7 Easy To Understand ETFs To Replace A Savings Account

RELATED QUOTES

SymbolPriceChange
SPY217.66-0.19
IWM123.31+0.24
VTI111.77-0.07
HYG86.66+0.16
LQD123.79-0.12

If you have a savings account or certificate of deposit (CD), you're probably not making much more than 1% each year from interest. That's better than spending the money, but in order for it to truly to grow in value, it has to perform better than the rate of inflation. According to the U.S. Bureau of Labor Statistics, the 2012 average inflation rate was 2.1%. Most financial planners use 3.0% as the historical average.

Investing in exchange traded funds (ETFs) is the hottest trend since the mutual fund. There are 1,445 U.S.-listed exchange traded products with a total trading volume of $1.2 trillion monthly. A 2011 Charles Schwab study found that 44% of investors planned to expand the use of ETFs in their portfolios.

Within these 1,400-plus product offerings, there are many easy-to-understand ETFs that have the potential to outperform inflation. To yield better results, you have to take on more risk, but some ETFs offer much lower risk than individual stocks. For investors with a longer-term time horizon, these ETFs can build long-term savings better than a savings account or CD.

Index ETFs
Index ETFs follow a large market index. Investors use these funds as core holdings along with bond ETFs, which are explained later in this article. When developing an investment portfolio, it is important to take a balanced approach. Some financial planners recommend that the younger you are, the more weight stock market index ETFs should have in your portfolio.

Here are three index ETFs to take a closer look at:

SPDR S&P 500
The SPDR S&P 500 (SPY) is an index fund that mirrors the performance of the S&P 500. It is the largest ETF in the world, as well as the oldest. The fund's fees are only 0.09% - far below the category average of 0.35%. Over the last five years, this fund has quadrupled the performance of most savings accounts each year: SPY yields 2.1%.

iShares Russell 2000 Value Index
If you want to capture the performance of smaller companies, you need the iShares Russell 2000 Value Index ETF (IWM). With an expense ratio of 0.2%, its cost is still below the industry average, and this fund is a favorite among small cap investors. IWM yields 2%.

Vanguard Total Stock Market ETF
If you want the broadest representation of the U.S. stock market, consider the Vanguard Total Stock Market ETF (VTI). The fund follows an index that invests in a sample of stocks from the New York Stock Exchange and the NASDAQ. Like any Vanguard product, it is inexpensive, with an expense ratio of just 0.05%. VTI yields 2.1%.

Bond ETFs
Bond ETFs allow you to invest in the safety of bonds without the risk of holding one or two individual bonds. These funds invest in hundreds or thousands of bonds at the same time, making your money relatively safe. Don't expect to see big price gains in these ETFs. It's the dividend yield that should interest you. The older you are, the more your investment dollars should be in bonds.

Here are two bond ETFs to consider:

iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
This fund gives investors exposure to the higher-yielding corporate bonds on the market. It has a yield of more than 5% and an expense ratio of 0.5%.

iShares iBoxx $ Investment Grade Corporate Bond ETF
Higher yields come with higher risk. To capture the returns of higher-rated bonds, look at the iShares iBoxx $ Investment Grade Corp Bond Fund (LQD). This ETF not only gives you the safety of investing in a large basket of bonds, but all are highly rated with little chance of default. The expense ratio is only 0.15%, and the yield is 3.1%.

Sector ETFs
Sector ETFs are riskier than the index ETFs discussed previously. Investors use these securities to add more weight in an area of the economy that they believe may outperform the rest of the economy in coming years.

You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.

If you are interested, consider these two:

Financial Select Sector SPDR
With an average trading volume of 51.5 million shares, the Financial Select Sector SPDR (XLF) is the most popular sector ETF. The fund invests in a basket of stocks that represent the financial sector.

The largest holdings in the fund are Wells Fargo (WFC) and JP Morgan Chase (JPM). Expenses are a respectable 0.18%. The fund yields 1.7%.

STRONG>PowerShares QQQ Trust Series 1
Although not technically a sector ETF, the PowerShares QQQ (QQQ) is the ETF of choice for investors who want to capture the performance of the technology sector. Of the fund's assets, 63%, including all of the top 10 holdings, are invested in technology stocks. The fund has an expense ratio of 0.2%. This fund has no yield.

The Bottom Line
Keeping money in a savings account might feel safe, but its value is eroding due to inflation. That might change in future years as interest rates rise, but for now, a relatively safe way to put your money to work is through ETFs.

Use this article as a guide to start learning more. Take a look at each fund's website and learn all you can about each security you are interested in adding to your portfolio. You should be able to talk to your friends or family about the details of the fund before investing real money. If you can't do that, you're not ready to invest.

