3 Top ETFs I'm Looking to Invest in 2025

I am enthusiastic about investing in individual stocks and firmly believe that a well-structured stock portfolio can surpass the overall stock market performance. However, there is also a significant advantage in putting a portion of your investment funds on autopilot by utilizing high-quality index funds.

Index fund ETFs provide not only broad exposure to a diverse range of stocks within a single investment but also the potential for substantial returns over the long term. Consequently, even though some of my favorite stocks, particularly those with high dividends, appear to be attractively priced at the moment, I plan to gradually purchase shares of three specific ETFs throughout 2025.

The Essential ETF for Every Investor

If I had to choose just one investment, it would unquestionably be the Vanguard S&P 500 ETF (VOO 0.20%). This exemplary fund tracks the S&P 500 index, which is widely regarded as one of the best indicators of U.S. stock market performance.

This ETF boasts an incredibly low expense ratio of 0.03%. To put this into perspective, if you invest $10,000 in this fund, only $3 will go toward annual expenses. Historically, the S&P 500 has delivered average annualized returns of approximately 10%. This means that a $10,000 investment could grow to around $175,000 over 30 years, with no additional effort needed.

My Top ETF Choice for 2025

At the start of 2024, small-cap stocks were trading at their lowest price-to-book ratios compared to large-cap stocks since the late 1990s. Throughout the year, this valuation gap has expanded as large-cap tech stocks have continued to perform well and interest rates have not decreased as significantly as expected.

Currently, the average stock in the Russell 2000 small-cap index has a price-to-book ratio of 1.9, while the typical S&P 500 stock stands at a multiple of 4.7. With interest rates finally beginning to decline and a pro-growth atmosphere expected under the upcoming administration, small-cap stocks could experience considerable support. This is why I'm focusing on the Vanguard Russell 2000 ETF (VTWO 0.38%) as my primary ETF pick for 2025.

Gaining AI Exposure with Reduced Company Risks

I firmly believe that artificial intelligence (AI) represents a tremendous opportunity and could be the defining technological shift of my lifetime. Nevertheless, my expertise lies in evaluating stocks related to banking, real estate, and e-commerce. Unfortunately, the most promising AI investments often fall beyond my area of expertise.

For this reason, I intend to begin acquiring shares of the Ark Autonomous Technology and Robotics ETF (ARKQ 2.94%), managed by Cathie Wood's Ark Invest. This fund consists of a carefully curated selection of stocks that are likely to benefit significantly from the growth of AI. Alongside well-known brands like Tesla and Nvidia, this ETF also invests in less familiar firms such as Kratos Defense & Security and other companies in the AI space, like Deere.

While this ETF has a higher expense ratio of 0.75%, it is comparable to other specialized actively managed funds.

Integrating ETFs into My Investment Strategy

It is essential to clarify that the majority of my investment portfolio still consists of individual stocks, and I do not foresee that changing in the near future. However, at this point in my investing journey (in my mid-40s), I am starting to emphasize building a robust foundation for my portfolio by including high-quality index funds. Looking ahead to 2025 and beyond, I plan to allocate half of any new funds in my brokerage account toward stocks and the other half toward these three ETFs.

ETFs, Investing, Stocks