3 ETFs That Should Make the Centerpiece of Every Stock Portfolio

view original post

Exchange traded funds (ETFs) can provide instant portfolio diversification and relieve investors of the burden of stock picking. Yet, these funds aren’t equally worthy, and only a small handful of them deserve the title of “centerpiece” ETFs.

It’s challenging to add variety to your portfolio while also cushioning it when the financial markets get turbulent. It’s even tougher to achieve this without incurring high annual fees.

This is entirely possible, however, when you carefully select a few must-own ETFs. So, I invite you to consider adding these three “centerpiece” ETFs to your portfolio holdings today.

Vanguard Total Stock Market ETF (VTI)

For diversification across U.S.-focused large-cap stocks, your go-to fund might be the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) or the Vanguard S&P 500 ETF (NYSEARCA:VOO). Those are fine, but they don’t provide exposure to the entire U.S. stock market, including mid-cap and small-cap stocks.

To fill those gaps, you can simply buy the Vanguard Total Stock Market ETF (NYSEARCA:VTI). This fund tracks the CRSP U.S. Total Market Index and, according to Vanguard, it “represents approximately 100% of investable companies in the U.S. equity market.”

In other words, Vanguard’s VTI fund practically puts the whole U.S. stock market in your investment account. With that, you get “Large-, mid-, and small-cap equity diversified across growth and value styles.”

This is important because sometimes large-cap stocks outperform, but other times, small-cap or mid-cap stocks might pull ahead. With the Vanguard Total Stock Market ETF, there’s no need to predict which segment of the U.S. stock market will do better than the others.

And by the way, VTI has one of the lowest annual expense ratios (i.e., what the fund’s managers charge the shareholders per year) that I’ve ever seen. If you can believe it, the Vanguard Total Stock Market ETF’s annual expense ratio is just 0.03%, which would cost you only three cents for every $100 invested in the fund.

If you want a little bit more large-cap exposure, you can always buy VTI and then add a few shares of SPY or VOO. For full U.S. stock market diversification, however, you’ll definitely want to focus on the Vanguard Total Stock Market ETF.

iShares MSCI Emerging Markets ETF (EEM)

So, you went ahead and bought the VTI ETF for total U.S. equities market exposure — good move. Now, however, you might think about diversifying beyond the U.S.

After all, there’s a whole world out there and some of the world’s most impactful business reside in emerging-market regions. Examples of these non-U.S. companies include Saudi Arabian financial firm Al Rajhi Bank, Ping An Insurance Group of China, and India-based diversified finance company Bajaj Finserv.

You won’t have much luck trying to find these firms on a U.S. stock exchange. You will, however, find them in the holdings of the iShares MSCI Emerging Markets ETF (NYSEARCA:EEM).

Make no mistake about it: today’s investors can’t afford to ignore Asia, the Middle East, and other emerging economies. It’s an interconnected world, and diversification outside of North America is a must in the 2020s.

That’s easier said than done, though if you’re a stock picker. So, why not let iShares conduct all of the due diligence for you? Granted, the 0.72% expense ratio of the iShares MSCI Emerging Markets ETF is a little bit pricey, but researching hundreds of foreign businesses on your own would be difficult and time-consuming.

Besides, it’s not a simple matter for U.S.-based individuals to invest in foreign businesses like Al Rajhi Bank, Ping An Insurance Group, and Bajaj Finserv. With the EEM ETF, you’ll immediately get access to these emerging-market companies and, in total, 1,190 holdings within the fund.

SPDR Gold Shares ETF (GLD)

Okay, so you’ve added some VTI shares for full U.S. stock market exposure and some EEM shares to represent international firms. To round out your trio of “centerpiece” ETFs, you’ll certainly want to own a fund that isn’t too strongly correlated with American and international stocks.

In case you haven’t noticed, turmoil and uncertainty in the world have kept U.S. and international stocks down in 2025. Meanwhile, gold has outperformed many American and foreign index funds on a year-to-date basis.

As the old saying goes, gold thrives on uncertainty. That’s why it’s an excellent diversifier — but then, it’s not necessarily a simple matter to add physical gold bars or coins to one’s portfolio.

An easy solution is a gold fund which can be bought or sold like a stock: the SPDR Gold Shares ETF (NYSEARCA:GLD). This ETF is brought to you by State Street, which also manages SPY, the ultra-popular S&P 500 index fund.

The SPDR Gold Shares ETF is a fund that actually holds physical gold — 957.17 tonnes of it, to be exact. The fund’s 0.4% annual expense ratio isn’t rock-bottom, to be sure, but it’s also not outrageously high.

Moreover, it’s probably easier and more cost-efficient for most investors to pay the annual management fee than it would be to purchase, store, and insure gold bullion. Instead of going through all of that trouble, you can just let the GLD ETF’s management take care of it.

All in all, the SPDR Gold Shares ETF fulfills its objective, which is to faithfully track the ups and downs of the spot gold price. In the words of the fund’s management, the GLD ETF lowers a “large number of the barriers preventing investors from using gold as an asset allocation and trading tool.”

Adding this gold-backed fund should provide even more breadth to your holdings if you already bought VTI and EEM. With those and some GLD shares, you’ll have a mighty fine three-pack of “centerpiece” ETFs in 2025. 

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.