More From Investopedia

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • Markets Right Now: Health care pulls stocks lower again Associated Press - 5 minutes ago

    The latest on developments in global financial markets (all times local): 4:00 p.m. More declines in health care stocks are pulling indexes lower on Wall Street. Biotechnology companies continued to fall ... … More »

  • Vegas stadium backers down to 2 top sites for Raiders Associated Press - 8 minutes ago

    Backers of a proposed NFL stadium said they've whittled their list to two sites just west of the Las Vegas Strip and refuse to accept any less than $750 million in public funding toward the project, which ... … More »

  • Deals of the day- Mergers and acquisitions Reuters - 14 minutes ago

    ** Tesla Motors Inc has won U.S. antitrust approval to buy solar panel installer SolarCity Corp, the Federal Trade Commission said on Thursday. ** British broadcaster ITV said on Thursday it would not bid for Entertainment One after failing to … More »

  • Turkey shells Kurdish militia in northern Syria: Turkish state media
    Turkey shells Kurdish militia in northern Syria: Turkish state media AFP News - 33 minutes ago

    Turkish artillery on Thursday shelled targets of the militia of the Kurdish Democratic Union Party (PYD) in northern Syria after they advanced in violation of an accord with the United States, state media said. Turkish forces opened fire on PYD … More »

  • Grain lower, livestock lower Associated Press - 42 minutes ago

    Grain futures were mostly lower Thursday on the Chicago Board of Trade. Wheat for Sept. fell 2.75 cents at $4.0125 a bushel; Sept. corn lost 4 cents to 3.2350 a bushel; Sept. oats was up 3.50 cents at ... … More »

  • Markets subdued ahead of Fed speech, healthcare stocks dip
    Markets subdued ahead of Fed speech, healthcare stocks dip Reuters - 54 minutes ago

    The start of a central bankers' meeting in the mountains of Wyoming, which could clarify the path of U.S. interest rate policy, kept most investors from making big bets on Thursday. Federal Reserve Chair Janet Yellen will deliver the keynote speech … More »

  • Wall St. dips on consumer, healthcare; Fed in focus
    Wall St. dips on consumer, healthcare; Fed in focus Reuters - 1 hour 24 minutes ago

    U.S. stocks edged lower on Thursday, weighed down by a drop in consumer and healthcare names, while financials rose modestly after two more Federal Reserve officials pushed towards the case for a rate hike. Consumer discretionary stocks fell 0.5 … More »

  • Turkey enters Syria to halt Kurds: analysts
    Turkey enters Syria to halt Kurds: analysts AFP News - 1 hour 50 minutes ago

    Turkey's decision to send troops into Syria is a last-ditch bid to prevent the realisation of its worst nightmare: the creation of a "Syrian Kurdistan", analysts say. On Wednesday, Ankara launched operation "Euphrates Shield", dispatching tanks and … More »

  • Stocks move lower in afternoon trading on mixed earnings
    Stocks move lower in afternoon trading on mixed earnings Associated Press - 1 hour 53 minutes ago

    Stocks are moving lower in afternoon trading Thursday as investors sift through a handful of earnings reports. Tiffany & Co. rose on higher profits, but Signet Jewelers and Dollar General fell after reporting ... … More »

  • Oil pares gains, Saudi Energy Minister talks down intervention
    Oil pares gains, Saudi Energy Minister talks down intervention Reuters - 2 hours 8 minutes ago

    Oil prices rose on Thursday on speculation the dollar would drop on Friday's monetary policy speech by the U.S. Federal Reserve Chair, before paring gains on a Reuters interview with the Saudi Energy Minister that cast doubts about an OPEC output … More »

  • First driverless taxi hits the streets of Singapore Reuters - 2 hours 18 minutes ago

    The first driverless taxi began work on Thursday in a limited public trial on the streets of Singapore.     Developer nuTonomy invited a select group of people to download their app and ride for free in its "robo-taxi" in a western Singapore … More »

  • Vivendi second-quarter core operating profit plummets on losses of Canal Plus French channels Reuters - 2 hours 36 minutes ago

    PARIS (Reuters) - French media giant Vivendi reported a lower than-than-expected quarterly core operating profit on increased losses suffered by the French channels of its pay-TV Canal Plus. Earnings before ... … More »

  • Kerry outlines new Yemen peace push
    Kerry outlines new Yemen peace push AFP News - 2 hours 46 minutes ago

    US Secretary of State John Kerry on Thursday announced a fresh international peace initiative for Yemen aimed at forming a unity government to resolve its 17-month-old conflict. "This war needs to end and it needs to end as quickly as possible," … More »

  • Biden warns Europe against Russian energy reliance
    Biden warns Europe against Russian energy reliance Associated Press - 2 hours 51 minutes ago

    U.S. Vice President Joe Biden says a new natural gas pipeline planned to stretch from Russia to Germany "looks like a fairly bad deal" for Europe because it increases its energy dependency on ... … More »

  • Dollar General, Dollar Tree report weak sales growth Associated Press - 3 hours ago

    Discount-store rivals Dollar General and Dollar Tree reported weaker-than-expected sales figures Thursday, as struggling lower-income shoppers spent less at their stores. Shares of both companies fell ... … More »

  • Exclusive - Exchange Bats eyes new EU base outside London after Brexit
    Exclusive - Exchange Bats eyes new EU base outside London after Brexit Reuters - 3 hours ago

