If You Buy and Hold Just 3 ETFs, History Says This Combination Is Your Best Bet

When thinking about investing in stocks today, many people focus on the S&P 500 and tech stocks. However, history shows that diversification can lead to better long-term results. From 2000 to 2009, the S&P 500 lost 9%. Despite this, sectors like energy, consumer staples, small-caps, and emerging markets performed strongly. Investing in multiple areas of the market can help smooth out returns and reduce risk. While diversification doesn't always maximize returns, it often leads to smoother, more stable results.

To create a diversified portfolio with just three ETFs, a balanced approach is needed. The Vanguard Total Stock Market ETF (VTI) is a solid core position, covering the entire U.S. equity market. However, it has a heavy bias toward tech stocks, which currently make up around 43% of the portfolio. An alternative is the iShares MSCI USA Equal Weighted ETF (EUSA), which offers better diversification across four sectors with allocations ranging from 12% to 18%.

International investing has been out of favor, but U.S. stocks have consistently outperformed them. Historically, international stocks have led in multi-year cycles, and they have outperformed in the past. The Vanguard Total International Stock ETF (VXUS) is a good choice, investing in nearly 9,000 stocks across developed and emerging markets. Small-cap value investing also showed resilience during the 2000-2009 decade, making the Vanguard Small-Cap Value ETF (VBR) a strong contender despite its recent underperformance.

Combining these three ETFs—VTI for broad U.S. stock exposure, EUSA for international diversification, and VBR for small-cap value—creates a well-rounded portfolio. This trio should perform well across different market environments, providing stability and growth potential. For those seeking further stock recommendations, The Motley Fool's Stock Advisor offers premium service insights and has historically delivered exceptional returns.