Three ETFs to Consider for Investment in 2025

Investing in individual stocks is a strategy many believe can lead to a more rewarding portfolio than simply following the overall stock market. However, there is also an advantage to using index funds that can help you manage your investments with less effort.

Index fund ETFs (Exchange-Traded Funds) provide a way to invest in a diverse range of stocks through a single investment. They have the potential to deliver significant returns over time, making them an appealing option for investors. While I have my eyes on some great individual stocks, especially those that pay high dividends, I am focusing on gradually investing in three particular ETFs in 2025.

The Must-Have ETF for Every Investor

If I could choose only one investment to hold, it would be the Vanguard S&P 500 ETF (VOO 0.20%). This fund is Vanguard's primary S&P 500 index ETF, and it reflects the performance of the S&P 500 index, which is often used as a benchmark for the health of the U.S. stock market.

This ETF is known for having a very low expense ratio of just 0.03%. This means that if you invest $10,000, you will only pay $3 in annual fees. Historically, the S&P 500 has provided average annual returns of around 10%. For instance, a $10,000 investment in this ETF today could grow to almost $175,000 in 30 years, assuming you don't touch it.

My Top ETF Selection for 2025

At the start of 2024, small-cap stocks were valued at their lowest price-to-book ratios compared to large-cap stocks since the late 1990s. Over the year, this gap has continued to widen, largely because large-cap tech stocks have performed exceptionally well and interest rates have not dipped as much as expected.

Currently, the average small-cap stock in the Russell 2000 index trades at a price-to-book ratio of 1.9, while the average stock in the S&P 500 trades at 4.7. With interest rates beginning to drop and an economic climate that may favor growth with a new administration, small-cap stocks might see substantial benefits. This is why I consider the Vanguard Russell 2000 ETF (VTWO 0.38%) to be my top ETF choice for 2025.

Access to AI Growth Without Company Risk

Artificial intelligence (AI) is not just a trend; it represents a gigantic investment opportunity that could shape the future of technology. While I excel at evaluating investments in sectors such as banking and real estate, the best opportunities within AI often lie outside my areas of expertise.

For this reason, I'm planning to start investing in the Ark Autonomous Technology and Robotics ETF (ARKQ 2.94%), managed by Cathie Wood's Ark Invest. This fund invests in a carefully selected range of stocks that are likely to benefit from advancements in AI technology. It encompasses well-known companies like Tesla and Nvidia, as well as lesser-known firms like Kratos Defense & Security and other surprising players in the AI field like Deere.

While this ETF carries the highest expense ratio on my list at 0.75%, such costs are typical for specialized funds that are actively managed.

Integrating These ETFs into My Investment Strategy

It's important to note that the majority of my investment portfolio consists of individual stocks, and I intend to keep it that way. However, as I move further along in my investment journey in my 40s, I’m shifting to build a solid foundation within my portfolio using high-quality index funds. For 2025 and beyond, my plan is to channel half of any new investments in my brokerage account into individual stocks while allocating the other half to these three ETFs.

Note: The author holds positions in the Vanguard Russell 2000 ETF and the Vanguard S&P 500 ETF.

ETFs, Investing, Stocks