Double Your Money Within Five Years Through ETFs

Exchange-Traded-Fund (ETF) is a game changer in the investment world. It creates a movement in the right direction where everyone can invest passively in index funds or any market sectors around the world in a very low-cost manner.

Without ETF, people who would like to invest in equities to participate in the economic growth would either invest directly in individual stocks or through mutual-funds.

Individual stock picking is not a trivial skill that anyone could learn easily. It requires tremendous time and effort. It is not everyone’s game. For average Joe, buying mutual funds is the only way to participate in the stock market.

Although mutual funds save people time in managing the portfolio, they charge as high as 5% commission per transaction. That is a big drag to the performance of any mutual funds. Let say a fund returns 10%, the investor only gets 5% after commission. Worse, most mutual funds don’t beat the performance of the passive index funds where the ETFs are tracking.

With ETF, people can keep almost all of the market returns since its expense ratio is usually below 1%. Let say an exchange-traded-fund returns 10%, the investor keeps 9% after expense. That is a huge advantage compare to buying mutual fund.

ETF is diversified in a way that it usually holds a bucket of companies at a time. This reduces the non-systemic risk of buying individual stocks.

ETF provides investors access to any asset classes that are categorised by value, growth, commodity, bond, geography (by country), sector, etc around the world. People can, thus, focus on allocating assets and buying the world market through ETFs.

According to research, 90% of the investment returns are coming from asset allocations instead of market timing.

Most of the ETFs are weighted according to market cap. This means that companies with the highest valuation get the biggest shares in the portfolio. There is also fundamentally weighted ETFs that meet the need of value investors where the most undervalued companies constitute the largest components of the index.

In a way, the fundamentally weighted ETFs have strategy automation built-in where the valuation is inversely proportional to allocation: the most undervalued companies are allocated the most funds. The automated rebalancing actually reduces risk and increases return.

With all the good things, ETFs also come with traps: leveraged ETFs and inverse ETFs. If you don’t understand how they work, stay away from them.

ETFs that could double your money in 5 years

CodeNameCAGR (5 Years)AUMNo. of HoldingsExpense RatioPEPTBVDistribution YieldIndex Weighting MethodologyInception DateBrand
RHSGuggenheim S&P 500 Equal Weight Consumer Staples ETF17.39%$757.02 M340.40%27.135.451.60%Equal11/01/06Guggenheim
PSCCPowerShares S&P SmallCap Consumer Staples Portfolio18.01%$124.15 M140.29%21.832.131.25%Market Cap04/07/10PowerShares
IYCiShares U.S. Consumer Services ETF17.93%$885.26 M1730.45% Cap06/12/00iShares
FXGFirst Trust Consumer Staples AlphaDEX Fund16.23%$2.47 B380.62%25.883.761.61%Tiered05/08/07First Trust
VCRVanguard Consumer Discretionary Index Fund17.63%$1.93 B3730.10%23.814.721.96%Market Cap01/26/04Vanguard
PSLPowerShares DWA Consumer Staples Momentum Portfolio14.70%$269.79 M300.60%27.235.410.91%Momentum10/12/06PowerShares
VDCVanguard Consumer Staples Index Fund15.10%$3.51 B990.10%25.725.073.35%Market Cap01/26/04Vanguard
SPLVPowershares S&P 500 Low Volatility Portfolio14.54%$7.64 B990.25%23.983.402.01%Volatility05/05/11PowerShares
DVYiShares Select Dividend ETF14.92%$16.27 B940.39%28.062.453.08%Dividend11/03/03iShares
KBWPPowerShares KBW Property & Casualty Insurance Portfolio20.92%$68.91 M230.35%14.631.311.61%Tiered12/02/10PowerShares
ITAiShares U.S. Aerospace & Defense ETF19.16%$879.2 M360.44%33.703.780.85%Market Cap05/01/06iShares
IHIiShares U.S. Medical Devices ETF19.34%$1.43 B470.44%36.873.891.04%Market Cap05/01/06iShares
SPHDPowerShares S&P 500 High Dividend Low Volatility Portfolio--$2.68 B500.30%20.052.453.33%Dividend10/18/12PowerShares
DONWisdomTree MidCap Dividend Fund15.80%$2.04 B9690.38%41.072.642.47%Dividend06/16/06WisdomTree
DHSWisdomTree High Dividend Fund14.64%$1.31 B9620.38%29.632.673.19%Dividend06/16/06WisdomTree
JKDiShares Morningstar Large-Cap ETF15.83%$643.76 M760.20%20.583.332.27%Market Cap06/28/04iShares
PEYPowerShares High Yield Equity Dividend Achievers Portfolio17.60%$1.02 B500.54%43.632.313.19%Dividend12/09/04PowerShares
SDYSPDR S&P Dividend ETF15.41%$14.79 B1070.35%26.413.015.40%Dividend11/08/05SPDR
VIGVanguard Dividend Appreciation Index Fund12.70%$22.56 B1840.09%24.334.242.08%Market Cap04/21/06Vanguard
NOBLProShares S&P 500 Dividend Aristocrats ETF--$2.45 B500.35%24.563.871.79%Equal10/09/13ProShares
WDIVSPDR S&P Global Dividend ETF--$82.31 M990.40%19.751.854.73%Dividend05/29/13SPDR
ETFs that could double your money in 5 years (data collected as of September 2016)

The above are some of the ETFs that have returned around and above 15% compound rate over a 5-year period. That translates to doubling your money over 5 years.

If you had $1 million at the beginning to invest in those ETFs, after 5 years, you would have $2 millions. $1 million richer.

Performance of RHS

Performance of RHS

The image above shows the performance of one of the ETFs.

Final thought

If you had been investing in stocks for more than 5 years but still were unable to double your money, you could consider to switch to buying ETFs instead. ETFs simplify things. My $0.02.