The 6 Cheap ETFs to Buy in 2024

The 6 Cheap ETFs to Buy in 2024
The 6 Cheap ETFs to Buy in 2024

Low-cost exchange-traded funds (ETFs) provide investors with a cost-effective way to get diversified exposure across various asset classes and investment themes, which is a significant plus because, as we will see in a moment, it is not always easy for the average investor to get direct exposure to these asset classes and themes. Furthermore, ETFs offer a level of diversification that retail investors would find difficult to replicate.

The Best Low-Cost ETFs to Buy Now

This list is aimed to provide investors with new ideas to become more familiar with. In addition, I’ve included a variety of ETFs to meet the demands of different investors and fill a gap in their portfolios.

All of the low-cost ETFs featured are from reputable investment firms and have a significant amount of assets under management (AUM). Of course, many ETFs have low AUM and/or market prices, but it is not what defines a cheap ETF. Investors should instead focus on something known as the expenditure ratio.

ETFs can be actively or passively managed, however the latter often have much lower expense ratios, or ER (management costs divided by the ETF assets). Don’t underestimate the value of a low expense ratio, since it can have a significant impact on returns over time. 

1. Vanguard S&P 500 ETF.

This ETF closely tracks and correlates with the benchmark S&P 500 index. As such, it’s a fantastic low-cost option to park money if you’re optimistic on the market as a whole and don’t want to invest in specific equities or sector ETFs. It is a very liquid asset, allowing investors to dip in and out and put money to work in their portfolio as needed.

2. Vanguard Dividend Appreciation is an inexpensive dividend ETF.

This ETF will appeal to investors who believe that companies that increase their dividends generate higher profits. It intends to track the S&P 500 Dividend Growers Index. The index comprises U.S. firms that have raised dividends for at least ten years, but it excludes the top 25% of companies with the highest dividend yield. The goal is to avoid low-growth (and low dividend growth) cash cow companies in favor of those that are gradually increasing earnings and payouts.

3. The Vanguard Intermediate-Term Corporate Bond Index Fund. 

Retail investors find it difficult to diversify their exposure to investment-grade corporate bonds. Still, this low-cost Vanguard product enables them to do so. The ETF follows the performance of the Bloomberg U.S. 5-10 Year Corporate Bond Index. It is an index of US investment-grade corporate bonds with debt maturities ranging from five to ten years.

Although the performance described in the table above is clearly disappointing, it is critical to understand that different asset classes may provide varying returns when market conditions shift. For example, if market interest rates rise, corporate bond values tend to fall as investors seek higher yields from bonds.

4. Invesco DB Commodity Index Tracking Fund.

Commodities are another asset type that can be difficult to diversify into. That is why investing into Invesco’s ETF tracking the DBIQ Opt Yield Diversified Comm Index makes sense. In simple terms, the ETF invests in a portfolio of commodities futures.

Energy dominates this ETF (more than 45% of assets are in gasoline, petroleum, and heating oil), but gold, sugar, soybeans, maize, copper, and zinc each contribute more than 5%, with zinc and aluminum following closely behind.

The ETF’s performance over the last decade has been disappointing, although this can be attributed to the difficult comparison with oil prices a decade ago. However, the ETF’s 120% return over the last three years (commodities have surged) has outperformed the S&P 500’s total return of 55% during the same period. Furthermore, if you want exposure to commodities to offset risk elsewhere in your portfolio, this ETF is a good investment.

5. Invesco QQQ Trust (QQQ). 

For individuals seeking exposure to tech behemoths such as Apple, Amazon, and Facebook, QQQ replicates the Nasdaq-100 index and provides concentrated tech leadership at a 0.2% cost ratio. While sector-specific, it can be a strategic method to capitalise on the possibilities of the technological revolution.

6. VanEck Gold Miners ETF.

Investors concerned about the trajectory of the global economy or simply looking to diversify with a noncorrelated asset class may consider a gold ETF. In this situation, the VanEck Gold Miners ETF. It makes investments in some of the world’s leading gold mining enterprises. Given that they are often priced in line with their assets (gold reserves), the ETF provides upside exposure to gold prices.

While the ETF may appear to be more expensive (in terms of expense ratio) than other gold ETFs, it invests directly in miners and so is backed by a tangible asset. As a result, investing in it eliminates the concern of whether the ETF owns genuine gold, a derivative of gold, or a combination of the two.

Remember:

  • Conduct your research: Each ETF has distinct characteristics and risks. Before investing, always understand the underlying holdings and objectives.
  • Diversify: Avoid putting all your eggs in one basket. Diversify your investments across asset classes and sectors to reduce risk.
  • Invest for the long term: Cheap ETFs are excellent tools for accumulating long-term wealth, not short-term gains. Be patient, and allow your assets to grow over time.

Frequently Asked Questions (FAQs)

What’s the distinction between a cheap ETF and a low-cost ETF? 

A cheap ETF has a low expense ratio and solid fundamentals compared to its potential, whereas a low-priced ETF just has a low share price.

How can I find the best affordable ETF for me? 

When making your decision, take into account your investing objectives, risk tolerance, and preferred asset allocation.

What are the risks of investing in low-cost ETFs? 

Every investment carries risk, and cheap ETFs are no exception. Consider potential drawbacks such as sector concentration, tracking problems, and underlying asset volatility.

Where can I get inexpensive ETFs? 

Most online brokerages provide a wide range of ETFs, including those listed above.