3 Top ETFs I'm Planning to Buy Hand Over Fist in 2025, Despite All the Cheap Stocks on My Radar

I have a strong preference for investing in individual stocks, believing that a carefully selected stock portfolio can outperform the overall market. However, I also see the benefits of placing some investments on autopilot with high-quality index funds.

Index fund ETFs offer a simplified way to gain diversified exposure to a range of stocks in one investment. They have the potential to provide impressive returns over long periods of time. With this in mind, despite the appeal of several attractive stocks—particularly high-yield dividend options—I intend to gradually invest in three specific ETFs throughout 2025.

The ETF Every Investor Should Consider

If I could only choose one investment to hold, it would undoubtedly be the Vanguard S&P 500 ETF. This is Vanguard's premier S&P 500 index fund. As the name indicates, this ETF follows the performance of the S&P 500, which is widely regarded as an essential benchmark for monitoring the U.S. stock market's performance.

This ETF features an incredibly low expense ratio of just 0.03%. This means that with a $10,000 investment in the fund, only $3 would be allocated for annual expenses. Historically, the S&P 500 has delivered average annual returns of approximately 10%. To put that in perspective, a $10,000 investment could grow to about $175,000 over 30 years, with no further management required.

My Preferred ETF for 2025

At the start of 2024, small-cap stocks were trading at their lowest price-to-book ratios compared to large caps since the late 1990s. This gap in valuation has only increased, driven by the strong performance of large-cap tech stocks and higher-than-expected interest rates.

Currently, the average stock in the Russell 2000 small-cap index is valued at a price-to-book ratio of 1.9, while the average S&P 500 stock sits at 4.7. With interest rates beginning to decline and a potential pro-growth environment ahead, small caps might benefit significantly. For this reason, I consider the Vanguard Russell 2000 ETF to be my top ETF pick for 2025.

Exposure to AI Without Company-Specific Risk

My view is that artificial intelligence (AI) presents a tremendous opportunity and might become one of the most significant technological developments of my lifetime. However, although I feel competent assessing investments in banks, real estate, and e-commerce, AI is not an area where I excel. It's important for investors to understand their area of expertise, and AI stocks are somewhat outside mine.

For this reason, I plan to initiate a position in the Ark Autonomous Technology and Robotics ETF, managed by Cathie Wood's Ark Invest. This fund comprises a carefully curated selection of stocks that are poised to succeed in the AI revolution. It includes well-known companies like Tesla and Nvidia, as well as smaller but promising firms like Kratos Defense & Security and notable agricultural technology players like Deere.

While this is the highest expense ETF on my list at 0.75%, this fee is typical for specialized, actively managed funds.

Integrating These ETFs into My Portfolio

It's important to clarify that the majority of my portfolio continues to consist of individual stocks. I anticipate this won't change in the near future. However, at this point in my investment journey, I am focusing more on establishing a solid foundation with high-quality index funds. For 2025 and beyond, my plan is to allocate half of any new investments in my brokerage account to individual stocks and the other half to these ETFs.

Positions mentioned include Vanguard Russell 2000 ETF and Vanguard S&P 500 ETF.

ETFs, Investing, Stocks