The Top 5 ETFs That Investors Choose

The Top 5 ETFs That Investors Choose

Exchange-traded funds (ETFs) have revolutionized the investment landscape over the past few decades, offering investors a low-cost, diversified, and flexible way to gain exposure to a wide range of asset classes, sectors, and strategies. With thousands of ETFs available on the market today, choosing the right one can feel overwhelming. However, certain ETFs consistently rise to the top due to their performance, cost efficiency, liquidity, and broad appeal to both novice and seasoned investors. In this article, we explore the top five ETFs that investors frequently choose, delving into their structures, benefits, risks, and why they’ve earned a spot in countless portfolios. Whether you’re a beginner looking to dip your toes into the market or a veteran investor seeking to optimize your holdings, these ETFs are worth considering.

What Are ETFs and Why Do They Matter?

Before we jump into the list, let’s briefly cover what makes ETFs so attractive. An ETF is a type of investment fund that trades on stock exchanges, much like individual stocks. Unlike mutual funds, which are priced once a day after the market closes, ETFs can be bought and sold throughout the trading day at fluctuating prices. They typically track an index, commodity, sector, or basket of assets, offering diversification without the need to purchase each underlying component individually. Additionally, ETFs tend to have lower expense ratios than mutual funds, making them a cost-effective choice for long-term investors.

The rise of ETFs reflects a broader shift in how people invest. According to industry data, global ETF assets surpassed $10 trillion in 2023, a testament to their growing popularity. Investors are drawn to their transparency, tax efficiency, and ability to provide exposure to everything from broad market indices to niche themes like artificial intelligence or clean energy. With that context in mind, let’s explore the top five ETFs that consistently capture investors’ attention.

1. SPDR S&P 500 ETF Trust (NYSE: SPY)

Overview

The SPDR S&P 500 ETF Trust, commonly known by its ticker SPY, is the granddaddy of all ETFs. Launched in 1993 by State Street Global Advisors, SPY was the first ETF listed in the United States and remains the most widely traded ETF in the world. It tracks the S&P 500 Index, which consists of 500 of the largest publicly traded companies in the U.S., spanning industries like technology, healthcare, finance, and consumer goods.

Why Investors Choose SPY

SPY’s appeal lies in its simplicity and reliability. The S&P 500 is often considered a proxy for the overall U.S. economy, and by investing in SPY, you’re essentially betting on the long-term growth of American businesses. With household names like Apple, Microsoft, Amazon, and Alphabet in its portfolio, SPY offers instant diversification across multiple sectors. Its massive liquidity—average daily trading volume often exceeds 50 million shares—makes it a favorite among day traders, institutional investors, and long-term buy-and-hold enthusiasts alike.

Key Features

• Expense Ratio: 0.0945% (relatively low, though not the cheapest in its category)
• Assets Under Management (AUM): Over $500 billion
• Dividend Yield: Approximately 1.3% (as of early 2025)
• Top Holdings: Apple, Microsoft, Nvidia, Amazon, and Meta Platforms

Benefits

One of SPY’s biggest strengths is its historical performance. Since its inception, it has delivered an average annual return of around 10%, mirroring the S&P 500’s long-term growth. For investors seeking a “set it and forget it” option, SPY provides exposure to the backbone of the U.S. equity market without the need to pick individual stocks. Its low expense ratio, while not the lowest among S&P 500 ETFs, is still competitive, and its unparalleled liquidity ensures tight bid-ask spreads, reducing trading costs.

Risks

SPY isn’t without downsides. Because it’s market-cap weighted, the ETF is heavily tilted toward mega-cap tech stocks, which can lead to concentration risk. If a handful of these giants stumble—say, during a tech sector correction—SPY could underperform. Additionally, it’s U.S.-centric, meaning it lacks exposure to international markets, which could be a drawback for globally minded investors.

Who Should Invest?

SPY is ideal for anyone looking for broad U.S. equity exposure, from beginners building their first portfolio to retirees seeking stable growth. It’s also a go-to for tactical traders due to its liquidity and options market activity.

2. Vanguard Total Stock Market ETF (NYSE: VTI)

Overview

The Vanguard Total Stock Market ETF (VTI) takes diversification to the next level. Launched in 2001, VTI tracks the CRSP US Total Market Index, which includes nearly 4,000 U.S. stocks across large-, mid-, and small-cap companies. If SPY is a snapshot of America’s corporate giants, VTI is a panoramic view of the entire U.S. stock market.

