September has arrived. This means that investors need to prepare themselves for what's historically at least been the worst calendar month of the year for stocks.

Since 1928, the S&P 500 (SNPINDEX: ^GSPC) has fallen by an average of 1.1% during September. Historically, the index has produced positive results just 44.5% of the time.

Given the current backdrop of high inflation, a war in Iran, a mixed labor market, and possible rate hikes from the Fed, it would be easy for investors to think that the S&P 500 could pull back once again -- and to unload shares in advance.

History suggests, however, that this could be the wrong move.

Image source: Getty Images.

September's reputation only tells part of the story

There's no obvious fundamental reason why stocks should fall simply because the calendar enters a new month. More importantly, even a bad month is usually just a minor inconvenience for investors with long-term time horizons.

Consider that the S&P 500 has experienced dozens of corrections, bear markets, recessions, wars, financial crises, and other economic setbacks over the past century. Yet every time the S&P 500 has come back to eventually establish a new all-time high. Over that time, it's still been able to produce around a 10% average annual return.

Trying to avoid September's historical weakness creates other problems:

• September has still been positive nearly half of the time. That means investors could very well miss out on gains.
• Market timing requires investors to be right twice, once when they sell and once when they buy again. Get one of those two wrong, and you'll probably end up worse off.

That can be costly. Fidelity calculated that $10,000 invested in the S&P 500 at the beginning of 1988 would have grown to roughly $616,000 by the end of 2025. But missing only the five best trading days would have reduced the ending value all the way down to $380,000.

That's a difference of nearly a quarter-million dollars!

Here's what I'd do

Instead of trying to predict whether the S&P 500 will be up or down in September, I'd maintain my long-term perspective and keep up with monthly purchase schedules via 401(k) plans or other accounts. Here's the logic:

• If stock prices keep rising, you participate in the gains.
• If stock prices fall, automatic investing plans allow you to buy shares at discounted prices.

That's why keeping a long-term perspective and ignoring short-term volatility is so important. There will inevitably be more bad months, more corrections, and even a few more bear markets. Long-term investors don't necessarily need to try to avoid them. They simply need to maintain the discipline to ride them out and even take advantage of them.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

If you're years or even decades away from retirement, using your portfolio to generate dividend income might not be a priority. But dividend stocks still deserve consideration as part of a broader long-term portfolio allocation.

You don't necessarily want to reach for ultra-high yields, but capturing something in the 3% range built on a portfolio of durable, high-quality companies is easily doable.

With the Fidelity High Dividend ETF (NYSEMKT: FDVV), you get an impressive growth component on top of it.

Image source: Getty Images.

FDVV isn't your typical high-dividend-yield ETF

The Fidelity High Dividend ETF (exchange-traded fund) tracks an index that targets large- and mid-cap dividend payers that are expected to keep growing and paying those dividends. But if you look under the hood, you might be surprised to see Nvidia, Apple, Microsoft, Broadcom, and Alphabet among the top 10 holdings. All of those stocks pay minimal yields, and you wouldn't expect to find them in a high-yield ETF.

The key is in how stocks are selected and weighted for the fund. Dividend yield is a key consideration, but so is dividend growth rate and payout ratio. The megacap tech stocks score very well on those components, and that helps them qualify for inclusion.

But the reason they're getting such large allocations in the portfolio is that their dividend attractiveness is measured relative to their sector, not the broader market. Therefore, Nvidia isn't getting measured against a high-yield utility stock. It's measured against its sector peers and scores very highly.

That methodology results in a unique product within the dividend ETF category -- an ETF yielding 2.6% while maintaining a very growth-tilted profile.

FDVV can still be a passive-income machine

Even with a more modest high yield, the Fidelity High Dividend ETF has the ability to generate thousands of dollars in annual dividend income. A $100,000 initial investment today could produce nearly $3,000 in dividends over the course of the year at today's rate.

But this might be especially appealing for someone looking to combine growth and income in a single ETF. The 28% allocation to the tech sector, mostly concentrated in the megacap names, ensures participation in future tech rallies and the artificial intelligence (AI) trade.

With roughly $10 billion in assets, this fund is still overlooked. It doesn't rank among the 10 largest U.S. dividend ETFs by assets under management (AUM) despite having a five-year average annual return of nearly 14%, one of the best marks in this group.

For investors looking to build a substantial passive-income stream but keep some growth upside, the Fidelity High Dividend ETF should be on your radar.

David Dierking has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Apple, Broadcom, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.

Generating $500 per month in passive income would be a huge step toward using your portfolio to actually fund your lifestyle. No longer would the focus be exclusively on long-term growth. It could be built for generating the income to pay your bills today.

Of course, there are a number of ways to go about doing that. Targeting something with an 8% to 10% yield might sound tempting, but those are often risky or unstable dividends. The better strategy is to identify an ETF with a larger portfolio of high-quality stocks that still produce sustainable above-average yields.

My personal favorite for this is the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). Since its 2011 inception, it's increased its annual dividend every year. And its 3.2% yield is triple the yield on the S&P 500.

Image source: The Motley Fool.

How much it takes for SCHD to generate $500 per month in income

Producing $500 in dividend income monthly from the Schwab U.S. Dividend Equity ETF means generating $6,000 per year. At its current yield of 3.2%, that would require an investment of $187,500.

I'd point out that this fund actually distributes dividend quarterly, not monthly, and expectations should be adjusted accordingly. Also, its yield and distribution amounts can fluctuate regularly.

But the reason why the Schwab U.S. Dividend Equity ETF works so well for this is its structure is that it focuses entirely on high-quality dividend-paying stocks with above-average yields. It's not overly concentrated, and its multipronged strategy helps eliminate excessive risks from making their way into the portfolio.

This strategy looks for sustainable income and consistent long-term growth, not eye-popping yields or risky investments.

SCHD helps build growth and income

Even if you don't have $187,500 to invest today, the Schwab U.S. Dividend Equity ETF can help get you there.

It's more than just a dividend producer, as evidenced by its long-term returns. Since its inception, the fund has returned 13.4% annually (with dividends reinvested). That includes a 29% year-to-date total return as investors continue rotating into the value and quality stocks that make up this portfolio.

If investors maintain a long-term buy-and-hold perspective and regularly reinvest their dividends into additional new shares, even modest initial investments can grow substantially over the course of years. If you add regular monthly investments to it, even better!

But for investors looking to build toward a $500-per-month, sustainable passive income stream, the Schwab U.S. Dividend Equity ETF's combination of income, growth, and quality is exactly what they need.

David Dierking has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Bitcoin (CRYPTO: BTC) isn't just for crypto enthusiasts anymore.

Thanks to the launch of spot Bitcoin ETFs several years ago, crypto has become widely adopted as a legitimate asset class in portfolios. Funds such as the iShares Bitcoin Trust (NASDAQ: IBIT) and the Fidelity Wise Origin Bitcoin Fund mean investors don't have to open separate crypto wallets to gain exposure. Spot Bitcoin ETFs now manage roughly $100 billion.

That's an incredible evolution for something that was considered to be a fringe asset class not long ago.

But if cryptocurrency is to be given equal consideration to other asset classes like gold, real estate, and commodities, we need to figure out how it fits within a broader portfolio and what allocation it deserves.

I think a 5% allocation is a good starting point. That would provide meaningful exposure without significantly altering the portfolio's risk/return profile.

But the numbers suggest the decision might not be quite that simple.

Image source: Getty Images.

A 5% allocation can actually make a surprisingly big difference

It probably goes without saying that Bitcoin is more volatile than the S&P 500 (SNPINDEX: ^GSPC). Therefore, any money you pull away from stocks (or any other asset class for that matter) is likely to increase the overall volatility in your portfolio.

But the math can be a little complicated.

Not all volatility necessarily increases portfolio risk. That's the basic case for diversification. Two assets can be volatile in isolation. But if they have a low correlation in moving in different directions and magnitudes, pairing them can actually make the combination less volatile overall.

History shows that the iShares Bitcoin ETF has been roughly 2.5 times more volatile than the Vanguard S&P 500 ETF (NYSEMKT: VOO). But the correlation between the two funds is only 0.4. In other words, adding Bitcoin to stocks is very likely to make the combination of the two more volatile than just owning the S&P 500 alone. But the lower correlation could offset some of that.

Let's imagine an investor with 100% of his portfolio in the Vanguard S&P 500 ETF decides to shift 5% of the portfolio to the iShares Bitcoin Trust.

A historical analysis of this two-ETF portfolio shows that the 5% allocation to Bitcoin would have contributed 7.35% of the overall risk. The addition of Bitcoin made the new portfolio more volatile, as expected, but the lower correlation mitigated some of the added risk.

The takeaway: Even small allocations to Bitcoin in a broader portfolio would definitely increase the amount of risk you'd see.

Should you put 5% of your portfolio in Bitcoin?

For a more aggressive investor with a longer time horizon, I think a 5% portfolio allocation is easily defensible. It increases overall volatility, but not egregiously so.

For more conservative or newer investors, an allocation of 1% to 3% could be a better starting point. It's enough that it allows you to participate in Bitcoin's upside, but you're unlikely to see a significant portfolio impact even if the price drops in half.

The iShares Bitcoin ETF is probably the best way to add exposure to your portfolio. The 0.25% expense ratio is minor in relation to its price movements. Plus, it's the most liquid and tradable ETF in this space.

As is the case with any volatile investment, time horizon will be an important factor. The longer you're able to ride out the short-term volatility, the better chance you'll have at capturing longer-term gains.

Bitcoin may still be in the early stages of its growth cycle. It's evolved enough that even smaller retail investors should consider adding it to their portfolios.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Vanguard S&P 500 ETF, and iShares Bitcoin Trust. The Motley Fool has a disclosure policy.

The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is one of the most popular dividend ETFs in the world. Its selection criteria, which include consideration of balance sheet quality, yield, and dividend growth history, are among the most stringent and produce one of the most durable, high-quality portfolios around.

Even a modest $1,000 investment in the fund a decade ago would have grown into a relatively substantial amount. Over that time, it returned roughly 13% annually. Assuming no additional investments were made, that would have turned that original $1,000 into approximately $3,400 (assuming dividends were reinvested).

Image source: Getty Images.

But that return assumes that you would have bought and held throughout those 10 years. That meant staying put during the 2018 mini-bear market, the 2020 COVID-19 crash, and the 2022 bear market. That's not to mention a multi-year period where the markets were dominated by tech and artificial intelligence (AI) stocks.

The Schwab U.S. Dividend Equity ETF is a fund worth holding on to for the long haul. Those downturns would have created opportunities to buy shares at discounted prices, one of the best ways to enhance your long-term returns. Investors willing to make consistent monthly contributions to an ETF like this generally have a better chance of creating long-term wealth over the next 10 years.

The best strategy is to remain patient, reinvest those dividends, and keep your focus on the long term.

David Dierking has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Warren Buffett became one of the world's wealthiest people by identifying great businesses and investing in them for the long haul. Interestingly, though, it's not the strategy that he suggests for most investors.

While Buffett works at valuing and reassessing the handful of companies in his personal portfolio, he recommends something far simpler for most everybody else: Buy the S&P 500 (SNPINDEX: ^GSPC).

Back in 2013 in his annual letter to Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) shareholders, he talked about the instructions he included for the money that he leaves for his wife upon his passing. He wants it put into a portfolio that includes 10% in short-term Treasuries and 90% in a "very low-cost S&P 500 index fund."

Which S&P 500 index does he like best? "I suggest Vanguard's," he said.

Granted, following that advice isn't going to turn anyone into a billionaire. But history shows that even a modest $100 monthly investment made consistently into the Vanguard S&P 500 ETF (NYSEMKT: VOO) can turn into hundreds of thousands of dollars over time.

Image source: The Motley Fool.

Buffett believes investors should keep it simple

Buffett's reasoning for why most people should just stick with the S&P 500 and hold it is pretty simple. Market timing is mostly a losing proposition, and adequate stock research takes time and skill.

Most people just want to save and accumulate wealth over time. By investing in the S&P 500, investors can buy shares of the world's most successful businesses and not have to spend a minute worrying about whether they're buying the right stocks or buying them at the right time.

With the Vanguard S&P 500 ETF, you just buy the whole basket and let the U.S. economic growth engine do its thing.

One of the best features of using this Vanguard exchange-traded fund (ETF) is that it costs next to nothing to own. With an expense ratio of just 0.03%, investors are able to keep virtually all dividends and capital growth in their own pockets instead of those of a broker or financial advisor.

How $100 per month can turn into $225,000

History gives us plenty of evidence that consistent monthly investing into a simple S&P 500 ETF makes so much sense for most people.

During the past 100 years, the index has returned roughly 10% annually. To be fair, there have been a number of bear markets and major economic events that investors would have had to endure to achieve those returns. But this should still give us a good baseline expectation to work with.

Assuming that someone captures a 10% average annual return and invests just $100 per month in the Vanguard S&P 500 ETF, in 30 years that investment account would grow to roughly $226,000.

Even though you would have only contributed $36,000 during that time, investment growth and the power of compounding would have done most of the work for you. That's why long-term buy-and-hold investing is such a smart strategy.

Vanguard puts Buffett's advice into a single ETF

Long-term investing doesn't have to be complicated. As much as we hear about the thousands of ETFs available to investors across a multitude of asset classes, styles, themes, and niches, even a straightforward single-ETF strategy can be more than enough.

Investing in the S&P 500 means buying many of the largest, most consistent, and most profitable U.S. businesses. That's a portfolio tilted heavily toward long-term durability and quality, something that makes sense for any long-term investment. History has shown the results that the S&P 500 can deliver as long as you're willing to ride out the volatility along the way.

If that's good enough for Warren Buffett, it should be good enough for us.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Index-based exchange-traded funds (ETFs) are some of the most popular investment vehicles on Wall Street. The State Street SPDR S&P 500 ETF (NYSEMKT: SPY), the iShares Core S&P 500 ETF (NYSEMKT: IVV), and the Vanguard S&P 500 ETF (NYSEMKT: VOO) are the three largest ETFs in the world. The latter can claim more than $1 trillion in assets under management.

Part of the reason these ETFs have become so popular is the S&P 500's (SNPINDEX: ^GSPC) long-term performance and its exposure to the economy's largest and most successful companies.

Over the past decade, the S&P 500 has been driven higher by the "Magnificent Seven" stocks, which have included some of the earliest and most successful names from the artificial intelligence (AI) trade. Since then, investors have been rewarded handsomely for simply buying and holding one of these funds.

Source: Getty Images.

In the past 10 years, the Vanguard S&P 500 ETF has returned an average of 15.4%. At that rate, a $1,000 investment would have grown to approximately $4,191 assuming that dividends were reinvested and no additional investments were made.

But capturing that investment growth would have required holding the fund for the entire 10 years. In other words, no market timing, no selling when stock prices decline, and no frequent trading. Just traditional buy-and-hold.

Usually, that's the best way to capture long-term performance gains. People who trade frequently often sell after stocks have declined and only get back in after they've at least partially recovered. That kind of behavior usually results in investor returns lagging behind fund returns.

But for those willing to ride out the volatility, the Vanguard S&P 500 ETF has proven to be one of the best ways for everyday investors to build long-term wealth.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Investors looking at today's market might take the easy route and focus solely on tech-sector stocks, especially those related to artificial intelligence (AI). After all, these stocks have spent the last several years outperforming the market by a wide margin. But if you really want something that's durable, consistent, and long-lasting in your portfolio, dividend-focused exchange-traded funds (ETFs) are the place to look.

