Since I am in my 40s, I’ve been building toward retirement for a while now, and I have a solid amount of money set aside for my later years. I also keep some investments in taxable brokerage accounts in case early retirement becomes an option.
As I’ve made my investment choices, one pattern has emerged clearly and consistently. While I own a handful of individual stocks, roughly 90% of my portfolio is in ETFs. Here’s why that approach works for me, along with some practical guidance on whether ETFs might be the right fit for you.
The ETF industry itself underscores how mainstream this strategy has become. Assets invested in the ETF industry globally reached a new record of $19.85 trillion at the end of 2025. In the U.S. alone, net new ETF flows topped $1.46 trillion in 2025, exceeding 2024’s annual flow record by 32%. Clearly, a lot of investors have reached a similar conclusion.
1. ETFs often outperform individual investments over time
The primary reason the bulk of my money sits in ETFs is straightforward: I believe exchange-traded funds give me the best realistic odds of investment success.
Specifically, I’ve invested heavily in ETFs that track the S&P 500, giving me exposure to roughly 500 of the largest companies in the U.S. The S&P 500’s average 30-year return through December 2025 was 10.4%, close to its historic long-run average of about 10%. Individual stocks can obviously deliver much more than that in any given year, but consistently picking a broad basket of stocks that beats a 10% annual benchmark is genuinely difficult.
The data makes the challenge clear. According to the SPIVA U.S. Year-End 2025 Scorecard from S&P Global, 79% of active large-cap U.S. equity funds underperformed the S&P 500 in 2025, the fourth-worst annual result for active large-cap managers over the 25-year history of the SPIVA Scorecards. The long-term picture is even more striking. Over a 15-year horizon, more than 90% of U.S. large-cap active equity funds have lagged the S&P 500. And across all categories, underperformance rates typically rise as time horizons lengthen.
There are never any guarantees of future performance, of course. But the S&P 500’s long and consistent track record makes it about as reliable a foundation as an investor can find. Knowing the odds strongly favor at least a 10% average annual return is more compelling to me than chasing bigger wins while accepting a much greater risk of loss.
The Catch: Understanding Market-Cap Concentration
While an S&P 500 ETF gives you a slice of 500 companies, you are not investing in them equally. Because these funds are market-capitalization weighted, the largest companies carry the heaviest weight. Today, mega-cap technology and artificial intelligence infrastructure stocks command a historically large share of the index, with information technology and communication services together accounting for nearly half of the entire fund’s movement. A standard cap-weighted ETF means your retirement savings are highly tethered to a single sector, which is worth understanding before you commit.
To mitigate this concentration, investors looking for a smoother ride increasingly pair standard index funds with equal-weight ETFs, which give every company an identical 0.2% slice of the pie. Neither approach is wrong, but knowing the distinction helps you build a portfolio that matches your actual risk tolerance.
2. Investing in ETFs means you don’t need a lot of specialized knowledge
I also lean on ETFs because I have no particular expertise in picking individual stocks. Poring over earnings reports, tracking changes in company leadership, or monitoring shifts in business strategy holds little appeal for me, even for companies I find interesting.
Selecting an ETF is far simpler than researching individual companies. Most brokerage platforms include screening tools that let you filter by expense ratio, the sectors or industries covered, and historical performance. Finding the right fund takes a few minutes, not hours of specialized research. That accessibility matters for investors who want to stay engaged without becoming full-time market watchers.
3. ETFs are a hands-off investment
Finally, ETFs suit my personality because they require very little active management. An S&P 500 ETF spreads your money across companies in many different industries, delivering instant diversification in a single purchase. Because no single company dominates the outcome, you don’t need to monitor your holdings daily or react to every piece of corporate news. That peace of mind is worth a great deal for long-term investors.
Beyond the S&P 500: Building a Modern ETF Toolkit
A core broad-market index fund makes a strong equity foundation, but the modern exchange-traded universe stretches well beyond large-cap domestic stocks. Investors can construct a comprehensive asset strategy by layering in short-term Treasury funds for fixed-income security, international equity funds for geographic diversification outside the United States, and factor-based options like dividend growth funds to generate more stable cash flow and dampen overall portfolio volatility. Fixed income ETFs drew robust demand in 2025, pulling in $458.63 billion in net inflows for the year, significantly higher than the $315.24 billion recorded in 2024. That figure reflects a growing recognition that ETFs can serve the full spectrum of an investor’s asset allocation, not just the equity sleeve.
Are ETFs right for you?
ETFs clearly make sense for me, but whether they’re right for you depends on your goals. If you want a simple, low-maintenance portfolio with a strong historical track record, ETFs are likely the most efficient path. If you’re confident in your ability to research and select individual stocks that can consistently beat the market, a different approach may serve you better.
A Quick Checklist for Selecting Your First ETF
When you evaluate a fund using online screening tools, focus on three core details. First, check the expense ratio. Core index products should typically range from 0.03% to 0.09% annually, and every basis point saved compounds over time. Second, verify assets under management and average daily trading volume to confirm deep market liquidity and tight bid-ask spreads. Third, review historical tracking error to make sure the fund closely mirrors the returns of its target benchmark. A fund that consistently drifts from its index is not delivering what you’re paying for, even at a low cost.
Ultimately, your risk tolerance and long-term goals should drive every investment decision. A qualified financial advisor can help you work through those questions and find the right approach for your situation.
Editor’s note: This article was updated to reflect the SPIVA U.S. Year-End 2025 Scorecard finding that 79% of active large-cap managers underperformed the S&P 500 in 2025, and that over a 15-year horizon more than 90% have lagged the index. New context was also added on the global ETF industry reaching a record $19.85 trillion in assets at year-end 2025, with U.S. net ETF inflows of $1.46 trillion setting an annual record, along with updated data on fixed income ETF demand.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks