapid growth and high revenue and profit margins.

Read more about the stock subscription here where I share my research on growth stocks.

ARKK contains about 35 – 55 positions of companies active in genomics, automation, Internet and Fintech, among others. In the Top 10 Holdings are growth companies including Roku, Teladoc, Twilio and Unity Software. These are interesting companies if you ask me. One drawback I find is that almost 10% of the ETF is invested in Tesla. Tesla is significantly overvalued at the time of writing and that means a large downside risk.

This is true of the entire ARK Innovation ETF, by the way. The holdings are fine, but their average valuation is (too) high. It may therefore be wise not to enter into the fund immediately, but to make monthly purchases as and when this young investor ETF falls.

Always download the fact sheet for the most up-to-date information.

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3. BlackRock Science and Technology Trust (BST)

In my opinion, the top 3 ETFs for young investing are QQQ, ARKK and BST. The last one is the BlackRock Science and Technology Trust ETF. This fund has achieved an average annual return of 24.6% since its inception in 2014. That’s even higher than the QQQ, and these are truly top-notch performances. With that said, we should be well aware that the next few years could be considerably less positive, but only time can tell.

The portfolio distribution of BST is more spread out compared to ARKK and QQQ. The top 10 positions make up about 25% of the total. In the top 4 are the big boys Apple, Microsoft, Alphabet and Amazon. ASML is also in the top 10, which I personally consider the #1 best AEX stock.

There is also a younger brother called BlackRock Science and Technology Trust II (BSTZ) This fund contains more younger companies that are expected to become the new leaders within technology. The fund has only been around for two years and has an average annual return of 51.6%. This is unrealistically high, but of course the question is what the long-term average annual return will be. If this is +12%, we can talk about a very well-performing ETF.

Always download the fact sheet for the most up-to-date information.

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4. VanEck Vectors Semiconductor ETF (SMH)

A relatively young ETF is the VanEck Vectors Semiconductor ETF. As the name suggests, the tracker contains stocks active within the semiconductor industry. There are 25 positions in total, of which 75% are from the United States, 14% from the Netherlands and 9% from Taiwan.

The top 10 positions amount to 70% of the total portfolio. This is quite a disproportionate distribution where most of the money is invested in companies like Nvidia, ASML and Taiwan Semiconductor.

The average annual return since inception (2020) is 19.93%. All in all, this is a very risky ETF that is completely focused on one sector. However, it is a sector that is necessary for the future. Without the semiconductor industry, literally world production for advanced technology with chips will grind to a halt.

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Always download the fact sheet for the most up-to-date information.

5. iShares Russell 2000 Value ETF (IWN)

The odd duck out of this list is the iShares Russell 2000 Value ETF (IWN). This ETF tracks 2,000 small U.S. companies that are undervalued relative to peer companies. As such, the ETF is focused on Value Investing, but for small caps (small companies).

Very deliberately, I give you this ETF as a tip for young investing. After all, there is more to investing than technology and growth. In addition to growth stocks, Value stocks tactics can be just as interesting. I used to make the mistake of going 100% for growth, but this does lead to high price fluctuations. To bring more balance into this, I decided to invest part of my portfolio through value investing. Undervalued stocks offer relatively lower risk.

The ETF was founded in 2000 and has since delivered an average annual return of 9.74%. This is lower than other ETFs from this list, however, they have not been active in the market for that long. The iShares Russell 2000 Value ETF, on the other hand, has been able to experience both the dot.com, financial crisis and the covid-19 crisis. Therefore, given its history, this average annual return is more reliable (as an expectation).

What I teach people within the HIM community is that you don’t just want to buy unique stocks. You especially want to buy them at the right time. To do this you will need to learn how to value a stock. This involves financial ratios like the P/E and the P/S, but especially in the context of past and present. And not just for the company, but also for the sector.

Always download the fact sheet for the most up-to-date information.

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6. VanEck Vectors Video Gaming and eSports ETF (ESPO)

VanEck Vectors Video Gaming and eSports UCITS ETF (ESPO) definitely belongs to the list of best ETFs for young investing. The ETF focuses entirely on the growing gaming industry. Note that this is a risky ETF that has a narrow focus. If the video gaming industry collapses, so will the ETF. Therefore, always read the essential investor information before investing in ETFs. In addition, there are only 25 stocks in it, which is relatively few for an ETF. This does include some large companies, such as Nvidia, Tencent and Sea ltd.

At the moment (June 2021), the shares within the ETF are highly valued. Therefore be careful with large investments, and in this case rather opt for monthly deposits with smaller amounts. If the ETF continues to fall, you can buy in the big dips.

You can buy the Exchange Traded Fund commission-free through DEGIRO.

Always download the fact sheet for the most up-to-date information.

7. Wisdomtree Cloud Computing UCITS ETF (WCLD)

As a younger person, you probably share my views on the long-term potential of the Cloud industry. More and more is happening on the Internet and in the Cloud. From emails to Social Media, and this only continues to increase. Therefore, in my opinion, the Wisdomtree Cloud Computing UCITS ETF is one of the best ETFs for young investing.

This investment contains over 54 stocks active in the Cloud industry. About 25% of the total portfolio is in the 10 largest stocks. These include Cloudflare, Hubspot, Anaplan, and Zoom Video.

Given the characteristics of the ETF, you should expect quite a bit of price volatility. Nevertheless, the industry has an annual growth rate (CAGR) of 16.1% from 2018 through 2022. It is possible that this growth will level off a bit from 2022 to 2027, although it will remain attractive.

You can buy the Exchange Traded Fund commission-free through DEGIRO.

Always download the fact sheet for the most up-to-date information.