Dividend ETFs won't be as exciting as tech stocks. But most of these funds invest in companies that generate consistent profit growth, strong cash flows, and a history of rewarding shareholders with growing dividends. Plus, they tend to hold up better during declining or volatile markets.

In 2026, several dividend ETFs are outperforming the S&P 500 (SNPINDEX: ^GSPC) amid rising concerns about inflation, geopolitical risk, and government deficits. That's why now is an especially good time to consider adding these to your portfolio.

Here are three that stand out as potential leaders in the future.

Source: Getty Images.

1. Vanguard Dividend Appreciation ETF

The Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) is built on a very simple strategy: own U.S. large-cap stocks that have raised their dividends for at least 10 consecutive years. It's a very straightforward methodology, but one that's delivered impressive results over the years.

The fund has returned more than 13% annually over the past decade, a period when the market was almost exclusively focused on the tech trade. Its 1.4% yield isn't terribly attractive compared to other dividend ETFs, but that's because it actively avoids potential yield traps. Its 0.04% expense ratio makes it one of the cheapest funds to own.

Part of the reason the fund has done so well is that its market-cap-weighted process pushes names like Apple and Microsoft into the fund's top five holdings. Overall, the Vanguard Dividend Appreciation ETF offers one of the more balanced combinations of growth and income.

2. iShares Core Dividend Growth ETF

The iShares Core Dividend Growth ETF (NYSEMKT: DGRO) builds on VIG's focus on long-term dividend growers and adds quality screens to ensure that those dividend payments are sustainable over time.

The fund has a track record similar to that of the Vanguard Dividend Appreciation ETF, having returned about 13.6% annually over the past decade. Its 2% dividend yield makes it a better option for income seekers, especially when investing more heavily in sectors such as financials and healthcare. By maintaining a more defensive, value-oriented portfolio, the iShares Core Dividend Growth ETF offers a nice contrast to a core Vanguard S&P 500 ETF (NYSEMKT: VOO) position in your portfolio.

3. Schwab U.S. Dividend Equity ETF

The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) appears on many favorite dividend ETF lists and for good reason. It perhaps does the best job of incorporating dividend growth, high yield, and balance sheet quality into its stock selection process.

If higher income is your goal, this is the best of these three funds to consider. Its 3.2% yield is roughly triple that of the S&P 500. And it's built on one of the highest-quality portfolios you'll find because companies need to meet clear criteria, including cash flow-to-debt, return on equity (ROE), dividend yield, and dividend growth rate. The Schwab U.S. Dividend Equity ETF has also generated a 13% average annual return over the past 10 years, and its 30% year-to-date return makes it one of the best performers in this category.

Why all three of these dividend ETFs can be held forever

The biggest advantage of these dividend ETFs is that they're built on balance sheet strength and durability.

The AI trade is working right now, but economic cycles rise and fall. Instead, these ETFs hold companies built to withstand a range of economic environments. Historical returns show they can still capture upside in good markets. But the downside protection and volatility mitigation during declining markets is just as beneficial.

David Dierking has positions in Apple, Schwab U.S. Dividend Equity ETF, and Vanguard Dividend Appreciation ETF. The Motley Fool has positions in and recommends Apple, Microsoft, Vanguard Dividend Appreciation ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Over the past 100 years, a simple buy-and-hold investment in the S&P 500 (SNPINDEX: ^GSPC) would have been one of the best ways to make money. During that time, the index averaged a roughly 10% annual return.

At that return, a $100 investment in the S&P 500 100 years ago would have turned into nearly $1.4 million.

While returns can vary widely on a short-term basis, it's still reasonable to think that a 10% average annual return for index funds such as the Vanguard S&P 500 ETF (NYSEMKT: VOO) is possible over the next 20 years.

Source: Getty Images.

If that were to happen without any additional contributions at all, a $10,000 investment would grow to roughly $67,275 or a total return of more than 570%.

The argument is pretty simple: for decades, the U.S. economy has been one of the world's greatest growth engines. It continues to innovate and expand. New companies emerge to replace those that don't evolve fast enough. It's been the constant catalyst that's kept the global economy moving for decades.

And investors have been prime beneficiaries. An investment in the Vanguard S&P 500 ETF hasn't required anybody to pick winners or even constantly manage their portfolios. The index evolves on its own because more successful companies grow larger and ultimately receive greater weightings in this market-cap-weighted index.

While future returns are by no means guaranteed, investing in the S&P 500 remains one of the best ways to create long-term wealth.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Twenty years ago, investing $1,000 in stocks might not have seemed like enough to make a big difference in your portfolio.

It turns out that the Invesco QQQ ETF (NASDAQ: QQQ) would have proven many people wrong.

Over that time, this fund generated an average annual return of 16.6%, or more than 2,000% in total. That $1,000 would have grown into more than $21,000! And that's with not another penny being added along the way.

But earning that kind of return would have required a remarkable amount of patience and discipline. Even though the tech bubble popped more than 20 years ago, investors in the past two decades would have had to endure 20% corrections in 2018 and 2020, as well as a drawdown of more than 30% in 2022.

Image source: Getty Images.

Many investors would have waved the white flag on the Invesco QQQ ETF at least once during that time. But that's why a long-term buy-and-hold strategy is so important.

When people try to time the market, they usually sell only after stock prices have fallen, which essentially locks in losses. And they typically don't reenter the market until much of the subsequent recovery has already occurred.

In other words, they capture the losses and miss out on the gains. That pattern can significantly damage long-term returns.

Of course, returns over the next 20 years are anybody's guess. But the best opportunity to capture those gains is to invest and simply let the long-term power of compounding do its thing.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Investing $100 per month doesn't seem like enough to build real wealth. Even after 30 years, the $36,000 total you'd have invested by that point probably wouldn't even last 12 months.

But that leaves out the most important part of the long-term investing equation: compounding growth.

Historically, the S&P 500 (SNPINDEX: ^GSPC) has generated an average annual return of around 10%. There's no guarantee that investors will get that same return going forward, but it does demonstrate how a portfolio can really grow when even modest monthly investments are consistently made over time.

Image source: Getty Images.

$100 per month could become more than $225,000

Let's imagine that you invest that same $100 per month and capture the S&P 500's long-term average annual return of 10%. After 30 years, you'd have invested $36,000, but the overall value of your portfolio would grow to approximately $226,000.

That's around $190,000 you would have earned just from the long-term power of compounding. Money you essentially earned by doing nothing but letting it sit and grow over time.

And that compounding can grow even more powerful. If you increase your monthly investment from $100 to $200 or your time horizon from 30 years to 40 years, you could easily double or triple your portfolio depending on your rate of return.

Time and discipline are the most important ingredients

I've said many times that investing is one of the few things where you usually get rewarded more for doing less. If you're able to ride out short-term volatility and avoid the temptation to time the market and sell when things look bad, your long-term results are very likely to be better.

Investors should expect bear markets, recessions, and corrections along the way. That's normal.

But if you keep investing that same $100 per month, you'll end up buying more shares when prices are lower. More importantly, it eliminates the need to try to predict what the market's going to do next.

The longer your holding period, the more important compounding becomes to your total investment value.

Even small investments can lead to big results

The easiest way to start is by using a low-cost S&P 500 exchange-traded fund (ETF) like the Vanguard S&P 500 ETF (NYSEMKT: VOO). It owns every company in the index and charges just 0.03% in fees annually. Instead of trying to pick winners, you can just own the entire basket.

There's no guarantee that the future will look like the past, but history provides a pretty good roadmap as to what investors can reasonably expect. Even $100 a month can make it happen.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Hitting the $100,000 mark in your investment portfolio should feel monumental. And it is. It's likely the culmination of years of investing regularly and compounding growth. $100,000 probably isn't the finish line, but it should make you feel like you've reached some level of success.

It can also feel a little stressful. After all, you're dealing with real wealth now, and any wrong moves could cost you thousands of dollars. Maybe you feel like you need to change your asset allocation. Maybe you think it's time to get into individual stock picking or more sophisticated investments.

In reality, some things do change. But they have less to do with what you should buy and more to do with keeping the momentum going.

Image source: Getty Images.

How $100,000 changes the math

Let's imagine that you have $10,000 invested in the S&P 500 (SNPINDEX: ^GSPC) and earn 8% over the course of a full year. Your investment growth in that scenario is $800.

But if you earn 8% on a $100,000 balance, you've made $8,000. Compound that 8% annual rate of return over 10 years, the balance grows to around $216,000. After 20 years, it would become roughly $466,000.

At this point, investment contributions aren't doing most of the work to grow your balance. It's compounding growth or the returns you're earning on your returns. It's maybe the most powerful force in investing, and it's once you hit the six-figure mark in your portfolio that it really makes a difference.

How to invest for the next $100,000

This is where you don't want to overthink things.

There's no need to test out riskier or exotic investments. There's no need to get more aggressive or really alter your investment plan in any major way. You always want to invest in a way that's consistent with your time horizon and risk tolerance. But assuming those considerations haven't really changed, you might not need to change anything.

The plan that got you to $100,000 is the plan that can get you to $200,000.

You can still use something like the Vanguard Total Stock Market ETF (NYSEMKT: VTI) as your portfolio's core and build around it with bonds, dividend stocks, gold, and international investments.

But the biggest factor in your continued success will be behaviors. That means continuing to do the following:

• Keep contributing regularly.
• Reinvest dividends and other distributions.
• Maintain a diversified portfolio.
• Avoid trying to time the market.

Reaching $100,000 in your portfolio shouldn't make you more aggressive. It should make you more patient and disciplined.

David Dierking has positions in Vanguard Morningstar Total Stock Market ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

A lot of people think it takes a lot of money to make money investing in the stock market. In reality, any investment can do the job. Even small monthly investments made consistently over the course of decades.

For many people, a simple $100 monthly investment in the S&P 500 (SNPINDEX: ^GSPC) is achievable. It may not sound like much, but how large can your investment grow if you keep investing for 20 years?

Let's do the math.

Source: Getty Images.

What $100 a month in the S&P 500 turns into

Historically, the S&P 500 has generated an average annual return of around 10% over the past century. While returns can fluctuate significantly in the short term, a 10% annual rate of return assumption gives us a good benchmark to work with.

Assuming an investor starts with nothing and consistently contributes $100 a month to something like the Vanguard S&P 500 ETF (NYSEMKT: VOO), at a 10% average annual return, those investments would turn into roughly $76,000.

That means your total of $24,000 in contributions would have generated roughly $52,000 in investment gains. Once the snowball effect of those monthly investments accelerates, the majority of your returns come from compounding, not from the investments themselves.

Consistency matters more than anything

Most people assume that the rate of return you see on your investments is the most important factor in how big your portfolio can become. There's no question it's a major catalyst, but it's not the biggest one.

The ability to consistently contribute to your investment account is perhaps the most important thing for long-term wealth creation.

There will be times when the market declines, occasionally very significantly. But it's the ability to continue investing through those times that could create the biggest benefit. That's because in those situations, you're buying shares at a discount. Taking advantage of those periods could actually improve your long-term returns over pausing your investments when the market gets rougher.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

The Vanguard S&P 500 ETF (NYSEMKT: VOO) is one of the simplest and best ways to build a long-term portfolio. But what if you want to give it some more growth?

Adding the Invesco NASDAQ 100 ETF (NASDAQ: QQQM) seems like an obvious solution. It gives investors exposure to a lot of the U.S. economy's biggest tech and growth companies. And it's delivered tremendous returns over the past several years. There's just one problem: If you already own the S&P 500, you already own most of those companies in fairly sizable allocations.

That doesn't necessarily mean you should eliminate QQQM from consideration. But it does mean you're making a bigger bet on a single sector than you might realize.

Image source: Getty Images.

You already own many of QQQM's biggest stocks

The Vanguard S&P 500 ETF and Invesco NASDAQ 100 ETF track two unique indexes. But when you look more closely at their compositions, you'll see many similarities.

Seven stocks -- Nvidia, Apple, Microsoft, Broadcom, Amazon, and both of Alphabet's share classes -- are in the top 10 of both funds. They account for roughly 33% of the S&P 500 and 34% of the Nasdaq-100. Overall, there's a 53% overlap. Combining these two ETFs doesn't really give you a dramatically more diversified portfolio, or much of a different portfolio at all.

You're making a bigger bet than you might realize

The Vanguard S&P 500 ETF currently holds around 36% of its assets in the tech sector. The Invesco NASDAQ 100 ETF has roughly 66% in tech and another 17% in consumer discretionary names like Amazon and Tesla.

If you create a portfolio with a 50/50 split between these two ETFs, you've got about half of your money committed to one sector. That can be a big advantage when those companies are leading as they have been over the past few years. But it poses a significant risk when market leadership changes.

Adding QQQM to VOO provides an understandable growth tilt. But it can significantly alter your risk profile in a concentrated way, even if both ETFs individually look diversified.

Would I own VOO and QQQM together?

Yes, but in moderation. The S&P 500 is already historically top-heavy, both in terms of tech exposure and the top 10 holdings. Adding the Nasdaq-100 to it mostly makes those concentration problems worse.

But that may be what you want if you're investing heavily in the artificial intelligence (AI) trade. It would have worked well over the past few years and could continue to do so if these companies are leading. But it's a risky bet. And one you should be aware of at all times.

David Dierking has positions in Apple and Invesco NASDAQ 100 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Owning both the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) has become a popular investment strategy.

The S&P 500 gives you broad exposure to the largest U.S. companies, while the Schwab ETF targets high-quality, high-yielding dividend growth stocks. On paper, they look like an ideal pairing.

But investors shouldn't assume that more exchange-traded funds (ETFs) mean greater diversification. It all depends on how unique those funds really are.

Image source: Getty Images.

VOO and SCHD have a surprising lack of overlap

The Vanguard S&P 500 ETF owns, as the name suggests, roughly 500 companies. The Schwab U.S. Dividend Equity ETF holds a more concentrated portfolio of 103 stocks.

But despite the fact that these two funds target U.S. large-cap stocks, there's not nearly as much overlap as you might think.

Currently, only about half of Schwab U.S. Dividend Equity ETF's positions are currently in the S&P 500. That's due in large part to its higher weighting in mid- and smaller-size companies, especially on the value side. Because the fund has a value tilt relative to the S&P 500, which is more heavily weighted toward growth, there's only an 8% overlap in terms of portfolio weight.

From that standpoint, they're strong diversification candidates. But their respective sector mixes make the case for diversification even stronger.

The Vanguard S&P 500 ETF's top sector holdings are tech (37%), financials (13%), communication services (10%), and consumer discretionary (9%). This reflects the index's heavy growth tilt driven by the artificial intelligence (AI) trade.

The Schwab U.S. Dividend Equity ETF's top sector holdings include healthcare (21%), consumer staples (20%), energy (14%), industrials (12%), and financials (10%). Outside of the latter category, these lists are completely unique.

Would I own VOO and SCHD together?

I already do!

At a high level, the Vanguard S&P 500 ETF is a large-cap growth fund tilting heavily toward megacaps. The Schwab U.S. Dividend Equity ETF is a large- and mid-cap value fund.

That makes them ideal partners. One targets long-term growth. The other provides a more defensive dividend income portfolio. A lot of people want to pair an S&P 500 fund with something like the Vanguard Growth ETF (NYSEMKT: VUG) or the Vanguard Information Technology ETF (NYSEMKT: VGT). But combining VOO and SCHD is what smart portfolio construction is all about.

For long-term growth, both funds can serve as cornerstones of the portfolio. And they work very well together.

David Dierking has positions in Schwab U.S. Dividend Equity ETF and Vanguard Information Technology ETF. The Motley Fool has positions in and recommends Vanguard Morningstar Growth ETF and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Treasury bonds are offering some of their most attractive yields in years.

The 30-year bond, for instance, recently hit 5.3%, its highest level since 2007. But that yield comes with caveats. It's been moving higher because of concerns about rising debt, deficits, and inflation. Those problems are unlikely to be solved anytime soon.

That's why I believe the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEMKT: HYG) is interesting here with its current yield of 6.5%. It invests in junk bonds, but the health of corporate balance sheets is good enough right now that the risk of investing might be below average.

But credit quality isn't the only consideration.

Source: Getty Images.

What the 6.5% yield buys you

The iShares iBoxx $ High Yield Corporate Bond ETF invests in more than 1,300 different securities, virtually eliminating the risk of any one default materially impacting the portfolio.

Overall, the fund has around 57% of assets in BB-rated bonds, the highest rating in the junk bond category, and another 32% in B-rated bonds. Another 7% is invested in CCC-rated securities. That's a fairly typical risk profile for a junk bond ETF, but it does mean potential volatility because the quality of the underlying bonds is in question.

On the positive side, the fund's duration, which is a measure of interest rate sensitivity, is relatively low. If interest rates start to rise as they have been in the Treasury market, this ETF may be somewhat shielded from the negative impact.

We can use the iShares 7-10 Year Treasury Bond ETF as a proxy for the intermediate-term government bond market. It comes with very high quality but a duration more than double that of HYG.

In other words, Treasuries have low credit risk but higher interest rate sensitivity. This junk bond ETF has higher credit risk but lower interest rate sensitivity.

Is HYG worth the extra risk?

Looking purely at share price volatility, these two ETFs have very similar levels of risk. But the junk bond ETF has a yield premium of roughly 2%.

Based on that, HYG has the advantage, but it may ultimately come down to where you think the U.S. economy is headed.

If we see a significant slowdown or even a recession, Treasuries could benefit from a flight-to-safety trade. In that scenario, it wouldn't be surprising to see Treasuries rise in value while junk bonds decline significantly.

In more normal conditions, junk bonds have a better chance of outperforming because the credit quality difference is less of a concern and investors can grab the higher yield for only a modest amount of increased risk.

In today's environment, I think the iShares iBoxx $ High Yield Corporate Bond ETF has a clear advantage, but be careful if the economy shows signs of a sharper slowdown.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Collecting paychecks without doing anything may sound like a fantasy. But if you invest in dividend exchange-traded funds (ETFs), it can become your reality.

If you find the right dividend ETF, you could own a portfolio of high-quality stocks that pay above-average yields and have a long history of paying and growing their dividends. Capturing steady and even increasing passive income for decades is well within the reach of almost anyone.

In my opinion, the best dividend ETF for achieving this is the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). It considers elements of balance sheet quality, high yield, and dividend growth to produce one of the most well-rounded portfolios there is.

Image source: The Motley Fool.

SCHD is much more than just a high yield

The first thing that stands out when you look into this ETF might be its 3.2% yield, which is triple that of the Vanguard S&P 500 ETF (NYSEMKT: VOO).

But income is just one component. Portfolio quality is the other big advantage.

The Schwab U.S. Dividend Equity ETF's index uses several fundamental measures to identify quality dividend stocks. These include cash flow-to-debt, return on equity (ROE), dividend yield, and 5-year dividend growth rate. In other words, it doesn't just look for yield. It looks for yields that are stable today and sustainable well into the future.

The portfolio consists of large, durable companies such as Coca-Cola, Home Depot, Chevron, and Procter & Gamble. These are businesses built to withstand and thrive even in challenging market and economic environments. That can mean lower volatility and steadier growth for the long term.

Here's what it takes to generate $500 per month with SCHD

Figuring out what's needed to produce this kind of income is a simple math calculation.

Earning $500 a month means generating $6,000 a year in dividends. If you divide $6,000 by the fund's current 3.2% yield, you get a required investment account balance of roughly $187,500.

It's worth noting that the Schwab U.S. Dividend Equity ETF distributes dividends quarterly. Investors wouldn't literally get $500 per month in this scenario. They'd be getting $1,500 per quarter. Plus, the fund's yield fluctuates regularly, so the income may vary as well.

It's important to think long-term with SCHD

The part about needing $187,500 invested in the fund can seem unrealistic. People who have been investing for years may already have that in their brokerage account. But those just starting out probably have nowhere near that much to work with.

The Schwab U.S. Dividend Equity ETF's goal is long-term growth of capital and income. Your portfolio should be built with a similar mindset.

Investing on a consistent monthly basis (even through market downturns) is the best way to accumulate long-term wealth. Make sure you capture 401(k) matching contributions. Reinvest dividends to purchase additional shares. All of these little things you do can help grow your portfolio significantly if you keep doing them for years and years.

Building a portfolio large enough to generate $500 a month in dividends won't happen overnight. But investors willing to think in terms of decades could eventually turn this fund into a passive income-generating machine.

David Dierking has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends Chevron, Home Depot, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Generating thousands of dollars a year in passive income from your portfolio sounds great, but there's a right way and a wrong way to do it.

Investing in stocks based solely on their yields can result in a portfolio of companies with poor balance sheets, inadequate cash flows, and shrinking stock prices. A better way to go about it is to find a diversified dividend exchange-traded fund (ETF) that focuses on above-average yields without sacrificing long-term growth potential in the process.

That way, you can capture the income, maintain quality in your portfolio, and diversify away some downside risk.

The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) is a solid way to take this approach. It focuses on risk mitigation, mostly through diversification, but is still able to deliver a dividend yield more than double that of the S&P 500. Plus, the biggest positions in the fund are big, durable, cash-generating companies that can handle multiple economic environments.

VYM includes hundreds of high-yield stocks

The Vanguard High Dividend Yield ETF tracks the FTSE High Dividend Yield Index, which targets companies that are expected to offer above-average dividend yields. It starts with a very broad universe of U.S. stocks, calculates a forecasted dividend yield for each, and selects those in the top half for inclusion.

Image source: Getty Images.

It's a relatively simple strategy that admittedly has the potential to go wrong because it only uses yield as a selection criterion. But the fact that it includes more than 600 stocks minimizes the risk that any one blow-up could hurt the portfolio. With a 2.2% dividend yield currently, its income component is far higher than what the broader market offers.

The fund's biggest advantage right now, however, could be its sector composition.

Financials at 21% of the portfolio is currently the top sector holding. This could be interesting because banks and other institutions can benefit from higher rates, since this improves their margins. With the Fed potentially raising rates later this year and long-end Treasury yields already setting multi-year highs, the environment could be right for this sector to outperform.

Industrials is second at 14%. It's been steadily outperforming the S&P 500 all throughout 2026 as the demand for aerospace and defense and artificial intelligence (AI) data centers remains strong. Tech is third and provides meaningful exposure to the AI trade outside of just the well-known mega-cap names.

Among dividend ETFs, that's a fairly attractive mix that could be positioned to do well over the next few quarters.

How VYM generates thousands of dollars in passive income

The current yield on the Vanguard High Dividend Yield ETF isn't nearly as high as it's been over the past few years. But you don't necessarily need a huge yield to generate a substantial passive income stream.

At the current yield of 2.2%, a $100,000 investment would generate around $2,200 in annual dividends, or just under $200 per month. Increase the investment amount to $250,000, and you're looking at $5,500 in yearly dividends.

Granted, that number can move up and down as the yield, the portfolio, and the share price change. But it's a really good example of how significant income can be produced from your portfolio even when yields are down.

The current investment case looks even better considering the market backdrop. With the Magnificent Seven stocks collectively lagging the S&P 500 this year, new sectors have emerged as outperformers. As fiscal, geopolitical, and inflationary concerns mount, the Vanguard High Dividend Yield ETF has a portfolio built to benefit.

For dividend investors, that could make it a no-brainer for this market.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.

The bond market is sending another warning to stock investors. Long-term Treasury yields have surged, with the 30-year yield recently touching its highest level since 2007. The 10-year Treasury yield is also pushing toward its own multi-year high.

Stocks and bonds have responded with some volatility. Treasury Secretary Scott Bessent announced a government intervention that resulted in it buying back bonds on the long end of the curve. But that proved to have little impact on the direction of rates.

That creates a potential problem for investors. If rising yields continue pressuring both stocks and bonds, is it time to reduce some exposure now?

History suggests long-term investors should probably do the opposite. Remain invested, keep a long-term view, and avoid letting short-term volatility alter a strategy that's built for wealth creation over decades.

Image source: Getty Images.

Why the bond sell-off is hitting stocks

Bond prices and yields move in opposite directions, so a yield spike can send prices sharply lower. We've seen this especially in long-term Treasuries lately. That's important for stocks for several reasons.

First, higher Treasury yields give investors a more attractive alternative to stocks. If they can capture higher yields from more conservative fixed-income options, stocks begin to look less attractive.

Higher yields also translate into higher borrowing costs for businesses and consumers. That's particularly relevant today because huge spending on artificial intelligence (AI) infrastructure is increasingly being financed with debt.

Lastly, higher interest rates can make future corporate earnings less valuable in today's dollars. That can be particularly problematic for more expensive growth stocks whose valuations depend heavily on profits expected years into the future.

Those are very real risks today. Rising yields can hurt stocks, but there's an important difference between recognizing market risks and trying to predict what stocks will do next in the short term.

History says volatility is the price of admission for investing in stocks

The S&P 500 has produced an average annual return of roughly 10% over its long-term history. But to earn those returns, you would have had to ride out a number of bear markets, recessions, and major economic events.

The stagflation of the 1970s, the tech crash at the beginning of this century, the financial crisis, and the pandemic all resulted in deep drawdowns for stocks. Not to mention the number of interest rate, geopolitical, and economic slowdown events along the way.

Yet the stock market continued to create long-term wealth for investors who rode out the volatility. Even more importantly, significant declines aren't unusual. Since 1980, the S&P 500 has suffered an average intra-year decline of about 14%. But despite this, the index was able to post positive calendar year returns about 75% of the time.

That's two distinct narratives that usually aren't viewed together. Investors regularly experience double-digit declines even during periods where stocks have generated double-digit average annual gains.

Volatility isn't a signal that indicates a long-term investment strategy is broken. It's often simply the price you pay to try to capture the stock market's long-term returns.

Here's what investors should do now

Nobody knows how the current bond sell-off will end. Yields could keep climbing as investors grow more concerned about inflation and fiscal deficits. Or an end to the Iran war could ease inflationary pressures and calm worries about an economic slowdown.

The thing is that long-term investors don't need to try to figure out which outcome will happen.

Those with decades before they'll need their money can stay the course, continue to add to their investment accounts regularly, and stay diversified. A low-cost S&P 500 index fund, such as the Vanguard S&P 500 ETF, is one simple way to do that.

Those approaching retirement may reasonably want less exposure to potential market and portfolio volatility. But for those with long time horizons, trying to get in and out of the stock market at the right time usually just creates even bigger risks.

The S&P 500 has survived plenty of scary markets over its history. Yet it continues to hit new all-time highs. History suggests you're better off simply letting the long-term power of compounding do its thing.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

After declining over most of 2026, gold prices are surging again. They recently climbed back above $4,600 an ounce and are at their highest levels since May. Investors who decided to keep buying during this year's pullback are being rewarded. Recent events have contributed to this, bringing the investment case for gold back into the headlines.

Gold prices are still high, but short-term momentum is strong, and investors are putting some of their portfolio assets back into safe havens. It raises the question of whether this is the early stage of another leg higher in the rally, or if it's the wrong time to chase one of the market's hotter trends.

For me, there are good reasons to believe the current rally in gold is the real deal.

Image source: Getty Images.

Gold's biggest buyers are still stockpiling

One of the biggest reasons to believe the rally could continue is that central banks are keeping demand for precious metals high. A 2026 survey from the World Gold Council revealed the following findings:

• Central banks have purchased, on average, around 1,000 metric tons of gold annually over the past four years.
• That's about twice the annual average of the prior decade.
• More than 80% of central banks surveyed expected the level of reserves denominated in gold to be "moderately" or "significantly" higher in the next five years.
• 74% of those surveyed expect the level of reserves denominated in U.S. dollars to be "moderately" or "significantly" lower in the next five years.

That's a significant shift toward gold. As the U.S. government continues to run huge deficits (the national debt stands at $40 trillion), the demand for gold is likely to remain strong for years to come.

$4,600 gold changes the risk/reward profile

The price for gold has jumped from $4,000 only a month ago to more than $4,600 today. Obviously, that means there's relatively less value today.

The bullish argument for gold today largely rests on fiscal and geopolitical considerations. There's no indication that the U.S. is looking to shrink its deficits anytime soon. Central bank buying also indicates lower confidence in dollar stability, at least in the near term and perhaps longer. These are potentially powerful tailwinds.

The bearish argument is that those situations can be resolved. If the government somehow decides to exercise fiscal restraint or there's a resolution to the Iran war, the dollar could strengthen and undo some of the demand for precious metals. I'm thinking the bullish argument is much more cogent, although some of the upside potential for gold in those scenarios is already priced in.

Is it too late to buy GLD?

In my opinion, the clear answer is no -- but manage your expectations. Obviously, $4,600 is a less attractive entry point than where gold was a month ago, but the current environment likely makes it a solid longer-term buy. Here are two investment vehicles to consider for exposure to the precious metal:

The SPDR Gold Shares ETF (NYSEMKT: GLD) is the largest for investing in gold and has an expense ratio of 0.40%. The iShares Gold Trust Micro ETF (NYSEMKT: IAUM) is far cheaper, with an expense ratio of 0.09%. Investors could consider a 5% allocation to hedge against fiscal uncertainty and geopolitical risks facing the world today.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Small-cap investors have been waiting a long time for this moment. For most of the past 15 years, small stocks have lagged the S&P 500. But in 2026, things are beginning to reverse, as shown by two exchange-traded funds (ETFs). The Vanguard Small-Cap ETF (NYSEMKT: VB) is outperforming the Vanguard S&P 500 ETF by 6% year to date.

We've seen these kinds of rallies before in small caps only to see them fizzle out within six months to a year. The recovery from the COVID bear market was a prime example. From the March low of 2020 through the end of the year, the Vanguard Small-Cap ETF beat the S&P 500, gained nearly 100%, and outperformed the S&P 500 by 29 percentage points.

The big question now is whether 2026's rally is just another rally-and-fade or is sustainable. Current evidence suggests it might be the latter.

Source: Getty Images.

Small caps still have one big advantage

The artificial intelligence (AI) boom has evolved from stock prices rising on pure potential to the market wanting to see tangible results. Some companies have delivered. Some have missed the mark. Those mixed results have led to investors paying more attention to valuations and becoming less willing to pay high prices for growth stocks.

That's a big part of why we've seen a rotation from growth into value this year. And it's been a big reason why small caps are back in demand.

The Vanguard Small-Cap ETF currently trades at a forward price-to-earnings ratio (P/E) of 17, a sizable discount to the 20 multiple that the Vanguard S&P 500 ETF is trading at.

Earnings could finally provide the catalyst

The bigger upside catalyst for small caps is likely to come from fundamentals.

