Motley Fool names five ETFs for 20-year portfolios

The Motley Fool has identified five exchange-traded funds suitable for long-term investors seeking to hold positions over the next 20 years. The recommendation follows a review of historical market performance, specifically noting that the S&P 500 has never recorded a negative return over a 20-year period. This historical data supports the strategy of maintaining broad market exposure rather than attempting to select individual high-growth stocks.

The primary recommendation is the Vanguard Total Stock Market ETF (VTI), which targets approximately 3,500 stocks across the entire investable U.S. market. This fund is presented as a core holding that includes small-cap stocks in addition to large-cap names. The rationale is that adding small caps to a portfolio's core can increase returns, even though large-cap stocks have dominated recent market performance. The alternative, the Vanguard S&P 500 ETF (VOO), provides exposure only to U.S. large-cap stocks.

For mid-cap exposure, the Invesco S&P MidCap Quality ETF (XMHQ) is recommended. This fund focuses on companies with high returns on equity and lower financial leverage. The strategy aims to capture mid-cap growth potential while mitigating the risk associated with more speculative companies. Mid-cap stocks are described as having graduated from small-cap volatility while retaining the potential to become future large-cap leaders.

The iShares Core S&P Small-Cap ETF (IJR) is suggested for small-cap exposure. This fund tracks the S&P SmallCap 600 index, which requires companies to pass a built-in profitability screen. This distinction separates it from funds tracking the Russell 2000, which include all companies in that segment regardless of profitability. The publication argues that many small companies are smaller for a reason, making the profitability screen a necessary filter for financial viability.

International exposure is addressed through the Vanguard Total International Stock ETF (VXUS). This fund holds roughly 8,800 non-U.S. stocks and carries an expense ratio of 0.05%. The recommendation is based on the observation that U.S. and international stocks trade global leadership in multiyear cycles, with the S&P 500 leading for most of the past 15 years.

The final recommendation is the Vanguard Dividend Appreciation ETF (VIG), which invests in U.S. large-cap stocks with at least 10 consecutive years of annual dividend growth. While these stocks may offer lower returns than megacap tech stocks over the past decade, they provide steady income and capital growth potential. The publication notes that their focus on financial health and strong cash flows makes them suitable long-term holdings.

Historical context provided by The Motley Fool indicates that the S&P 500 generated an average annual total return of 15.7% over the past decade. The 20-year average annual total return is approximately 11.2%, a figure that reflects a period beginning just before the financial crisis, which resulted in a nearly 60% drawdown.