3 Top ETFs I'm Planning to Buy Hand Over Fist in 2024, Despite All the Cheap Stocks on My Radar | The Motley Fool (2024)

I'm a big proponent of creating a well-rounded portfolio of individual stocks, and that isn't going to change. I wholeheartedly believe that investors can beat the market over time in this way, and own about 40 individual stocks myself.

However, I've started to incorporate index fund investing a little bit more into my investment strategy than I had previously, especially when it comes to saving for retirement. I've decided to start adding shares of three particular ETFs to my portfolio as we head into 2024, and here's what they are.

1. Vanguard S&P 500 ETF

I've pivoted my investment strategy a bit lately, going from a near-exclusive focus on individual stocks to incorporating some index funds into my portfolio -- especially in my retirement accounts. And the index fund I've been adding the most is the ultra-low-cost Vanguard S&P 500 ETF (VOO -0.56%).

In short, this ETF invests your money in all 500 companies that make up the well-known benchmark index. To be sure, past performance doesn't guarantee future returns, but with an average annualized return of 9.9% since 1965, there's a very good chance that the shares I buy will be worth significantly more when I'm ready to retire in about 20 years. And with a rock-bottom 0.03% expense ratio, you get to keep most of your investment gains.

Note that Vanguard's isn't the only version of the S&P 500 index fund that is a solid, low-cost product, but it does offer the lowest fees of any on my radar.

2. Schwab U.S. Dividend Equity ETF

Of the three ETFs discussed here, the Schwab U.S. Dividend Equity ETF (SCHD -0.84%) is the only one I don't already own. And as the name implies, this ETF invests in a portfolio of stocks that pay dividends -- specifically, it tracks the Dow Jones U.S. Dividend 100 Index. Top holdings include AbbVie (ABBV 0.96%), Amgen (AMGN -1.54%), Broadcom (AVGO 0.04%), and Home Depot (HD -1.54%).

In a nutshell, value stocks (like most dividend stocks are) have significantly underperformed growth stocks in the recent stock market rebound. But with economic conditions improving and interest rates widely expected to fall in 2024, they could catch up. And in any case, one of my objectives is to build a steady stream of reliable dividend income in my retirement accounts, and this ETF could help me do it. As of this writing, the Schwab U.S. Dividend Equity ETF has a 3.7% dividend yield.

3. Vanguard Real Estate ETF

Last but certainly not least is the Vanguard Real Estate ETF (VNQ -2.12%). I'm buying this one even though I already own about a dozen individual real estate investment trusts, or REITs, and for a couple of reasons.

First, the real estate sector is well positioned to have a great 2024. REITs got hammered by rising interest rates as costs of capital rose and many investors took advantage of higher yields from risk-free investments like Treasuries instead. With rates widely expected to fall in 2024, REITs could be one of the top beneficiaries.

Second, the Vanguard Real Estate ETF is a weighted index fund, meaning that larger companies make up a higher proportion of the fund's assets. With top holdings including some of the most beaten-down REITs, such as American Tower (AMT -1.90%), Crown Castle (CCI -2.40%), Prologis (PLD -2.75%), and others that I don't already own, it seems like a great way to get exposure to some of the biggest names in the sector without buying them individually.

There's nothing wrong with putting some money on autopilot

To be sure -- I'm not giving up on looking for attractive individual stocks to own. Individual stocks still make up about three-fourths of my portfolio, and I see several interesting opportunities as we head into 2024.

However, even if you're an avid stock picker, there's nothing wrong with incorporating some low-cost ETFs into your portfolio. ETFs can help form a backbone to a solid stock portfolio, can put you in a great position for solid long-term returns regardless of what any individual company does, and can help you get exposure to industries and sectors you may not understand well enough to choose individual stocks in.