For the past few years, small caps have lagged because of stagnant (and sometimes negative) earnings performance. Rising interest rates and tariffs hurt the financial health of these companies, while investors' focus on megacaps during the AI trade negatively impacted stock prices. But that trend is turning around.

Small-cap earnings growth is expected to accelerate to 18% in 2026 and another 18% in 2027. If the latter holds true, it could be the first time in several years that small-cap earnings growth exceeds that of large caps.

If you can get better earnings growth from a category whose P/E ratio is 15% cheaper, that's a compelling investment opportunity. And it's one that has the fundamental strength to last far beyond one year.

There's still one big obstacle

Interest rates are the one factor that could be a headwind to small-cap outperformance.

Since these companies tend to be more reliant on debt to fund operations and growth initiatives, they're disproportionately impacted by higher interest rates. It was a big driver of relative performance during the Federal Reserve's aggressive rate-hiking cycle in 2021, and it could factor in again over the next few quarters.

Rate cuts, which could have eased some of their cash flow pressures, look like they're off the table for the foreseeable future. If interest rates continue to drift higher, as they have for the past six months, it will put added financial pressure on smaller companies.

The anticipated earnings acceleration should help offset some of that, but it's a relative disadvantage that larger companies won't be nearly as impacted by.

Is it too late to buy small caps?

I don't believe so. Not only is a prolonged stretch of small-cap outperformance overdue, but it's also now getting the fundamental support to make it happen. This year's leadership is just a short-term example of what the group can do when financial health is improving.

I would not make any radical portfolio allocation changes, but migrating some percentage of equities from large-caps to small-caps makes sense.

The Vanguard Small-Cap ETF is one of the cheapest and broadest ways to accomplish that. It owns roughly 1,300 stocks and charges just 0.03% annually. It doesn't rely on picking winners. It just buys the theme, which is the better way to tilt your portfolio.

The small-cap comeback that investors have been waiting on may finally be here.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

When you first start investing, getting your brokerage account balance to even $1,000 can seem like a real accomplishment. Getting it to $100,000 can seem almost impossible.

But you don't necessarily need a huge salary, flawless stock-picking skills, or perfect market timing. In reality, you just need discipline, a consistent pattern of investing, and a diversified portfolio of high quality stocks. Give it enough time and you can let the long-term power of compounding do a lot of the work for you.

But the best path to success involves knowing exactly what it takes to get to where you want to be. Saying you want your portfolio to get to $100,000 is all well and good. But understanding exactly how much you need to be putting aside every month and making it happen is the key.

Here's what it takes to reach $100,000

During the past century, the S&P 500 has produced an average annual return of roughly 10%. Some years have generated much higher returns. Some have delivered steep losses. Those who have ridden out that volatility and maintained their long-term focus, however, have been rewarded.

Image source: Getty Images.

Let's start with some basic assumptions:

• Your starting balance is $0.
• You invest regularly every month.
• You're able to capture a 10% average annual return.

The last part obviously isn't a guarantee, but we'll keep these examples consistent with history.

If you want to reach $100,000 in 10 years, you would need to invest about $490 per month. That's a relatively quick turnaround to get to the $100,000 mark, but well within reason if you stick with it.

Here's where the math gets a little more interesting. If you want to give yourself 20 years to get to $100,000, you would only need to contribute about $130 per month. Extend your time horizon out to 30 years and the monthly investment needed drops to just $45.

That's the power that comes with investing early and often. Your early investments might yield comparatively little in terms of returns. But once that snowballs over a period of years, it's not long before those compounded returns do far more work than your monthly investments.

Consistency matters more than timing

Investors generally don't have trouble putting their money into the market when it goes up. But doing that when stock prices are falling demonstrates true discipline.

Market corrections of at least 10% are fairly common. On average, they occur once every year or two. Deeper bear markets of 20% or more are much less frequent, but they do happen.

The thing to keep in mind is that while they can be painful, they are ordinary events and you should expect them from time to time. Stock market volatility isn't something investors can reasonably avoid. That's why it's generally best to accept that it's going to happen and continue your periodic investing plans regardless.

Plus, when you buy at discounted prices, you actually give yourself the ability to improve your long-term returns versus trying to time the market.

Your first $100,000 is tough. The second $100,000 is easier.

There's another reason $100,000 is an important milestone.

With that balance and a hypothetical 10% one-year return, your account balance grows to $110,000 regardless of whether you invest another dollar or not. At this point, returns are driving more of your portfolio growth than your investments are.

This is the long-term power of compounding at work. Early on, you're doing most of the work. Later on, your money is doing most of the work.

Plus, you don't need to worry about picking winning stocks. Investing in a low-cost S&P 500 fund, such as the Vanguard S&P 500 ETF (NYSEMKT: VOO), provides the necessary, diversified exposure to help get you there.

Getting to your first $100,000 won't happen quickly. But with consistency and discipline, history will be on your side.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

You don't need thousands of dollars to start building your portfolio. You don't need to identify the next Nvidia to be successful, either.

If I had $500 to invest today and didn't plan on needing the money for at least 20 years, I'd focus on three things: diversification, long-term growth, and minimal fees. Happily, you can find all three of those things in a good exchange-traded fund (ETF) that tracks the stock market in general or specific sectors in particular.

Vanguard is one of the leaders in this kind of ETF, and you can even begin by buying fractional shares for as little as $1.

In the current environment, here are the three ETFs I'd buy.

Image source: Getty Images.

ETF No. 1: Vanguard Total Stock Market ETF

As is the case with most of my portfolio ideas, I'd start with the Vanguard Total Stock Market ETF (NYSEMKT: VTI). That's because it gives investors a fully diversified U.S. stock portfolio, including large-caps and small-caps, in a single ETF with a 0.03% expense ratio.

This ETF owns roughly 3,500 different companies of all sizes. Its biggest positions are still Nvidia, Apple, Microsoft, and Alphabet, but it also includes hundreds of smaller stocks that investors may never have even heard of.

That's what makes the Vanguard Total Stock Market ETF an attractive long-term core portfolio holding. You get exposure to the entire U.S. economy, not just the largest companies.

ETF No. 2: Vanguard Growth ETF

If VTI provides the foundational piece to a portfolio, the Vanguard Growth ETF (NYSEMKT: VUG) allows you to be a little more aggressive. Growth stocks tend to be more volatile, but they also offer higher growth potential. With 20 years to invest, you have plenty of time to ride out that volatility in the pursuit of higher returns.

The Vanguard Growth ETF primarily targets U.S. large-cap companies that exhibit higher earnings and revenue growth, better return on assets (ROA), and significant investment in the business.

Not surprisingly, the artificial intelligence (AI) boom means tech stocks make up the vast majority of the portfolio. But these are also the companies generating the biggest growth at the moment. That means substantial exposure to all of the stocks mentioned above, as well as Amazon, Meta Platforms, and Broadcom.

There's obviously high overlap with the Vanguard Total Stock Market ETF right now. There's still reason to own both because the Vanguard Growth ETF will adapt over time to wherever growth is coming from, whether that's in tech or not.

ETF No. 3: Vanguard Total International Stock ETF

U.S. stocks have significantly outperformed international stocks for most of the past 15 years. A lot of investors gave up on foreign equities long ago due to comparatively lagging performance.

But it won't be like that forever. In fact, history shows U.S. and international stocks have traded leadership multiple times over the past several decades.

The Vanguard Total International Stock ETF (NASDAQ: VXUS) owns more than 8,000 stocks across both developed and emerging markets. That makes it one of the most comprehensive ETFs you'll find covering these regions. That includes the United Kingdom, Canada, China, India, Germany, and France.

The other big advantage of investing internationally is valuation. This portfolio trades at a forward price-to-earnings (P/E) ratio of just 15 at recent prices, compared to 20 for the Vanguard S&P 500 ETF (NYSEMKT: VOO).

With growth estimates beginning to accelerate, this could be a good time to go global in your portfolio.

Combining these three ETFs

Since these are all stock ETFs, they're designed to be held for years, if not decades. Trying to buy and sell them opportunistically in order to outperform the market can be dangerous and negatively impact total returns.

With a hypothetical 8% annual return, a $500 investment would turn into more than $2,300 over the course of 20 years. No return is guaranteed, of course, but it's a reasonable outcome for such a long time frame.

With a 20-year time horizon, time is your biggest advantage with all three of these Vanguard ETFs. Stay invested and let the power of long-term compounding do its thing.

David Dierking has positions in Apple, Vanguard Morningstar Total Stock Market ETF, and Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Microsoft, Nvidia, Vanguard Morningstar Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

One of the biggest advantages of ETFs is that they make building a portfolio very simple. With a single stock fund, you could own hundreds, if not thousands, of different companies in one investment. And if you wanted the simplest possible solution, you could own the entire global equity market in just one ETF.

That's what the Vanguard Total World Stock ETF (NYSEMKT: VT) is. It includes more than 10,000 stocks in total, covering companies of all sizes from the United States, developed foreign markets, and emerging markets. If you want the broadest possible coverage of global stocks, it's ideal. But it's not the ideal choice for everyone.

Image source: Getty Images.

VT might be the ultimate "set-it-and-forget-it" ETF

If easy investing is your primary goal, there might not be a better ETF to use than this one. You don't have to chase what's hot at the moment or worry about what sector is leading the market. And you don't need to think about whether it's time to diversify internationally. You already own it all -- nearly every investable stock, industry, and region of the world.

Because it's market cap-weighted, you're still more heavily invested in the global economy's giants, including Microsoft, Apple, and Taiwan Semiconductor Manufacturing. There's no concern that you're missing out on the giants driving economic growth right now. But you're also able to capture performance in case the economy changes or other areas of the world begin to lead.

There's one big reason not to buy VT

In practice, the Vanguard Total World Stock ETF is just a combination of the Vanguard Total Stock Market ETF (NYSEMKT: VTI), which invests in U.S. stocks, and the Vanguard Total International Stock ETF (NASDAQ: VXUS), which targets overseas equities.

Owning those two ETFs separately means you can better control what percentage is invested in each region. The Vanguard Total World Stock ETF, on the other hand, generally maintains a fixed allocation of two-thirds U.S. stocks and one-third international.

If you're not comfortable with that allocation and want something more suited to you, you may want to pass on the Vanguard Total World Stock ETF and pair the other two instead. But I wouldn't use that as a reason to shy away from international stocks altogether, because they play an important role in a diversified global equity portfolio.

Should you buy VT?

It really comes down to your personal investment goals. If you're comfortable with that two-thirds/one-thirds split in your portfolio, I see no reason not to invest. You get everything for an expense ratio of just 0.06%. It's perhaps the simplest, most diversified portfolio you could own.

If, for example, you're nearing retirement and the one-third allocation to international stocks is too aggressive, then the Vanguard Total World Stock ETF probably won't work. Again, a combination of the other two ETFs might be better, allowing you to maintain more flexibility.

But this is unquestionably a great ETF option for investors. It really just depends on whether the allocation is right for you.

David Dierking has positions in Apple, Vanguard Morningstar Total Stock Market ETF, and Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Apple, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

For decades, Warren Buffett has encouraged investors to maintain a long-term perspective and avoid paying too much for stocks.

In a 2001 Fortune magazine article, he described the ratio of the total value of U.S. stocks to the size of the U.S. economy as "the best single measure of where valuations stand at any given moment". It later became known as the Buffett indicator, and it's flashing a warning right now.

As of June, the Buffett indicator was at 218%. To provide some context, Buffett has said that when this indicator is in the 70% to 80% range, buying stocks is likely to work out well. However, as he said in the 2001 article, if it gets above 200%, investors are "playing with fire."

Should investors be worried?

Image source: The Motley Fool.

The Buffett indicator is flashing a warning

In isolation, it'd be easy to look at this number and conclude that the S&P 500 (SNPINDEX: ^GSPC) is overdue for a correction. That may be true, but it's important to add some context to that number.

Investors are clearly pricing in a lot of optimism about the future of artificial intelligence (AI) and are pulling forward some of those future earnings growth expectations into current prices. But I don't think that's entirely unjustified.

S&P 500 earnings growth over the past few quarters has been very strong overall, and that trend is likely to continue for at least the next few quarters. The forward price-to-earnings (P/E) ratio on the Vanguard S&P 500 ETF (NYSEMKT: VOO) is only around 20. That wouldn't just suggest an overly expensive market, although it is historically above average.

But if you look at stock prices relative to U.S. GDP, you get a different story. The important thing to remember is that no single number is an indicator that a crash is imminent. But it does suggest that investors are paying premium prices for stocks today, even with the AI boom happening in the background.

There's a problem with using it as a timing signal

At the bottom of the financial crisis, the Buffett indicator hit 70%. That was the last time it fell into that 70% to 80% range.

Now, let's imagine that you decided to sell stocks when the indicator hit 140% for the first time since the tech bubble. That would have meant you got out of the S&P 500 at the beginning of 2015. If you had stayed completely out of stocks since then, you would have missed out on a roughly 350% gain in the Vanguard S&P 500 ETF and a 650% gain in the Invesco QQQ ETF (NASDAQ: QQQ).

Metrics like the Buffett indicator can be useful, but they often fail when used as a hard buy/sell signal.

What I'd do today

Acknowledge that U.S. stock prices are high by historical standards. Don't ignore that warning, but don't rely on it solely as a justification for selling. In Buffett fashion, make sure your portfolio is appropriately diversified, consistent with your long-term goals, and acting within your risk tolerance. But maintain a long-term view.

As history has taught, some indicators can flash a warning for years. It doesn't necessarily mean that a crash is coming.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Nvidia has been the face of the artificial intelligence (AI) boom. But everybody already knows that.

They also know about Microsoft, Alphabet, and Micron Technology. They've all been huge winners already. Investors are now looking for the next big AI winner. But it might not be the one they expected.

Artificial intelligence needs enormous amounts of electricity. And the Vanguard Utilities ETF (NYSEMKT: VPU) could offer investors a different way to profit from the AI boom.

Image source: Getty Images.

AI has an enormous power problem

Building an AI model requires advanced semiconductor chips. Running those chips requires data centers. And data centers require staggering amounts of electricity. That's quickly becoming one of the industry's biggest constraints.

For example, Nvidia just agreed to provide more than $100 billion to support OpenAI's new Ohio data center project. The site is expected to reach 8 gigawatts of capacity eventually. That's an enormous amount of power from a single data center. But it's becoming an increasingly common trend.

AI companies can buy all the GPUs they want. But those chips aren't going to be particularly useful without enough electricity to run them.

Utilities could become unlikely AI winners

That's where the Vanguard Utilities ETF enters the picture.

This ETF owns roughly 70 stocks, including NextEra Energy, Southern Company, Duke Energy, Constellation Energy, and American Electric Power. Those companies generate, transmit, and distribute the electricity that an expanding network of data centers will require.

Utilities have traditionally been viewed as slow-growing income investments. But electricity demand from AI could improve the sector's growth prospects.

More data centers mean greater demand for capacity, grid upgrades, and other infrastructure. Utilities that can successfully invest in that expansion could potentially grow their earnings faster than investors have historically expected from the sector.

There's one big risk to the narrative

More electricity demand doesn't automatically mean enormous profits for utilities. These companies are highly regulated, and there can be restrictions on how much they return on capital investments.

Of course, there's also the public pushback from people who don't want data centers in their communities. The Vanguard Utilities ETF isn't cheap by historical standards either. Investors have already begun to recognize the potential growth opportunity.

Would I buy VPU for the AI boom?