    Europe's biggest stock exchange Bats Europe could open a base outside London following Brexit, its head told Reuters, voicing doubts about whether the City of London would secure sufficient access to the European market. Bats Europe accounts for … More »

  • European, US equities dip awaiting Fed
    European, US equities dip awaiting Fed AFP News - 3 hours ago

    European stocks slid Thursday in choppy trade as investors eyed poor German data and recent oil price falls, on the eve of a speech by Federal Reserve boss Janet Yellen. Mid-afternoon, Frankfurt had shed 0.9 percent, London lost 0.3 percent and … More »

  • TABLE-INDONESIA KPB NUSANTARA PALM OIL PRICES - Aug 25 Reuters - 3 hours ago

    Aug 25 (Reuters) - Following are Indonesian prices for crude palm oil (CPO) quoted at an auction by PT KPB Nusantara (formerly known as the state marketing centre) on Monday. Buyer Volume Price Terms (tonnes) ... … More »

  • RUBBER-Tokyo futures prices after evening session Aug 25 Reuters - 3 hours ago

    Following are prices for Tokyo rubber futures at the end of the Tokyo market's evening session on Aug 2016. Contract Day Volume Evening Volume * Aug 161.3 5 155.0 5 * Sep 156.2 45 156.5 12 * Oct 155.3 ... … More »

  • Japan's ANA finds problem with Boeing 787 Rolls-Royce engines, cancels some flights Reuters - 4 hours ago

    TOKYO/LONDON (Reuters) - Japanese carrier ANA Holdings needs to replace damaged compressor blades in the Rolls-Royce engines powering its Boeing 787s, it said on Thursday, forcing it to cancel some Dreamliner flights over the coming weeks. The … More »

  • German prosecutors review stolen Bosch data for VW dieselgate clues Reuters - 4 hours ago

    Prosectors in Stuttgart, Germany are examining a trove of stolen Bosch data to see whether it contains clues about how Volkswagen cheated diesel emissions tests. "We are reviewing it to see if it is relevant," a spokesman for the Stuttgart … More »

  • Turkey sends more tanks to Syria, warns Kurdish militia
    Turkey sends more tanks to Syria, warns Kurdish militia AFP News - 4 hours ago

    Turkey sent more tanks into Syria on Thursday and sternly warned a Kurdish militia to withdraw from frontline positions, a day after pro-Ankara Syrian opposition fighters captured a key border town from jihadists. The tanks joined those which … More »

  • In euro zone first, Finland could sell syndicated bond with negative yield Reuters - 4 hours ago

    Finland could launch a new bond as early as next week, three banking sources said on Thursday, a deal that could mark the first euro zone sovereign syndication with a negative yield. The country is believed to be considering whether to issue a … More »

  • Asia’s Biggest Container Shipper Posts Loss After China Merger Bloomberg - 4 hours ago

    China last year merged China Ocean Shipping Group and China Shipping Group to form China Cosco Shipping Corp. as part of the government’s efforts to shrink industries plagued by overcapacity while creating globally competitive businesses. China … More »

  • Russia to work with US on response to Syria gas attacks probe
    Russia to work with US on response to Syria gas attacks probe AFP News - 4 hours ago

    Russia will work with the United States on a response after UN investigators found that the Syrian regime had carried out chemical attacks, Moscow's UN Ambassador Vitaly Churkin said Thursday. An investigative panel set up by the UN Security … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.128-0.001-0.78%
    N21.SI
    0.355-0.010-2.74%
    E5H.SI
    0.59-0.01-1.67%
    5TP.SI
    1.00+0.01+1.01%
    Y92.SI
    0.785-0.010-1.26%
    BS6.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.45+0.09+26.76%
    AYB.SI
    0.465+0.080+20.78%
    E8Z.SI
    0.16+0.02+14.29%
    UV1.SI
    0.20+0.02+11.11%
    BGO.SI
    0.188+0.018+10.59%
    AWS.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.35-0.10-22.22%
    BFK.SI
    0.185-0.040-17.78%
    Y35.SI
    0.40-0.06-13.04%
    BBW.SI
    0.20-0.03-13.04%
    AWI.SI
    0.194-0.026-11.82%
    BLZ.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3532-0.0006-0.04%
    USDSGD=X
    1.5265+0.0016+0.10%
    EURSGD=X
    1.7844-0.0062-0.35%
    GBPSGD=X
    74.2700+0.127+0.17%
    SGDJPY=X
    5.7281+0.0045+0.08%
    SGDHKD=X
    2.9641-0.0128-0.43%
    SGDMYR=X
    9,818.7656+35.5244+0.36%
    SGDIDR=X
    4.9176+0.0043+0.09%
    SGDCNY=X
    1.0308+0.0001+0.01%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,325.50-4.20-0.32%
    GCZ16.CMX
    18.50-0.05-0.27%
    SIU16.CMX
    96.51+1.17+1.23%
    ^XAU
    2.080.00+0.10%
    HGU16.CMX
    47.34+0.57+1.22%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.16+0.01
    ^FVX
    1.58+0.02
    ^TNX
    2.26+0.02
    ^TYX