Why Investors Choose VTI

VTI’s appeal stems from its all-encompassing nature. While SPY focuses on the top 500 companies, VTI captures everything from blue-chip behemoths to smaller, growth-oriented firms. This broader exposure reduces reliance on a handful of mega-caps and offers a more balanced representation of the U.S. economy. Vanguard’s reputation for low-cost investing also makes VTI a darling among cost-conscious investors.

Key Features

• Expense Ratio: 0.03% (one of the lowest in the industry)
• Assets Under Management: Over $1.5 trillion (including its mutual fund share class)
• Dividend Yield: Around 1.4%
• Top Holdings: Similar to SPY (Apple, Microsoft, etc.), but with thousands of smaller companies included

Benefits

VTI’s rock-bottom expense ratio is a standout feature. At just 0.03%, it’s a fraction of what many mutual funds charge, meaning more of your money stays invested. Its inclusion of small- and mid-cap stocks also provides exposure to higher-growth (albeit riskier) segments of the market, potentially boosting returns over time. For long-term investors, VTI is a one-stop shop for U.S. equity exposure.

Risks

The flip side of VTI’s broad diversification is its exposure to smaller, more volatile companies. During market downturns, small-cap stocks tend to underperform their large-cap peers, which could drag VTI’s returns below those of SPY. Like SPY, it’s also limited to U.S. markets, leaving out international opportunities.

Who Should Invest?

VTI suits investors who want maximum diversification within the U.S. without overcomplicating their strategy. It’s particularly popular among fans of the “boglehead” philosophy—named after Vanguard founder John Bogle—which emphasizes low-cost, passive investing.

3. Invesco QQQ Trust (NASDAQ: QQQ)

Overview

The Invesco QQQ Trust (QQQ) is a tech-heavy ETF that tracks the Nasdaq-100 Index, a collection of the 100 largest non-financial companies listed on the Nasdaq stock exchange. Launched in 1999, QQQ has become synonymous with growth investing, thanks to its focus on innovative, high-flying firms.

Why Investors Choose QQQ

QQQ is the go-to ETF for investors bullish on technology and growth stocks. With top holdings like Apple, Microsoft, Nvidia, Amazon, and Tesla, it’s a front-row seat to the digital revolution. Its performance over the past decade—outpacing the S&P 500 in bull markets—has made it a favorite among those seeking capital appreciation over income.

Key Features

• Expense Ratio: 0.20%
• Assets Under Management: Over $250 billion
• Dividend Yield: Around 0.6%
• Top Holdings: Apple, Microsoft, Nvidia, Amazon, and Broadcom

Benefits

QQQ’s growth potential is its biggest draw. The Nasdaq-100 has historically outperformed broader indices during periods of economic expansion, driven by the relentless rise of tech giants. Its liquidity is also impressive, making it a staple for active traders and long-term investors alike. For those who believe technology will continue shaping the future, QQQ offers a concentrated bet on that vision.

Risks

Concentration is QQQ’s Achilles’ heel. With tech accounting for over 50% of the portfolio, a sector-specific downturn—like the dot-com bust of the early 2000s—could hit QQQ hard. Its low dividend yield also makes it less appealing for income-focused investors, and its higher expense ratio compared to SPY or VTI might deter the ultra-cost-conscious.

Who Should Invest?

QQQ is perfect for growth-oriented investors willing to stomach volatility for the chance at outsized returns. It’s less suited for conservative investors or those prioritizing income.

4. Vanguard Total World Stock ETF (NYSE: VT)

Overview

The Vanguard Total World Stock ETF (VT) takes diversification global. Launched in 2008, VT tracks the FTSE Global All Cap Index, which includes over 9,000 stocks from developed and emerging markets worldwide, covering large-, mid-, and small-cap companies.

Why Investors Choose VT

For investors who want a truly global portfolio in a single ticker, VT is the answer. It offers exposure to the U.S. (about 60% of the portfolio), Europe, Asia, and emerging markets like China and India. This all-in-one approach eliminates the need to juggle multiple region-specific ETFs.

Key Features

• Expense Ratio: 0.07%
• Assets Under Management: Over $40 billion
• Dividend Yield: Around 2%
• Top Holdings: Apple, Microsoft, Nvidia, plus international giants like Taiwan Semiconductor and Nestlé

Benefits

VT’s global reach reduces reliance on any single country’s economy, providing a hedge against U.S.-specific risks. Its low expense ratio and respectable dividend yield make it a compelling choice for long-term, hands-off investors. By including emerging markets, VT also taps into regions with higher growth potential.