Yes, but not as a replacement for Nvidia and other tech stocks. The Vanguard Utilities ETF currently offers a dividend yield of roughly 2.7%. Investors receive current income while gaining exposure to a sector that could see years of rising electricity demand.

I wouldn't replace semiconductor or technology exposure in my portfolio, though. The Vanguard Utilities ETF provides a different type of exposure and can augment traditional tech coverage.

The biggest winners from AI won't necessarily be just the companies designing semiconductor chips. The infrastructure underneath the ecosystem can be just as valuable. Before another AI data center can generate a single dollar of revenue, somebody has to power it.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Constellation Energy, Micron Technology, Microsoft, NextEra Energy, and Nvidia. The Motley Fool recommends Duke Energy. The Motley Fool has a disclosure policy.

Buying an S&P 500 index fund sounds like one of the easiest ways to diversify your money. After all, S&P 500 ETFs give you exposure to 500 of America's largest companies efficiently and with very little cost. In reality, they are easy ways to diversify, but there's a catch.

The S&P 500 is weighted by market cap. That means the largest companies in the index get the largest weightings. After years of huge gains in megacap tech stocks, the index has become more concentrated than it has at almost any point in history.

Today, roughly 37% of the Vanguard S&P 500 ETF (NYSEMKT: VOO) is invested just in its top 10 holdings.

That's been just fine when these stocks are outperforming. But if you're worried that your portfolio has become too dependent on just a handful of companies, there's another way to own the S&P 500.

Image source: Getty Images.

The S&P 500 isn't as diversified as it looks

Nvidia and Apple alone account for around 14% of the S&P 500. Add in Microsoft and Alphabet, and that number climbs to more than 25%. That's a huge percentage tied to just four major tech companies.

These are some of the most successful and profitable companies in the world, so that may not necessarily seem like an issue. But the problem is the risk of concentration.

An investor buying an S&P 500 ETF today isn't making the same investment someone made 10-20 years ago. The performance of today's index is much more dependent on what happens to its largest companies.

RSP solves the concentration problem

The Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP) owns the same companies as a traditional cap-weighted S&P 500 ETF, but as the name suggests, it gives each component an equal share.

That means Nvidia, Microsoft, Apple, and the rest of the Magnificent Seven names receive a roughly 0.2% weighting at the time of rebalancing.

This dramatically reduces the index's megacap concentration and gives it a meaningfully different sector composition. Its current top sector holdings are industrials, financials, tech, and healthcare. All are getting at least a 12% allocation.

Is it time to consider rotating?

The problem with investing in the Invesco S&P 500 Equal Weight ETF over the past few years has obviously been its underweighting of tech. If the megacap giants continue to lead the market, this ETF is likely to lag further.

But in 2026, we've seen a rotation out of the Magnificent Seven stocks that dominate the indexes. As a result, RSP is outperforming VOO by nearly 4% year-to-date.

We know investors are paying closer attention to valuations. Inflation is still well above target. The Fed may raise interest rates more than once before the end of the year. And the labor market is showing signs of slowing down.

All of these factors favor considering areas of the market other than tech going forward. The rotation has already begun in 2026, and it could be setting up to continue in the months ahead.

David Dierking has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Bond investors have spent much of the past several years learning a painful lesson: Bonds can lose money, too. Now, the same dynamics that caused those losses may be reversing to create a potentially much more attractive opportunity.

We know that Treasury yields are back on the rise. The 10-year yield is still up around 4.65% and the 30-year briefly moved above 5.3%, its highest level since 2007. For investors who remember the zero interest rate during much of the 2010s, those yield figures can't be ignored.

Does that mean it's finally time again to buy bond exchange-traded funds (ETFs)? I think the answer is yes. But do you go with corporates, Treasuries, or a mix of both?

Image source: Getty Images.

Higher yields have changed the math

The Federal Reserve's aggressive rate-hiking cycle a few years ago created an unprecedented bear market in bonds. The Vanguard Long-Term Treasury ETF (NASDAQ: VGLT) is still nearly 40% below its all-time high on a total return basis. But the environment today is different.

Even though we may still see a hike from the Fed later this year, we're unlikely to see anything resembling the soaring yields from 2022. Bonds are starting with much higher yields already. If inflation is able to come back down, long-term yields might not get a lot higher than they are currently.

In other words: much better income prospects with substantially lower downside risk. That's suddenly a much more compelling investment option than it was just a few years ago.

There's still one big risk

This is where things get interesting.

If you're willing to go further out on the yield curve and accept the interest rate volatility that comes with it, you can get a 5.2% yield right now from the Vanguard Long-Term Treasury ETF. But that volatility can be significant. It has a duration of nearly 14 years, which means the share price can be expected to change roughly 14% for every one percentage point move in rates.

A more conservative option, such as the Vanguard Total Bond Market ETF (NASDAQ: BND) that combines Treasuries and corporate bonds, yields less but has a more moderate risk profile. It pays out about 4.6%, has less than half of the duration risk of the Long-Term Treasury ETF, but it introduces credit risk to the equation.

It really comes down to whether you want the pure interest-rate play of Treasuries or the mixed credit portfolio with more modest rate sensitivity that comes from a total bond market ETF.

Which would I buy?

Let's start by profiling the risk/return profiles of each. For the Vanguard Long-Term Treasury ETF, credit risk isn't an issue because these are U.S. government securities. Their return is going to come almost entirely as a result of changes in the yield curve.

If inflation remains elevated or the Fed begins hiking rates, the yield on this ETF is probably going higher. That could result in big losses depending on how far interest rates move. On the other hand, if the U.S. economy begins sliding toward recession, a flight-to-safety trade where demand for Treasuries picks up significantly could result in a 20% gain.

For the Vanguard Total Bond Market ETF, the addition of corporate credit risk could mean added gains in a bull market for bonds. But the much lower rate sensitivity means less upside from that factor. In general, if rates move higher, we're likely to see the share price decline, but maybe not as much as a pure Treasury bond ETF.

For me, I'd prefer the Vanguard Total Bond Market ETF. Long-term Treasuries put virtually all of your risk exposure into rate changes. This ETF, however, broadens out the types of credit you're invested in while lowering rate risk. I think that's the better play at the moment, especially given a strong corporate earnings backdrop.

The Vanguard Long-Term Treasury ETF feels like more of a home run swing: You could score big or lose big. That's not the kind of risk I'd want to be taking.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.

The S&P 500 (SNPINDEX: ^GSPC) has been having another strong year. The index has set several new record highs just in August and is up more than 12% year-to-date.

For investors who currently have cash that they are waiting to invest, this situation creates a dilemma. Buy now and you could potentially be buying near the top. Or you could wait for a correction that may never come.

Using history as a guide, one of these paths has worked out much better than you might think.

Buying at an all-time high hasn't been a bad strategy

An all-time high might sound like a bad time to be buying stocks, but there's a flaw in that thinking.

Stock prices tend to rise over the long-term. So during the course of a healthy bull market run, the S&P 500 could reasonably be expected to hit numerous new highs. This is usually a sign of strength, not necessarily a sign that prices are overvalued.

Image source: Getty Images.

J.P. Morgan examined S&P 500 returns since 1970 and found that forward-looking returns when investing at all-time highs were slightly higher than when investing at non-highs. People investing at an all-time high earned an average return of 9.4% over the subsequent 12 months compared to a 9% return when the market wasn't at record highs.

Extend the measurement period to two years and the difference becomes even larger: 20.2% following record highs versus 18.5% following non-high days.

In short, buying at the top hasn't historically been the problem investors think it might be.

Waiting for a pullback creates another risk

Of course, the S&P 500 could fall at any time.

U.S. stocks are expensive by several valuation measures, including the Shiller CAPE (Cyclically Adjusted Price-to-Earnings) ratio, which looks at the price of the S&P 500 relative to its inflation-adjusted earnings over the past 10 years.

By that metric, the U.S. stock market is more expensive today than it has been at any point in history except for the peak of the dot-com bubble. Higher interest rates, geopolitical uncertainty, and high expectations around artificial intelligence (AI) could all trigger volatility.

But waiting for a correction requires making two correct decisions.

First, you need to be right in your anticipating that the stocks you want to buy will drop to lower levels than they're currently trading at. Second, you need to be right in deciding when to actually buy them. Picking those moments using a time strategy requires a high level of discipline and luck. Getting them right is something that few investors are able to do, let alone do consistently.

What I'd do with $10,000 today

If I had $10,000 that I planned to keep invested for at least the next 10 years, I wouldn't wait to buy stocks with it just because the market is at an all-time high now.

I'd be perfectly comfortable putting that cash into a low-cost S&P 500 ETF, such as the Vanguard S&P 500 ETF (NYSEMKT: VOO).

That doesn't mean that there's not the potential for a correction or even a bear market in the near to medium term. Pullbacks are normal and should be expected. But history does suggest that the market trading at an all-time high shouldn't be read as a warning sign to avoid investing in stocks, especially if you're buying and holding for the long term.

High valuations, mixed economic conditions, and your personal time horizon are all factors you'll want to consider. But the S&P 500 being at or near an all-time high isn't a particularly good reason to stay on the sidelines.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

At the beginning of the year, the market was pricing in multiple rate cuts from the Federal Reserve. Thanks in large part to the Iran war and the subsequent higher inflation that came with it, the market is now pricing in the likelihood of rate hikes before the end of the year.

At its July meeting, three of the Fed's voting members wanted to raise rates by a quarter-point. Inflation looks like it will remain well above the target for the foreseeable future, and the decision may come down soon saying that rates aren't restrictive enough.

A lot of people's portfolios are still positioned for rate cuts, and that could be a problem. If conditions are about to get tighter over the next 6 to 12 months, it might be time to prepare for it.

Instead of trying to predict if or when the Fed's next move will come, I'd rather own investments that can still work if rates move higher. Here are three exchange-traded funds (ETFs) I'd consider.

Image source: Getty Images.

No. 1: Vanguard Value ETF

The value factor has been a hot theme this year. The Vanguard Value ETF (NYSEMKT: VTV) is outperforming the Vanguard S&P 500 ETF by more than 7 percentage points this year as the "Magnificent Seven" stocks lag the broader market badly.

Owning value stocks in higher-rate environments makes a lot of sense. The higher the borrowing cost, the less that investors are generally willing to pay for earnings further out into the future. That tends to hit growth stocks harder, but value stocks can hold up better because their valuations are already discounted.

The Vanguard Value ETF won't necessarily be immune from a recession or a bear market. But its lower valuation and overweight-to-more-mature, profitable businesses can make it an attractive way to minimize some downside risk.

No. 2: Vanguard High Dividend Yield ETF

The case for investing in high-yield equities might be even better than that for value stocks. The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) takes a fairly broad approach to stock selection, but it overweights the areas of the market that should do comparatively well in higher-rate environments.

That includes value stocks for the reasons mentioned above. Its top sector weighting is financials, which actually benefit from higher rates because they improve their margins. And there are overweights in healthcare, consumer staples, and energy -- all built to hold up well and take advantage of the current environment.

The Vanguard High Dividend Yield ETF's current 2.2% payout may not really qualify as high, but the income component is a smaller part of the investment case here. The sector allocation makes it more attractive.

No. 3: Vanguard Short-Term Treasury ETF

This ETF would be more of the pure risk-off play and one of the immediate beneficiaries if the Fed were to hike rates.

The Vanguard Short-Term Treasury ETF (NASDAQ: VGSH) invests in government bonds with maturities of one to three years. It's not Treasury bills, which are better designed for principal protection, but share price fluctuation should be minimal. Since these are short-term notes, a higher Fed Funds rate should be reflected in the yield on this ETF fairly quickly. It has a yield of 4.3%.

This gives investors the opportunity to earn meaningful yields while avoiding most interest rate sensitivity. The more the Fed decides to hike, the more income this ETF should generate.

Don't build your portfolio around one Fed meeting

If your time horizon is 20 years or more, what happens with the Fed over the next few months is minor in the big picture. These ETFs can provide a short-term tilt based on current conditions, but you don't want to significantly affect your long-term portfolio allocation. Moving a lot of money into short-term Treasuries without a concrete exit plan can damage long-term return potential.

Nonetheless, if you're concerned about the impact of higher-for-longer rates, all three of these ETFs should be positioned to do well.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard High Dividend Yield ETF, Vanguard Morningstar Value ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Over the past three years, cash has actually been a reasonable place to keep your money. The iShares 0-3 Month Treasury Bond ETF, for example, offers a 3.6% yield with minimal share price volatility and no credit risk.

For your near-term spending and portfolio cash needs, it's a great way to earn a solid income while sitting on the sidelines.

The problem comes when that money sits in cash for too long. What can be a nice risk/reward trade-off in the near term can be damaging to returns in the long term.

The hidden cost of keeping $10,000 in cash

Suppose you have $10,000 to invest and can earn 4% annually in a Treasury bill exchange-traded fund (ETF) for the next decade. After 10 years, you'd have around $14,800.

Not a bad outcome. But now let's consider the alternative.

The S&P 500 (SNPINDEX: ^GSPC) has historically produced an average annual total return of roughly 10% over the very long term. Obviously, there's no guarantee those returns will be achieved in the future, and returns can vary widely from year to year. But for this example, let's assume a 10% annual return.

Image source: Getty Images.

At that rate, $10,000 would grow to roughly $25,900 after 10 years.

That's a difference of more than $11,000.

And don't forget that while the 10% annual return of stocks isn't guaranteed, neither is the 4% return of T-bills. If the Fed begins cutting rates again over the next several years, that 4% yield could shrink quickly, widening the performance gap.

Cash isn't the problem

This doesn't mean investors should move all of their cash into an S&P 500 ETF. Cash can have a place in a portfolio as a place to keep money not yet invested or as dry powder to take advantage of market pullbacks.

But long-term investment money is different.

The opportunity cost of being underinvested in stocks for years can be greater than the downside impact of a 20% bear market. In this example, the drag is $11,000 over 10 years. A larger investment held for longer can multiply that amount many times.

It's an example of how the comfort of less risk can actually be riskier over the long term.

Where I'd put $10,000 today

If I needed the money within the next year or two, I'd be perfectly comfortable keeping it in cash or short-term Treasuries.

If I didn't expect to touch it for at least 10 years, I'd much rather take the risk of investing in a low-cost S&P 500 ETF and pursue higher returns. Some years will be worse. Some will be better.

In total, over that period, stocks should provide a much better opportunity for long-term growth.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends iShares Trust-iShares 0-3 Month Treasury Bond ETF. The Motley Fool has a disclosure policy.

The S&P 500 is hovering near record highs, and valuations by some measures are historically high. Investors have several reasons-high inflation, high interest rates, geopolitical uncertainty, a mixed labor market-to be concerned about whether the next major market decline is nearing. It will arrive eventually. The problem is that nobody knows when.

The solution isn't to radically alter your portfolio, move into cash, and wait it out until you feel more comfortable. That generally does more harm than good.

What you can do is tilt your portfolio toward a more defensive stance while maintaining the potential to continue capturing upside if prices keep rising. If I were particularly worried about a stock market crash today, here are three ETFs I'd use together.

Source: Getty Images.

ETF No. 1: Vanguard S&P 500 ETF

It might sound strange to prepare for a crash by owning the very stocks that you'd want protection from. But owning the Vanguard Total Stock Market ETF (NYSEMKT: VTI) isn't about maximizing gains. It's about serving as a core long-term foundational holding that you buy and hold regardless of short-term market conditions.

