Diversification is a key part of mitigating risk and generating returns with investing. Combining diversification with the long-term performance of shares and the low cost of index funds results in a strong strategy.
A lot of investors are drawn to the most well-known USA and Australian indexes such as Vanguard Australian Share ETF or V300AEQ ETF Units (ASX: VAS), iShares S&P 500 ETF (ASX: IVV) and Vanguard US Total Market Shares Index ETF (ASX: VTS). However, there are more options out there than just those three.
Here are three of my other favourite index funds:
BETANASDAQ ETF UNITS (ASX: NDQ)
This index focuses on the 100 biggest businesses on the NASDAQ and is run by Betashares. American technology companies may trade at high traditional valuations but I think they have the most growth potential out of all industry groups in the world.
This index has large holdings in Apple, Microsoft, Alphabet (Google), Amazon and Facebook.
It's currently trading with a trailing distribution yield of 0.58%. Most of the investment return will hopefully come from capital growth.
VanEck Vectors Morningstar Wide Moat (ASX: MOAT)
This index is run by Morningstar equity analysts, trying to find businesses with economic moats. Some of its top holdings include Gilead Sciences, Amazon, Amgen and Visa.
As long as the investment team behind the index can keep choosing well, then this index could be one to watch.
It's currently trading with a trailing distribution yield of 1.04%.
Vanguard All-World ex-U.S. Shares Index ETF (ASX: VEU)
This is a Vanguard exchange-traded fund that invests in many other stock exchanges except the USA.
This means it has some of the biggest companies in the world as part of its holdings including Nestle, Samsung, Royal Dutch Shell, Tencent and HSBC.
The USA has been one of the best places in the world to have your money invested in over the last five years but I think it's important to have some exposure to the rest of the world too. The USA isn't always going to have the strongest performing economy.
The index is currently trading with a trailing distribution yield of 2%.
Foolish takeaway
I like the ideas behind all three of the above indexes. I don't currently own any of them but I would like to add the NASDAQ and Vanguard (excluding US) index to my portfolio in time. I think the NASDAQ index offers investors the best long-term value at the current price.
