Three ETFs I'm Looking to Invest In Heavily in 2025

Investing in individual stocks has always been a favorite approach of mine. I firmly believe that with the right selection and research, a solid stock portfolio can outperform the general stock market. However, I also see the benefits of allocating a portion of my investment strategy to reliable index funds.

Index fund ETFs offer a way to diversify across a collection of stocks in a single investment, potentially yielding significant returns over the long term. Even though I have my eye on several undervalued individual stocks, especially in the dividend space, I plan to gradually invest in three specific ETFs throughout 2025.

The Essential ETF for Every Investor

If I had to choose just one investment, it would undoubtedly be the Vanguard S&P 500 ETF (VOO). As Vanguard's primary S&P 500 index fund, this ETF tracks the performance of the S&P 500 index, which is commonly regarded as the standard for assessing how the U.S. stock market is doing.

This ETF boasts an incredibly low 0.03% expense ratio. To put that into perspective, if you were to invest $10,000 in the fund, you would only spend $3 on annual expenses. Historically, the S&P 500 has achieved an average total annual return of around 10%. Therefore, over a period of 30 years, a $10,000 investment could potentially grow to about $175,000, with no active management required.

My Top ETF Choice 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. This trend has continued, particularly with large-cap tech stocks outperforming and interest rates not decreasing as forecasted.

Currently, the Russell 2000 small-cap index stocks have an average price-to-book ratio of 1.9, in contrast to the typical S&P 500 stock, which stands at 4.7. With interest rates beginning to decline, along with favorable conditions that could support small-cap growth, I believe the Vanguard Russell 2000 ETF (VTWO) is the top ETF selection for 2025.

Gaining AI Exposure Safely

Artificial intelligence (AI) represents a substantial investment opportunity and may become one of the most pivotal technological developments in my lifetime. However, my expertise lies in sectors such as banking, real estate, and e-commerce, which makes evaluating individual AI stocks somewhat outside my proficiency.

Consequently, I plan to initiate a position in the Ark Autonomous Technology and Robotics ETF (ARKQ), managed by Cathie Wood's Ark Invest. This ETF includes a curated selection of companies that are likely to benefit from the AI surge, including well-known names like Tesla and Nvidia, alongside lesser-known companies such as Kratos Defense & Security and Deere.

Although it carries the highest expense ratio at 0.75% among the ETFs discussed, this is typical for specialized and actively managed funds.

Integrating These ETFs into My Portfolio

While individual stocks still represent a significant majority of my investment portfolio, I am starting to build a solid foundation through quality index funds as I advance in my investing journey. In 2025 and beyond, I plan to allocate half of my new investments to individual stocks and the remaining half to these ETFs.

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

ETFs, Investing, Stocks