VTI still owns the S&P 500's largest companies, including Nvidia, Microsoft, and Apple. Those stocks are closely tied to the artificial intelligence (AI) trade and could very well suffer substantial losses during a bear market.

But history also suggests that abandoning stocks altogether creates an even bigger long-term problem. Investors who try to time the market more aggressively often end up lagging the major indexes over years and decades.

The Vanguard Total Stock Market ETF is meant to serve as the core long-term holding in a portfolio. Selling it to avoid a market correction that may or may not come can be damaging. This is the one ETF you'd want to hold onto regardless.

ETF No. 2: Vanguard Dividend Appreciation ETF

The Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) is where the real defensive positioning begins. It focuses on buying U.S. companies with long track records of dividend growth. Because of their dividend histories, they tend to be more mature, deliver stronger cash flows, and are better built to withstand different economic environments.

The top 10 holdings include names like Walmart, JPMorgan Chase, ExxonMobil, and Visa.

The Vanguard Dividend Appreciation ETF still holds some of the big tech names, like Apple and Microsoft. But it's much more well-balanced across many sectors rather than heavily dependent on just one.

The 1.5% yield won't get many people excited, but that's not the biggest benefit of holding it here. Its emphasis on financially healthy dividend growers can offer a different risk profile than simply investing in the S&P 500.

ETF No. 3: Vanguard Intermediate-Term Treasury ETF

Investing in Treasuries would be a more effective bear-market hedge. They often rise when stocks fall because investors seek out safety in volatile markets.

The Vanguard Intermediate-Term Treasury ETF (NASDAQ: VGIT) invests in government bonds with maturities of between three and 10 years. In this scenario, this is about as aggressive as I'd feel comfortable getting.

While there's the potential for gains, I'm more concerned about inflation and interest rates. When these rise, bond yields often rise as well, causing Treasuries to decline. We saw this happen in 2022 when the Fed's aggressive rate-hiking cycle caused bond and stock prices to fall together in an uncharacteristic fashion.

But if inflation and interest rates are peaking here, there's a stronger upside argument for Treasuries. If you want a little more safety, the Vanguard Short-Term Treasury ETF (NASDAQ: VGSH) could serve as a better option.

What if the crash never happens?

A generic allocation for these three funds together might look something like 50% to the Vanguard Total Stock Market ETF, 25% to the Vanguard Dividend Appreciation ETF, and 25% to the Vanguard Intermediate-Term Treasury ETF.

But while this mix is likely to provide some protection in a bear market, it's important to consider the downside risk of such a shift. If the bull market continues, this three-ETF portfolio is likely to lag. A lot of folks have had concerns about the current multi-year bull market in mega-cap tech and their high valuations for a while. So far, it's kept pushing higher. There's a trade-off in pivoting more defensively. You might not be right.

But 75% of the money would still be invested in stocks. That's the benefit of going this route instead of pushing entirely into cash. You still own heavy equity exposure and maintain the ability to participate in any further stock market gains.

The best plan is to have a plan. Establish trigger points where you'd be comfortable shifting defensively and, more importantly, moving back into your original allocation. You never want to sacrifice the long term for an uncertain short term.

JPMorgan Chase is an advertising partner of Motley Fool Money. David Dierking has positions in Apple, Vanguard Dividend Appreciation ETF, and Vanguard Morningstar Total Stock Market ETF. The Motley Fool has positions in and recommends Apple, JPMorgan Chase, Microsoft, Nvidia, Vanguard Dividend Appreciation ETF, Visa, and Walmart. The Motley Fool has a disclosure policy.

Ask income seekers which dividend equity ETF they like best, and you'll probably hear a lot of them say the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD).

It happens to be my favorite, too. Its selection strategy, which considers dividend growth history, balance sheet fundamentals, and yield, does a strong job of identifying the "best of the best" dividend stocks by letting no potential red flag slip through the cracks.

If there's one downside, it's that the fund only invests in U.S. stocks. That leaves an entire universe of dividend stocks untouched, including many that have performed quite well over the past year.

That's why the Schwab International Dividend Equity ETF (NYSEMKT: SCHY) is the ideal pairing for the Schwab U.S. Dividend Equity ETF. It uses a substantially similar strategy and allows investors to create a global portfolio of high-quality, high-yield dividend stocks.

Image source: The Motley Fool.

SCHY is the international version of SCHD

The Schwab International Dividend Equity ETF uses a selection methodology familiar to SCHD shareholders.

To qualify for SCHY, a stock must have paid dividends for at least 10 consecutive years. A composite score is then created for each qualifying component, considering factors such as cash flow-to-total debt, return on equity (ROE), dividend yield, and five-year dividend growth rate. An additional volatility screen gets applied before the final portfolio of 100 stocks is created.

The greatest appeal of this fund is its comprehensive selection process. Choosing dividend stocks based solely on yield or dividend growth history can create issues, such as yields that are too low or unsustainable. Considering all of these selection factors together helps mitigate the risk of bad apples sneaking into the portfolio.

How to pair SCHD and SCHY in a dividend portfolio

Those two ETFs could be paired together in a portfolio much in the same way that you'd pair two broad U.S. and international stock funds.

For a younger investor, that could mean 75% invested in the Schwab U.S. Dividend Equity ETF and 25% in the Schwab International Dividend Equity ETF. People closer to retirement may want to keep more of their money invested in U.S. stocks. Your exact allocation will be heavily dependent on your personal circumstances and risk tolerance.

The clearer one is that they both do a strong job of delivering high dividend income. SCHY currently yields 3.7% and should be sustainable, given that it's backed by companies with solid balance sheets and a commitment to their dividends. It's the same thing that SCHD offers, but with a slightly higher yield.

If the Schwab U.S. Dividend Equity ETF is a cornerstone in your portfolio, the Schwab International Dividend Equity ETF deserves equal consideration.

David Dierking has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The total return for the S&P 500 (SNPINDEX: ^GSPC) during the first half of 2026 was 10.2%. That puts the index in some unique company. Over history, this tends to be a good omen for S&P 500 returns during the second half of the year.

The backdrop for 2026

This year features a U.S. economy that is in good but not great shape.

• GDP growth is in positive territory but showing signs of slowing. It came in at an annualized rate of 1.5% in Q2, down from Q1's 2.2% reading and well below the recent peak at 4.4% in Q3 2025.
• Inflation came in at 3.4% in July, which is off its 2026 highs but well above the Fed's 2% target rate.
• Unemployment is currently at 4.1% and has been below 5% every month since late 2021. Non-farm payroll numbers have been mixed, but the labor market appears to be in reasonable shape.

That backdrop, combined with the tailwind from the artificial intelligence (AI) boom, has kept sending stock prices higher. If it holds, this would be the fourth consecutive year of double-digit gains for the S&P 500.

Image source: Getty Images.

But a 10.2% gain for the index in the first half of a calendar year is more common than you might think.

• There have been 30 instances since 1927 when the S&P 500 gained 10% or more in the first half of the year. Of those, 23 finished with positive returns during the second half, a 77% win rate. The median and mean second-half gains were roughly plus-9% and plus-6%, respectively.
• After 1990, the positive second-half success rate is 100%. Before 1990 (19 instances), second-half returns were positive 63% of the time with a median return of plus-3%. After 1990 (11 instances), second-half returns were positive 100% of the time with a median return of nearly plus-10%.

Since 1990, here is a table of returns for the 11 prior instances when the S&P 500 was up double digits in the first half of the year.

Source data: Yahoo Finance.

These recent results are solid, but it's no guarantee of what might happen in 2026.

It's also important to note that some of the instances prior to 1990 occurred during very bad periods for stocks. For example, 1929 and 1933, which were during or around the Great Depression, both saw strong first halves followed by big declines in the second half. 1987 is another example of a big first half getting undone by a poor second half (in this case, the Black Monday crash).

While there's a strong history of good first halves turning into good second halves for the S&P 500, current conditions dictate how 2026 might turn out. We've got a strong earnings growth backdrop, which should help limit downside risk. Valuations are becoming a little more reasonable. Inflation and interest rates are still elevated, and those could pose headwinds to further gains.

Overall, I still see a positive environment for stocks, but I wouldn't bank on another 10% gain in the second half of the year just yet.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The artificial intelligence (AI) boom has already created some huge wins for investors.

Nvidia (NASDAQ: NVDA) is the biggest company in the world. Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), and Broadcom (NASDAQ: AVGO) have invested hundreds of billions of dollars into AI infrastructure, data centers, semiconductor chips, and cloud computing. Investors who got in on the trend early have enjoyed huge profits.

The question now becomes whether there's still upside left in these stocks or if it's too late.

The Vanguard Growth ETF (NYSEMKT: VUG) has been and still is invested in many of the companies leading the AI revolution. After nearly doubling during the past three years, investors need to understand what they're getting when they buy this exchange-traded fund (ETF).

Source: Getty Images.

The ETF is making a huge bet on technology

The Vanguard Growth ETF isn't technically an AI ETF. But its selection methodology, which looks at revenue and earnings growth, return on assets, and increased investment, definitely steers it toward that theme.

All of the aforementioned stocks are among the current top 10 holdings. But they all sit at different points in the AI ecosystem.

Nvidia and Broadcom are major semiconductor chip suppliers. Microsoft, Amazon, and Alphabet run the world's biggest cloud platforms. Meta is using AI to expand an already profitable digital advertising business.

This is what makes the Vanguard Growth ETF attractive. It doesn't try to pick winners or rotate into the popular segment of the moment. It's indirectly capturing the entire theme and investing in its largest leaders.

The AI spending boom isn't slowing down

There's reason to believe this opportunity still has a long runway.

Amazon, Microsoft, Alphabet, and Meta alone have planned hundreds of billions of dollars in capital spending during 2026, much of it tied to data centers and AI infrastructure.

Of course, that in and of itself isn't a guarantee of increased profits or better investment returns. In fact, capex spending is arguably one of the biggest risk factors facing these stocks. AI spending is fine as long as it can generate an appropriate return on investment in the end. Companies need to demonstrate revenue and productivity growth to justify it.

But initial signs are encouraging.

Cloud demand remains strong. Revenue and growth results for these megacap companies have been solid. There are still supply constraints in many areas, but AI investment is helping to catch up to demand.

The primary concern isn't about who is doing the spending. It's who is generating the best return on that spending.

The Vanguard Growth ETF works because it doesn't try to identify specific winners. It invests in the trend by simply including all of the biggest players.

There's a price for all that growth

Growth stocks typically come with higher valuations because investors anticipate faster earnings growth. That's fine until that earnings growth peaks or begins to decelerate. That typically causes valuations to shrink and creates the possibility of deeper than average losses.

That's one of the biggest risks of the Vanguard Growth ETF right now. Even though these are great and successful businesses, sometimes their prices become too high. The fund currently trades at about 28 times the next 12 months' earnings. That's lower than its recent peak but above its long-term average.

The ETF also comes with substantial concentration risk. Technology stocks make up 69% of the portfolio, and more than 60% is committed to the top 10 holdings.

If AI spending slows or valuations contract, the fund could easily begin underperforming.

Is it too late to buy Vanguard Growth?

Investors buying the Vanguard Growth ETF today probably shouldn't expect the huge gains of the recent past. A lot of expectations are built in, and valuations already reflect much of the optimism.

But that isn't the same thing as saying that the opportunity is over.

AI infrastructure, cloud computing, and semiconductors could remain major economic growth drivers for the foreseeable future. This fund's investment in those companies could continue capturing profit growth.

Investors with long time horizons should feel comfortable buying the fund today as a complement to a core S&P 500 or total U.S. stock market ETF, as long as they're willing to ride out the volatility.

Even as the AI boom begins to mature, the companies driving the trend should be able to sustainably increase their earnings for years to come.

The upside of the Vanguard Growth ETF may not be over yet.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Meta Platforms, Microsoft, Nvidia, and Vanguard Morningstar Growth ETF. The Motley Fool has a disclosure policy.

U.S. stocks have taught investors a powerful lesson pretty much since the financial crisis ended. Betting against the S&P 500 (SNPINDEX: ^GSPC) has largely been a futile effort.

Much of the economic and corporate earnings growth has come from U.S. companies. The early stages of the artificial intelligence (AI) bull market were driven heavily by the Magnificent Seven stocks. Over the past 15 years, the Vanguard S&P 500 ETF (NYSEMKT: VOO) has gained 781%, compared to a 212% return for the Vanguard Total International Stock ETF (NASDAQ: VXUS). That's a gap of nearly 8% per year.

With that kind of leadership, it's no wonder that investing in foreign stocks can feel like a waste. But there's a problem with that thinking. The future may be nothing like the past.

That's why the investment case for the Vanguard Total International Stock ETF could be better than that for U.S. stocks over the next decade.

Image source: Getty Images.

U.S. dominance has come with a price

The S&P 500 hasn't outperformed simply because investors became irrationally confident about it. It happened due to a combination of strong fundamental growth and the willingness of investors to pay higher valuation multiples for stocks.

It's the latter piece that could help create an advantage for international stocks in the coming years. Currently, the Vanguard S&P 500 ETF trades at roughly 20 times the next 12 months' earnings. The Vanguard Total International Stock ETF trades at just 15 times.

That's a substantial discount. While it's not necessarily an indication of what might happen in the future (international stocks have traded at a discount to U.S. stocks for years), it does suggest that U.S. stocks might have a higher bar to clear in terms of corporate performance in order to continue justifying the higher valuation.

Buying even great companies at high valuations can potentially lead to below-average future returns.

Vanguard sees better opportunities outside the U.S.

Interestingly, Vanguard itself says that it sees better return opportunities from overseas in the next decade.

In its latest capital markets forecast, Vanguard projects U.S. stocks returning roughly 4.2% to 6.2% annually over the next decade. Developed international stocks, on the other hand, are projected to return a modestly higher 4.5% to 6.5%.

Granted, those differences are relatively minor, but they represent a significant change from what investors have come to expect in recent years.

There's another potential advantage for international stocks: currencies.

A strong U.S. dollar is considered a headwind for American investors holding foreign stocks, due to unfavorable exchange rate dynamics. Vanguard's models, however, currently predict a weaker dollar in the intermediate term. If that happens, it improves the return potential of international investments.

Would I buy VXUS instead of VOO?

In a diversified equity portfolio, investors should own both U.S. and international stocks. The allocation to each would depend on their time horizon, risk tolerance, and what they already have in your portfolio.

The Vanguard S&P 500 ETF and the Vanguard Total International Stock ETF offer very different portfolios.

The United States is still home to many of the world's biggest companies, especially those engaged in artificial intelligence, cloud computing, semiconductors, and other industries that may very well drive economic growth for years.

International markets have much less technology exposure and much more exposure to cyclical sectors, including financials and industrials. That likely means a less robust growth profile and different exposures to economic conditions.

However, that doesn't mean the U.S. has to perform poorly in order for international stocks to outperform. In 2026, VXUS is outperforming VOO by 2%, and I'd hardly call it a bad year for stocks overall.

All it might take is improved earnings or a narrowing of the valuation gap in order for international investments to have a stretch of outperformance going forward.

A lot of investors assume that investing in anything outside of U.S. mega-cap tech means accepting lower returns. For as much as people hear about the benefits of diversification, it's a hard sell when it means giving up performance.

The next decade could challenge that assumption if earnings begin to accelerate and some of that underlying value can get unlocked.

The S&P 500 still deserves to be a core portfolio holding, but I'd be comfortable adding the Vanguard Total International Stock ETF to balance it out.