Risks

Global diversification comes with trade-offs. Emerging markets can be volatile, and currency fluctuations may erode returns for U.S.-based investors. VT’s heavy U.S. weighting also means it’s not a pure international play, which might disappoint those seeking less exposure to American stocks.

Who Should Invest?

VT is ideal for investors who believe in the power of global growth and want a simple, low-cost way to achieve it. It’s a great core holding for those with a long time horizon.

5. iShares Core U.S. Aggregate Bond ETF (NYSE: AGG)

Overview

The iShares Core U.S. Aggregate Bond ETF (AGG), launched in 2003 by BlackRock, tracks the Bloomberg U.S. Aggregate Bond Index. This index includes a broad mix of U.S. bonds—government Treasuries, corporate bonds, mortgage-backed securities, and more—making AGG a cornerstone of fixed-income investing.

Why Investors Choose AGG

While the first four ETFs on this list focus on stocks, AGG appeals to investors seeking stability and income. Bonds are a critical part of a balanced portfolio, offering a cushion against stock market volatility. AGG’s broad exposure to the U.S. bond market makes it a popular choice for diversification.

Key Features

• Expense Ratio: 0.03%
• Assets Under Management: Over $100 billion
• Yield to Maturity: Around 4.5% (as of early 2025)
• Top Holdings: U.S. Treasuries, investment-grade corporate bonds, and mortgage-backed securities

Benefits

AGG’s low expense ratio and high liquidity make it an efficient way to access the bond market. Its focus on investment-grade securities ensures relative safety, while its yield provides steady income. For retirees or risk-averse investors, AGG is a reliable anchor.

Risks

Bonds aren’t immune to risk. Rising interest rates, a concern in inflationary periods, can depress bond prices and hurt AGG’s returns. Credit risk from corporate bonds, though minimal, also exists. Unlike stocks, AGG’s long-term growth potential is limited.

Who Should Invest?

AGG suits conservative investors, retirees, or anyone looking to balance a stock-heavy portfolio with fixed income. It’s a staple in the classic 60/40 stock-bond allocation.

Comparing the Top 5 ETFs

Why These ETFs Stand Out

Each of these ETFs has carved out a unique niche. SPY and VTI dominate U.S. equity investing with their broad exposure and low costs. QQQ caters to those chasing growth in the tech sector. VT appeals to globalists seeking worldwide diversification, while AGG provides a safe haven for income and stability. Together, they represent the diversity of investor priorities—growth, income, safety, and simplicity.

Trends Driving ETF Popularity

Several trends have fueled the rise of these ETFs. The shift toward passive investing, where investors aim to match market returns rather than beat them, has boosted index-tracking ETFs like SPY and VTI. Technological advancements have made trading ETFs easier and cheaper, while financial education platforms have empowered retail investors to build portfolios around these funds. Meanwhile, economic uncertainty—like inflation or geopolitical tensions—has heightened demand for diversified options like VT and stable choices like AGG.

How to Choose the Right ETF for You

Selecting an ETF depends on your goals, risk tolerance, and time horizon. Are you young and growth-focused? QQQ might be your pick. Nearing retirement and craving stability? AGG could be the answer. Want a bit of everything? VT or VTI might fit the bill. Here are some questions to ask:

• What’s my investment timeline? Longer horizons favor stock-heavy ETFs like SPY or VT.
• How much risk can I handle? QQQ offers high reward but higher volatility.
• Do I need income? AGG’s bond yield beats the stock ETFs’ dividends.
• What’s my budget? All five have low expense ratios, but VTI and AGG are the cheapest.

Conclusion

The SPDR S&P 500 ETF Trust (NYSE: SPY), Vanguard Total Stock Market ETF (NYSE: VTI), Invesco QQQ Trust (NASDAQ: QQQ), Vanguard Total World Stock ETF (NYSE: VT), and iShares Core U.S. Aggregate Bond ETF (NYSE: AGG) are among the most popular ETFs for a reason. They offer something for everyone—whether it’s broad U.S. exposure, tech-driven growth, global reach, or bond-market stability. Their low costs, liquidity, and proven track records make them staples in portfolios worldwide.