ETF tracking｜How to choose the best ETF for long-term investment?

Learn how to choose the best ETF for your long-term investment portfolio.
Long-term investors often look for ETFs that they can hold for years or an entire investment period (possibly decades). Thus, in the long run, the best ETFs are likely to include a diverse set of ETFs with low fees, high managed assets, and a history of long-term performance.

How to choose the best ETF for long-term investments

The way to evaluate the best ETF over the long term is not the same for every investor; however, there are some general guidelines you can follow. For example, since most ETFs passively track benchmark indices, low fees are an advantage of long-term performance. Other standards include asset management and performance history.

The selection criteria for selecting the best ETF include:

Fee rate: When evaluating ETFs that track the same index, the ETF with the lowest fee rate usually performs better than the ETF with the higher fee rate.
Assets under management: Large ETFs or ETFs with higher AUM tend to have higher trading volumes, which can lead to higher pricing through lower bid-ask spreads.
Performance history: While past performance is no guarantee of future results, long-term performance history can provide clues about how close an ETF is to its benchmark and how well it is performing compared to similar products.
Best types of long-term ETFs to invest in

The best type of ETF to build a long-term portfolio depends on the portfolio structure investors choose, which may include a diverse mix of stock and bond ETFs. Some investors choose to build a portfolio of multiple funds around one core holding, such as the S&P 500 Index fund, while others may want to simply mix all stocks, all bonds, and all international funds.

For example, some investors may prefer a “core and satellite” structure, which may include a core holding, such as a S&P 500 ETF or an “full market” ETF, and several other different ETFs in different categories, such as developed markets, emerging markets, growth stocks, value stocks, and a range of market capitalization.

Examples of ETF types used in long-term portfolios

S&P 500 ETF: Track the S&P 500 Index, which consists of stocks of the 500 largest US companies measured by market capitalization.
ETFs for developed markets outside the US: Track foreign stock indices, such as the MSCI EAFE Index or the FTSE Advanced Index, comprised of large and mid-cap stocks from developed regions outside the US, including Europe, Asia, and the Far East.
Emerging Markets ETF: Track the FTSE Emerging Markets Index or MSCI Emerging Markets Index, which invests in medium to large stocks in non-developed economies such as China, India, Brazil, and South Korea.
Small cap ETFs: Invest in stocks of companies with a market capitalization of around $300 million to $2 billion.
Mid-cap ETFs: Invest in stocks of companies with a market capitalization of around $2 billion to $10 billion.
Total Stock Market Index ETFs: Investing in stocks of US companies, including a range of market capitalizations from small to medium to large stocks.
Fixed income: In this broad category, we only considered the “large US market segment,” which includes bond funds that track the “total bond market index,” such as the Bloomberg US Composite Index, which tracks overall bond market performance, and the US bond market.
Growth ETFs: Invest in company stocks with higher-than-average growth potential.
Value ETFs: Invest in stocks of companies that are determined to be undervalued based on certain basic metrics, such as price-earnings ratios.
Dividend ETFs: Earnings focused funds that generally invest in companies with high dividends or stable and growing.
Ultimately, choosing the best long-term ETF will take into account investors' risk tolerance and time frame. In other words, long-term investors can generally take on more investment risk, which means they can allocate their portfolios more to stock ETFs than bond ETFs compared to investors with short term investments.