David Dierking has positions in Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

The idea of a small-cap premium goes back decades. The concept is straightforward: Smaller companies carry more risk, and the markets compensate that higher risk with higher long-run returns. It would be the reasoning behind owning something like the iShares Russell 2000 ETF (NYSEMKT: IWM) alongside a large-cap fund, such as the Vanguard S&P 500 ETF (NYSEMKT: VOO).

There's just one problem. With just a few exceptions, that small-cap premium hasn't materialized for at least 15 years.

The following chart shows small-cap stock performance relative to large-cap stocks over this time frame. If investors were earning a small-cap premium, you'd expect this trendline to be moving up. Instead, it's been trending down for years.

Data by YCharts.

With this type of recent underperformance coupled with an anticipated acceleration in earnings, the opportunity in small-cap stocks could be huge.

Why small caps have lagged large caps for so long

Since the Vanguard S&P 500 ETF launched in 2010, it has gained 830%, far surpassing the 490% return of the iShares Russell 2000 ETF.

There are a few reasons the small-cap premium has disappeared.

• Lower profitability: Roughly 40% of Russell 2000 components are currently unprofitable. More broadly, earnings growth for smaller companies was lower due to higher interest rates, which disproportionately affect debt-heavy small-cap stocks, and the emergence of mega-cap tech as an economic driver.
• Rate sensitivity: Small caps are disproportionately affected by higher interest rates due to higher debt levels to fund operational needs. The U.S. economy went through two major rate-hiking cycles over the past decade.
• Passive fund flows favoring large caps: The growth of index investing, S&P 500 ETFs, and other cap-weighted products has disproportionately pushed a lot of investor capital into just a handful of stocks.

Image source: Getty Images.

Why the small-cap premium could soon return

The macro environment for small caps has begun turning the corner. Megacap tech companies were the first big beneficiaries of the artificial intelligence boom, but now smaller companies are beginning to see the benefits too.

Small-cap earnings are expected to grow 18% in both 2026 and 2027, surpassing the forecasted earnings growth of the S&P 500 for the first time in years. With valuations already considerably lower, the risk/reward profile of small caps looks substantially better today than it did a year or two ago.

We've already seen what can happen when megacaps lose their momentum. The iShares Russell 2000 ETF is outperforming by 8% year-to-date, thanks to improved earnings growth. If large caps begin to see their AI-driven growth rates slow or peak, the rotation into more reasonably valued small caps could continue.

Market leadership goes in cycles. We see it in U.S. vs. international stocks and large caps vs. small caps. Outperformance from one group doesn't last forever. For small caps, the time for a rotation may be approaching.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

When stocks begin selling off, problems tend to get exposed. Companies with struggling balance sheets, weak fundamentals, or a poor outlook are often hit the hardest. These factors can be overlooked when a bull market seems like a rising tide that lifts all boats. But the tailwind usually fades eventually.

The stock market isn't selling off yet, but it's certainly changing. The tech sector is still one of the best performers year-to-date, but the Magnificent Seven stocks as a whole are lagging, and the broader growth theme is struggling. Small-cap, value, and dividend stocks are now leading the S&P 500 as investors give more importance to valuations and financial health.

When that happens, it's a good time to revisit your portfolio to make sure you're not overexposed to downside risks.

Image source: Getty Images.

Verifying portfolio quality is the most important move you can make

The first step in any portfolio recheck should be to ensure that your current portfolio asset allocation and composition align with your goals and objectives.

If you've been buying and selling throughout the year or went heavy into tech and semiconductor stocks, your portfolio may have drifted from its target allocation. Consider rebalancing back toward it if you feel it's drifted a little too far.

After that, ensuring your portfolio is filled with high-quality stocks can be the next step. Here are a few metrics to consider:

• Earnings growth: This is the bottom-line metric that suggests how well a company is performing. Earnings growth rates should be in a steady uptrend and not overly vulnerable to economic downturns.
• Free cash flow: This is the amount of money left over after a company pays its bills and reinvests in itself. Strong free cash flow provides the flexibility to fund growth initiatives, take advantage of investment opportunities, or even raise the dividend.
• Return on equity (ROE): This measures how efficiently a company uses shareholder capital to generate profits. Companies with consistently high ROE are usually demonstrating an ability to turn cash into earnings.

If you own a stock or ETF that hits on all three of these metrics, it probably qualifies as high quality. These are the companies that tend to withstand different economic environments and hold up better during market downturns.

There's nothing wrong with holding more speculative or growth-oriented stocks in your portfolio. But they can underperform during market corrections. Verifying that you have a significant segment of your portfolio in higher-quality names can help when conditions turn rougher.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Recessions can be scary. Incomes can shrink, and job security can be threatened. From an investing perspective, these are often the periods where the S&P 500 can fall 20% or more.

But if there's one thing I would tell investors about how to handle their portfolios during a recession, it would be this:

A recession is exactly when you don't want to stop investing

That's because recessions have historically produced some of the best long-term buying opportunities for investors. If you're able, continuing with systematic investing plans allows you to buy shares at significant discounts to their previous levels.

Image source: Getty Images.

The catch is that you have to maintain that long-term perspective and avoid the temptation to exit stocks when economic conditions get tougher. If you sell when prices are already low, you not only lock in losses but you'll also likely miss out on an eventual rebound and recovery.

Think of it like this: If stocks hit an all-time high, drop 20% due to a recession, and then recover to recapture that high, your total return is 0% if you rode it all the way out from high to high.

If you continue investing through the recession, however, you're continuously buying shares at prices well below that all-time high. By the time that a new all-time high is reached, your returns are sitting in positive territory thanks to the gains you've gotten from all of those individual buys along the way.

Recessions don't have to be scary events. If you view them as opportunities instead, you can enhance your long-term returns.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The stock market has been changing in 2026. The Magnificent Seven stocks are collectively lagging the S&P 500 year-to-date, while small-cap, international, value, and dividend stocks are all outperforming.

That more defensive pivot might make some investors nervous, but I'm not sure there's reason for concern yet. The economy has been in good, if not great, shape. Earnings growth is expected to be strong for at least the next couple of quarters. If inflation doesn't spiral higher, the markets may be able to handle a potential rate hike just fine.

It may be time to be more cautious with tech and growth stocks, but I believe the environment is setting up nicely for the Vanguard High Dividend Yield ETF (NYSEMKT: VYM).

Image source: Getty Images.

The macro setup

Here's a brief rundown of the conditions the financial markets are facing right now:

• The futures market is pricing in a 65% chance of a rate hike by year-end. That makes it likely, but not a done deal. The current inflation rate of 3.5% is still above the Fed's 2% target but has cooled over the past two months. Kevin Warsh and the Fed may opt to wait it out to see if inflation can come back down on its own without intervention.
• Oil prices are still elevated but off highs. The shock is geopolitical and supply-driven, so rate hikes may not have a real effect on them.
• Earnings growth still looks solid and should minimize the risk of recession. Current equity market behavior suggests an orderly rotation within U.S. equities but no major selling.

Why VYM is a buy

With rates likely to stay high over the remainder of 2026, investors are rethinking how much they want to pay for tech stocks. Value stocks, such as those favored by the Vanguard High Dividend Yield ETF, have been the clear beneficiary. This favorable backdrop could remain in place for months.

Financials, which account for around 21% of the fund right now, should do well in a higher-for-longer rate environment, thanks to higher expected margins. Energy, which accounts for a minor 9%, benefits if oil prices stay high. The 18% allocation to tech keeps some exposure to the artificial intelligence (AI) trade, should it reignite. Double-digit weightings to healthcare and industrials provide nice, rounded-out exposure.

How to position VYM in your portfolio

Shifting some of your portfolio's growth allocation from a fund like the Vanguard Growth ETF makes sense. Personally, I wouldn't touch core exposure from funds like the Vanguard S&P 500 ETF or the Vanguard Total Stock Market ETF.

The Vanguard High Dividend Yield ETF's 2.2% yield is a nice bonus, but not the primary reason to make a shift. The portfolio composition itself looks well-positioned to take advantage of the next bull rally.

David Dierking has positions in Vanguard Morningstar Total Stock Market ETF. The Motley Fool has positions in and recommends Vanguard High Dividend Yield ETF, Vanguard Morningstar Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Back in July, I wrote about four dividend ETFs designed for long-term buy-and-hold investors. They were Schwab U.S. Dividend Growth ETF, Vanguard Dividend Appreciation ETF, WisdomTree U.S. Quality Dividend Growth ETF, and Vanguard International High Dividend Yield ETF.

But with more than 200 different dividend ETFs to choose from, they're not the only ones that are great for long-term investing.

Dividend investing has returned in a big way in 2026. While tech and artificial intelligence (AI) stocks still get most of the attention, dividend stocks are actually beating the S&P 500 index. The WisdomTree U.S. Total Dividend ETF, which I like to use as my proxy for the entire dividend stock universe, is outperforming the Vanguard S&P 500 ETF by roughly 2% this year.

This is happening as the Federal Reserve considers rate increases later this year, inflation remains stubbornly above 3%, and investors reconsider how much they're willing to pay for recent winners.

Earnings growth for the S&P 500 is still looking good. If that remains the case for the next few quarters and stocks maintain an orderly rotation into small-caps, value, and international stocks as they have throughout 2026, this could be a good environment for dividend stocks.

Source: Getty Images.

Here are four more dividend ETFs poised to do well over the long term:

iShares Core Dividend Growth ETF

The iShares Core Dividend Growth ETF (NYSEMKT: DGRO) offers one of the better combinations of dividend growth and quality. It screens for companies with growing dividends and looks for sustainable payout ratios and earnings growth. None of the criteria is particularly stringent on its own, but they work well together to create a high-quality stock portfolio.

The 2% yield probably won't excite income investors. But the steadiness and predictability of annual dividend increases are ideal for a long-term investment strategy.

ProShares S&P 500 Dividend Aristocrats ETF

The ProShares S&P 500 Dividend Aristocrats® ETF (NYSEMKT: NOBL) is one of the purest dividend growth funds you'll find. Its strategy is simple: target the stocks within the S&P 500 that have raised their annual dividends for at least 25 straight years and equal-weight them. (The term Dividend Aristocrats® is a registered trademark of Standard & Poor's Financial Services LLC.)

As with DGRO, the focus on long-term dividend growers usually doesn't produce high income. But what you do get from this ETF is some of the most durable and mature companies in the United States. Because of their strong cash flows and commitment to shareholder payouts, quality is high, and increasing dividends are consistent.

Vanguard High Dividend Yield ETF

The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) has one of the most straightforward, albeit fairly generic, selection strategies. It ranks U.S. companies within a broad starting universe by their forecasted dividend yields and includes the top half of yields for the final portfolio.

While the strategy isn't particularly robust or targeted, it has a track record of delivering income to shareholders. Its 2.2% yield is roughly double that of the S&P 500 and represents a more conservative way to invest in high-yield equities. Reaching for yield can be potentially dangerous, but the high degree of diversification here helps limit that risk.

Schwab International Dividend Equity ETF

If you love the Schwab U.S. Dividend Equity ETF, you've got to check out the Schwab International Dividend Equity ETF (NYSEMKT: SCHY). It essentially uses the same criteria as those applied to international markets. Pair these two together, and you get a global portfolio of high-quality dividend growth stocks with above-average yields.

The 3.7% yield is well above average while maintaining the consistency and sustainability of similar strategies. International equities are also participating in the rotation away from U.S. megacap growth stocks, making this a potentially attractive entry point.

David Dierking has positions in Schwab U.S. Dividend Equity ETF and Vanguard Dividend Appreciation ETF. The Motley Fool has positions in and recommends ProShares S&P 500 Dividend Aristocrats ETF, Vanguard Dividend Appreciation ETF, Vanguard High Dividend Yield ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

S&P 500 (SNPINDEX: ^GSPC) performance and stock market volatility generally aren't good friends. When volatility picks up, it usually coincides with falling stock prices.

Thankfully, investors haven't had to deal with a lot of it in 2026. The Vanguard S&P 500 ETF (NYSEMKT: VOO) fell by around 9% during the early stages of the Iran war. But beyond that, pullbacks of even 4% have been uncommon.

That's not the norm, though. Corrections of 10% to 15% are pretty common and typically occur every one to two years. Even those kinds of pullbacks can feel painful and cause investors to alter their long-term investment plans. That tends to be the wrong thing to do. A lot of folks end up selling only after stocks have declined and fail to get back in the market until the recovery is already well underway.

Disciplined long-term investing suggests that investors need to ride out the volatility. If you choose to keep buying stocks throughout prolonged drawdowns, your personal rate of return might be even better.

Image source: Getty Images.

What S&P 500 market history actually shows

Going back to 1980, the S&P 500 has experienced an average intrayear decline of 14%. Reinforcing the buy-and-hold argument, however, the S&P 500 went on to finish the year in positive territory roughly 75% of the time. Market declines are normal. How you react to them makes a big difference.

Bear markets, on the other hand, can last longer and feel more painful. Since 1928, drops of 20% or more have lasted about 11 months on average and taken roughly two-and-a-half years to fully recover.

Overall, the length of time you're invested in the Vanguard S&P 500 ETF might do the best job of predicting your chances of success:

Source: Capital Group.

A one-year holding period gives you a good, not great, chance of being in the green regardless of what happens within that year. Historically, holding stocks for 10 years has made it very likely you'll come out ahead (and earn some pretty solid returns along the way).

Three rules for buying VOO in a decline

• Don't wait for conditions to "feel safe." Many of the S&P 500's strongest trading days occur during bear markets when volatility is high. Sitting in cash until after the recovery has begun or until investing feels right usually hampers long-term returns.
• Keep your time horizon in mind. If you'll need your money within a couple of years, the odds may not be good enough to take the chance that you'll avoid a bear market.
• Keep buying on schedule. Dollar-cost averaging through S&P 500 declines lowers your average cost basis and can improve your long-term returns.

The best results usually belong to those who are able to stick to their long-term plans and avoid the temptation to react to short-term conditions. Remember that history is often on your side in investing.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

For most of the past decade, investing in small-caps to outperform large-caps has been a losing effort. There have been periods, such as 2020, when this group has done well, but those have been the exception instead of the rule.

2026 is starting to look different. Investors are paying attention to valuations again. Small-cap earnings growth is finally accelerating. The iShares Russell 2000 ETF (NYSEMKT: IWM) is beating the Vanguard S&P 500 ETF (NYSEMKT: VOO) by roughly 9% year to date, and it's being driven by improving fundamentals.

That's not where I see the biggest opportunity. The Vanguard Small-Cap Value ETF (NYSEMKT: VBR) looks like it has the most catching up to do. Here's the investment case.

Image source: Getty Images.

The valuation gap

Cheaper valuations don't necessarily translate into future outperformance. We've clearly seen that over the past few years. But investors have begun rotating into value stocks again as a possible signal that they believe the tech rally may be showing signs of peaking.

The small-cap value category is one of the best places to find pure value. The Vanguard Small-Cap Value ETF trades at a forward price-to-earnings (P/E) ratio of around 14, which compares favorably to the 20 multiple of the Vanguard S&P 500 ETF. With earnings growth expected to accelerate into the high double digits over the next year, the risk/reward trade-off is much improved.

Earnings growth picking up

One of the primary factors that has led to small-caps' massive underperformance has been corporate earnings. A lot of companies were generating minimal growth while S&P 500 earnings continued to increase steadily post-COVID.

