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3 ETFs Perfect for Robinhood Investors

The world can't stop gawking about what Robinhood users are investing in. While some users walk on the risky side -- be it by scooping up troubled stocks like Hertz and Nokia, or day trading -- what gets ignored is all the boring investing that's happening on Robinhood. Its top 100 stocks currently include tried-and-true blue chips like Visa, Johnson and Johnson, and Walmart, to name a few.

Fortunately, there's a middle ground for all the Robinhood investors out there seeking high growth who want to mitigate the risks. By investing in ETFs, or exchange-traded funds, you can invest in hundreds or thousands of stocks that have the potential to soar. Buying a single share gives you instant diversification so you can avoid the risk of having too much invested in a handful of individual stocks.

These three ETFs are perfect for Robinhood investors because they offer aggressive growth potential. In fact, some of their top holdings are among Robinhood's most popular stocks. A bonus: The management fees are low, which will no doubt appeal to users of the commission-free platform.

Image source: Getty Images.

1. Invesco QQQ Trust

Buying shares of the Invesco QQQ Trust (NASDAQ: QQQ) will automatically make you an investor in the 100 largest stocks on the tech-heavy Nasdaq index. Robinhood favorites Apple, Amazon, and Microsoft are its most heavily weighted stocks, accounting for 34% of the fund's holdings. Its top 10 stocks are all tech-related and make up about 55%, which means the QQQ isn't a great option for adding diversification to your portfolio. But it's a good way to invest across a lot of companies whose share prices may be too expensive for beginning investors.

The QQQ has delivered impressive year-to-date results of about 34%. By comparison, the S&P 500 index is up about 10% since the start of 2020. As of Oct. 31, 2020, the fund had an annualized 10-year return of 19.01%. Its expense ratio is just 0.2%, meaning that just $2 of a $1,000 investment will go toward fees.

Aggressive growth funds like the QQQ aren't a prime choice for those seeking dividend income. But since Robinhood investors skew younger with a high risk tolerance, growth potential probably matters more than income generation.

2. Schwab Emerging Markets Equity ETF

Investing across U.S. large-cap stocks is generally stable, but that's not where the big growth is happening. One way for Robinhood users with an appetite for risk to seek bigger rewards is by investing in rapidly emerging markets. The Schwab Emerging Markets Equity ETF (NYSEMKT: SCHE) is one good option.

The fund's benchmark is the FTSE Emerging Index, which tracks mid- and large-cap stocks across more than 20 countries and has an expense ratio of just 0.11%. The fund has more than 1,500 holdings, the three largest of which are Chinese e-commerce behemoths Alibaba and Tencent Holdings, and Taiwan Semiconductor Manufacturing Co. Ltd.

Emerging markets tend to be volatile, though, due to political instability, a lack of regulations, and currency risk. Most investors should limit their exposure to no more than 10% to 15%. Year to date, the fund is only up by about 4%, as the coronavirus pandemic has ravaged the economies of many emerging-market countries. But investing in an emerging-market ETF now could position you to capitalize as these economies recover.

3. Vanguard Russell 2000 ETF

The small-cap stocks that make up the Russell 2000 index tend to be more volatile than S&P 500 stocks, but they also have the growth potential that appeals to Robinhood investors. The Vanguard Russell 2000 ETF (NASDAQ: VTWO) is a good option for cashing in on companies that aren't quite in the big league, given that its expense ratio of 0.1% is among the lowest for small-cap funds.

The fund has underperformed compared to the S&P 500 over the last decade, but it's produced superior one-month and three-month returns. That's mostly due to the fact that small-cap stocks were harder hit when the market crashed in March, giving them more room to recover.

Of its 2,000-plus holdings, VTWO's top 10 stocks account for just 3.9% of its overall assets. Its largest concentrations are in healthcare (20.8%), consumer discretionary (15.7%), and industrials (15.4%), as of Sept. 30, 2020. Given that the S&P 500 is increasingly dominated by a handful of tech giants, investing in this fund could add some much-needed diversification to your portfolio.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Robin Hartill, CFP owns shares of Schwab Emerging Markets Equity ETF. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., Amazon, Apple, Microsoft, Taiwan Semiconductor Manufacturing, Tencent Holdings, and Visa. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.


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