Three Vanguard ETFs to Consider for a Long-Term Investment Strategy
Investing can seem daunting, but it doesn’t have to be. While many investors dive deep into stock research, there’s a simpler approach that still offers solid returns.
Exchange-traded funds (ETFs) provide an easy way to invest in diverse stocks. Vanguard offers a selection of ETFs with low annual costs. Here are three prominent Vanguard ETFs you can buy with $1,000 and hold for the long term.
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1. Vanguard S&P 500 ETF
For building a strong investment portfolio, the Vanguard S&P 500 ETF (NYSEMKT: VOO) stands out. A single share costs around $550, granting you ownership in 500 of the largest U.S. companies included in the S&P 500 Index.
This ETF tracks the S&P 500, which is regularly updated to reflect the top-performing companies. Larger companies like Apple, Microsoft, Nvidia, Alphabet, and Amazon are weighted more heavily due to their size, while underperformers are replaced.
Since its launch in September 2010, the Vanguard S&P 500 ETF has produced an average annual return of 14.52%, with a recent five-year average of 15.21%. Its total returns are enhanced by dividends.
Investors benefit from a very low annual expense ratio of 0.03%, compared to the average of 0.78% for similar funds.
2. Vanguard S&P Mid-Cap 400 ETF
For your portfolio, consider investing about $112 of your initial $1,000 in the Vanguard S&P Mid-Cap 400 ETF (NYSEMKT: IVOO). This fund tracks the S&P MidCap 400 Index, featuring 400 mid-sized companies. Some of these companies have excelled and moved up to the S&P 500 Index.
In contrast to the Vanguard S&P 500 ETF, this fund does not have any individual stock that significantly dominates its portfolio; the largest holding is only 0.71% of the total.
Launched alongside the S&P 500 ETF in September 2010, the Vanguard S&P Mid-Cap 400 ETF has yielded an average annual return of 12.09%. In the last five years, the average annual return has been 11.26%.
Its annual expense ratio is slightly higher at 0.1%, yet still lower than the average 0.89% for similar funds.
3. Vanguard Small-Cap ETF
To complete your U.S. stock exposure, around $250 will secure a share of the Vanguard Small-Cap ETF (NYSEMKT: VB). This fund focuses on smaller companies.
The Vanguard Small-Cap ETF holds 1,384 stocks, with no single stock accounting for more than 0.47% of the portfolio. This broad diversification helps mitigate the volatility often seen with small-cap stocks.
Since its inception in January 2004, the ETF has reported an average annual return of 9.24%. Its five-year average annual return is 10.14%. While these returns are lower than those of the S&P 500 ETF and Mid-Cap ETF, small-cap stocks typically outperform their larger counterparts over the long haul.
With an expense ratio of just 0.05%, this ETF is also competitively priced compared to the 0.99% average for similar small-cap funds.
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*Stock Advisor returns as of November 11, 2024
Disclosure: John Mackey, former CEO of Whole Foods Market and an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool recommends various stocks, including those mentioned above. The Motley Fool has a disclosure policy.
The views expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