Thanks to the artificial intelligence (AI) boom, small-cap earnings growth is picking up again. It's expected to grow by 18% in 2026 and another 18% in 2027. The latter would be the first time small-cap earnings growth has beaten that of the S&P 500 in several years.

There's now a fundamental foundation in place for small-cap stocks to grow.

Small-cap value stocks are a buy

There is one potential risk to flag. A lot of small-cap value stocks are cheap for a reason. Many of them are still unprofitable. But the AI boom is improving overall balance sheet quality. The stocks that can get beaten down in an economic downturn are the same ones that can outperform as conditions are improving.

The current level of value combined with rising earnings growth rates means investors should consider the Vanguard Small-Cap Value ETF here. I think conditions are finally lining up for this group to break out from years of lagging performance.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

There are two components to an investment's total return: price return and dividend return. Add those together, and you get the total return.

Most people who invest in the S&P 500 (SNPINDEX: ^GSPC) treat the dividend as a footnote. Since the current yield on the Vanguard S&P 500 ETF is only 1%, it's understandable.

That hasn't always been the case, though. Over the past century, dividends have provided roughly one-third of the total return for the S&P 500. On a decade-by-decade basis, however, that number has fluctuated wildly.

Image source: Getty Images.

S&P 500 dividends: A decade-by-decade breakdown

Here are the annualized price, dividend, and total returns for the S&P 500 for each decade going back nearly 100 years.

Data source: SlickCharts. *2020s figures are annualized using data from 2020-2025 only.

Starting in the 1990s, dividends became a much smaller component of total returns. Yields were steadily falling, and large-cap stocks have spent much of this century yielding less than 2%.

• 1990s: The S&P 500 had its best decade in terms of price gains, thanks to the run-up to the tech bubble. A 2.9% annual return from dividends was meaningful, but largely an afterthought amid the tech boom.
• 2000s: This decade featured both the dot-com bust and the financial crisis. Those combined to make the 2000s a lost decade for the S&P 500. A modest dividend yield turned out to be the only positive return investors saw, although it wasn't enough to offset price declines.
• 2010s: Finally returning to some balance. Dividends provided a reasonable, though not large, contribution to total returns. More importantly, there were no catastrophic bear markets. 2018 was the only year with a 20% decline, and it recovered within months.
• 2020s so far: The COVID-19 pandemic sent stocks down, but they recovered quickly and then some. It's been the artificial intelligence (AI) boom ever since.

Part of the reason that yields have come down is the emergence of stock buybacks as a means of returning value to shareholders. Tech companies, in particular, have become known for doing this. A few of the larger companies pay significant yields, and we're likely to see the low equity dividend yield trend continue for some time.

But dividends aren't irrelevant. In the next bear market, you'll probably be thankful you have them.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

The iShares MSCI EAFE ETF (NYSEMKT: EFA) and the iShares Currency Hedged MSCI EAFE ETF (NYSEMKT: HEFA) are essentially the same portfolio and hold the same developed market stocks across Europe, Japan, and Australia. The only structural difference is their currency exposures. The first allows currency swings and accepts whatever effect they have on total returns. The latter strips out that currency risk.

Either one can work. It just depends on which risk exposure you prefer, and if you have a high conviction opinion as to whether the dollar will add to or reduce performance. Over the last decade, that difference between hedged and unhedged could have been worth thousands of dollars.

Image source: Getty Images.

EFA vs. HEFA: How they're constructed

The iShares MSCI EAFE ETF tracks the MSCI EAFE Index, which consists of more than 700 large- and mid-cap stocks across developed markets outside the United States and Canada. Returns reflect both changes in the values of the underlying stocks and fluctuations in the euro, yen, pound, and other currencies relative to the dollar.

The iShares Currency Hedged MSCI EAFE ETF actually holds the EAFE ETF as its only holding. It also layers on currency contracts that effectively neutralize any currency changes. It reduces overall volatility and removes a potential wild card from the risk/reward profile.

The currency market changes are what drive the difference in performance between the two funds.

For example, suppose that a basket of Japanese stocks was up 8%, but the yen fell by 10% relative to the U.S. dollar. An investment in a currency-hedged Japanese stock ETF would be up 8%. An investment in the unhedged Japanese stock ETF would be down 2%.

EFA vs. HEFA: A decade of performance data

Data source: iShares.

Over the past 10 years, the currency-hedged ETF outperformed the unhedged ETF by 3 percentage points annually. It did that with roughly 10% less volatility.

In dollar terms, that means a $10,000 investment in HEFA a decade ago would have turned into roughly $32,700. In EFA, the same investment would have become $25,000. That's a rough difference of $7,700.

The general relationship here is that if the dollar is stronger, HEFA should outperform EFA. If the dollar becomes weaker, the opposite would occur. The dollar has generally done well globally over the past decade, but it's been a volatile ride at times. The risk reduction from removing the currency fluctuations has been meaningful.

Currency-hedging international stocks are a better pure play

In many cases, using a currency-hedged international stock ETF makes a lot of sense for retail investors -- not because it's outperformed the unhedged version over the past decade, but because it's a significant risk reduction.

Plus, your investment results are based solely on the performance of the underlying stocks. It's a better option for direct exposure to foreign economies. That's something that a lot of portfolios could benefit from.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

When the Federal Reserve cuts interest rates, many people assume that bond prices rise in response. In reality, it's more nuanced.

Short-term Treasuries are more closely correlated with the federal funds rate and often do rise. Long-term Treasuries measured by the performance of the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) may or may not.

That's because they're more heavily influenced by economic conditions, not policy rates. Long-term yields reflect inflation expectations, risk premiums, government debt levels, and the direction of the U.S. economy. In other words, many moving parts are involved in pricing long bonds.

With markets anticipating rate hikes later this year, it can be helpful to look at what the Fed has done over the past few years and how the bond market has responded. Understanding this could help investors stay on the right side of whatever happens next.

Image source: Getty Images.

2023-2026: A look at the Fed, event by event

To lay some groundwork, let's look at some of the more significant events during the latest Fed rate-cutting cycle and how the iShares 20+ Year Treasury Bond ETF responded.

Data sources: Federal Reserve, iShares, Yahoo Finance. Table by author.

A few of these moments are worth unpacking individually. They've demonstrated the different ways that the Fed and Treasury bonds have reacted:

• December 2023: The Fed hadn't cut yet but signaled cuts were coming soon. With the economy still in good shape, the markets viewed rate cuts as a reason to rally. Cuts were considered a normalization of rates following 2022's aggressive hiking cycle, not a sign of an impending recession.
• September 2024 to November 2024: The Fed delivered a larger-than-expected half-point cut. But inflation was moving higher in the background, which usually results in higher long-term yields. That's exactly how the bond market responded.
• March 2025: The Fed essentially maintained the status quo. Rates and economic expectations were largely unchanged, and long-dated Treasuries moved little.
• Late 2025 into 2026: A similar environment to the second half of 2024. The Fed continued cutting rates, but stubborn inflation remained a risk. Long yield continues to reflect that.

If you're invested in short-duration Treasuries, you can probably count on higher rates to provide you with more income and low downside risk once they get priced in.

Long-term Treasury holders have been hit by higher inflation risk throughout the past three to four years, and that doesn't seem to be changing now. As long as inflation remains high, it's reasonable to expect this group to continue to struggle.

David Dierking has positions in iShares Trust - iShares 20+ Year Treasury Bond ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Sector ETFs often feel like diversified portfolios built around a specific industry. You own dozens of companies to add exposure to the sector itself without trying to pick individual winners.

The problem is that most of them aren't actually built that way.

Because the vast majority of them are market-cap-weighted, just a few stocks can dominate these ETFs. A lot of attention is paid to the top-heaviness of the S&P 500 and the tech sector because those companies are dominating the artificial intelligence (AI) trade right now.

In reality, tech doesn't even crack the top three sectors by concentration in the portfolio. That doesn't sound like diversification.

Image source: Getty Images.

11 S&P 500 sectors ranked by top three holding concentration

As it stands right now, here's the list of sectors ranked by their combined top three holding weight:

Data source: State Street.

The State Street Consumer Discretionary Select Sector SPDR ETF (NYSEMKT: XLY) stands as the biggest offender. The trio of Amazon, Tesla, and Home Depot make up nearly 45% of the portfolio. But it's Amazon and Tesla that account for roughly 40% of it on their own. The concentration is actually worse than this table would indicate.

The State Street Communication Services Select Sector SPDR ETF (NYSEMKT: XLC) tells a pretty similar story. AT&T allocates only 5% to the number above. Meta Platforms and Alphabet account for the other nearly 40% of that weighting. This is another sector built mostly around just two stocks.

The State Street Energy Select Sector SPDR ETF (NYSEMKT: XLE) may be slightly more surprising. But it, too, is concentrated in just two stocks, ExxonMobil and Chevron, which account for 35% of the fund.

The State Street Technology Select Sector SPDR ETF (NYSEMKT: XLK) would only be considered slightly more diversified by comparison. Add Broadcom to the top three holdings listed above, and you've got roughly 40% of the portfolio accounted for.

Truthfully, there's a bit of a concentration problem in all of these sector ETFs. The big names carry the most influence, but you're not really getting the true sector exposure you might be looking for.

If you want an alternative, check out Invesco's suite of equal-weighted sector ETFs. You get the same basket of companies, but without the concentration problem inherent in the ETFs listed above.

JPMorgan Chase is an advertising partner of Motley Fool Money. David Dierking has positions in Apple. The Motley Fool has positions in and recommends AbbVie, Alphabet, Amazon, Apple, Berkshire Hathaway, Broadcom, Caterpillar, Chevron, Costco Wholesale, Eli Lilly, Equinix, GE Aerospace, Home Depot, JPMorgan Chase, Meta Platforms, Microsoft, NextEra Energy, Nvidia, Prologis, RTX, Tesla, Visa, and Walmart. The Motley Fool recommends ConocoPhillips, Duke Energy, Johnson & Johnson, and Linde. The Motley Fool has a disclosure policy.

When asked to choose one dividend exchange-traded fund (ETF) above all others, the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is probably the most popular answer. It's a great answer, too, because the fund's comprehensive selection strategy does a really good job of picking the best dividend stocks.

That doesn't always mean it's going to be an outperformer, though. Shareholders found that out the hard way in 2023-2025 when it was actually one of the worst-performing dividend ETFs.

There are times when other dividend ETFs are going to beat it. I think the iShares Core Dividend Growth ETF (NYSEMKT: DGRO) is a good candidate to do just that during the next few years. A hawkish Federal Reserve, an elevated inflation rate, and higher Treasury yields could be a combination that hurts stocks that aren't increasing their dividends.

Although both of these ETFs incorporate dividend history into their selection strategy, here's why I think the iShares' portfolio might be able to hold up better in this market.

Image source: Getty Images.

Payout ratio screen gives the IShares fund an edge

For all that the Schwab ETF does to screen for quality, one of the things it doesn't look at is a company's payout ratio. This is essentially a measure of how much of its earnings are being paid out in dividends.

The iShares ETF does. It only selects stocks of companies that pay out no more than 75% of their earnings as dividends. This screen helps ensure that companies have earnings in reserve to keep paying and raising their dividends in case the economy starts to stumble or margins get squeezed.

With borrowing costs likely to remain elevated for the foreseeable future, that could prove to be an important distinction.

The iShare fund comes with less concentration

The Schwab ETF's portfolio consists of just 100 stocks. The top 10 holdings alone account for roughly 40% of the portfolio. That number isn't as high as some of the big tech and growth ETFs out there, but it is higher than that of the S&P 500 (SNPINDEX: ^GSPC).

The iShares ETF sits at just 27% and it gives an allocation of 10% or more to five different industry sectors. Diversification of holdings alone isn't necessarily going to improve returns, but it could mitigate some volatility and idiosyncratic risk.

Concentration has been a problem within U.S. equities for years. And it's a bit of a problem for the Schwab ETF as well.

SCHD index mechanics can trigger major portfolio shifts

The Schwab ETF just went through one of its biggest annual reconstitutions in years. Roughly two dozen positions were swapped, accounting for just over 31% of the portfolio overall. Energy, the largest sector holding before the adjustment, fell from a 23% weighting down to about 16%.

This type of broad portfolio change can make an investor feel like they suddenly own an entirely new portfolio. If you like the fund's sector composition or top holdings, don't be surprised if they're suddenly gone or significantly changed.

The iShares ETF typically has a lower turnover rate, and it doesn't drop like a hammer on just one day of the year.

The iShare fund topped Schwab's counterpart during the past decade

Although these funds are designed to simply track their respective indexes, we shouldn't discount their past performance altogether.

The Schwab ETF is beating the iShares ETF by about nine percentage points year to date. But during the past decade, it's the latter that's outperforming by roughly 1% per year. And it's been able to deliver that performance with slightly less volatility.

Overall, if you need income and cash flow now, the Schwab U.S. Dividend Equity ETF is probably still the better choice -- its 3.3% yield easily beats the 2% yield of the iShares Core Dividend Growth ETF.

On a total-return basis, however, there's a strong case that favors the iShare ETF over Schwab's.

David Dierking has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The ARK Innovation ETF (NYSEMKT: ARKK) has never been a fund for investors who can't stomach volatility. Given the nature of what it invests in, volatility is something folks will have to accept. As investors have seen over history, however, the rewards for taking on that volatility can be substantial.

Cathie Wood's flagship fund focuses on highly innovative companies developing the technologies that could reshape industries or even the world economy. That includes artificial intelligence (AI), robotics, genomics, fintech, and autonomous vehicles. As a result, this fund looks almost nothing like a traditional S&P 500 fund.

The difference is why investors should still consider owning it despite all the volatility and mixed results.

Image source: Getty Images.

Owning ARKK isn't about beating the S&P 500

The ARK Innovation ETF often gets branded as a tech fund. In reality, it's primarily a mix of the tech, healthcare, and consumer sectors. Among the top 10 holdings, there are familiar megacap names mixed with a handful of smaller, emerging businesses.

Data source: ARK Funds. Weighting is as of Aug. 5, 2026.

If you know anything about Cathie Wood's investing style, it's that she waits years for a stock's story to play out. Consider Tesla (NASDAQ: TSLA), for example. That's one of her original stock positions and the one that rocketed her to fame when her moon-shot price target was actually hit.

It's consistently been one of the fund's biggest holdings, and she still buys the dips today. She has said she's a believer in its potential as an AI and robotics company, not just an electric vehicle company.

Because of low turnover and long holding periods, ARKK's goal isn't to try to beat the S&P 500 every year, despite the fact that it's actively managed. She wants to outperform the index over the long term.

Data by YCharts.

How to incorporate ARKK into your portfolio

The ARK Innovation ETF offers something that few ETFs in the marketplace can -- a truly unique portfolio that's an ideal diversifier with big growth potential. One of the things you can give Cathie Wood credit for is that she's always stuck to her investing style. She never overweighted the "Magnificent Seven" stocks when they were leading the market higher. She remained committed to her emerging innovation theme even when it was deeply underperforming.

Whether or not this fund will outperform at any given moment is anyone's guess. But it deserves consideration as part of a diversified portfolio in a very modest allocation.

Its low overlap and low correlation with the S&P 500 is one of its strengths. It may go for multiple years lagging the index. But it's one of the real home run swings in the ETF marketplace.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Palantir Technologies, Shopify, Tempus AI, and Tesla. The Motley Fool recommends CRISPR Therapeutics and Coinbase Global. The Motley Fool has a disclosure policy.