If you're like many people, you don't want to have to think too much about your retirement accounts. You want a mix of investments, based on your risk tolerance, that will enable your portfolio to grow steadily over the long term. That mix will certainly include more aggressive growth vehicles, more conservative fixed income investments, and perhaps everything in between.
An investment that should be a part of any portfolio is an ETF, or exchange-traded fund. ETFs can be traded like stocks, yet they are structured like an index mutual fund, tracking the performance of a given index. They have become the fastest-growing segment of the asset management industry due to their simplicity, cost, diversification, and performance.
There are roughly 7,000 different ETFs available worldwide with some $5.3 trillion in assets -- a number that is expected to grow tenfold over the next decade. They can be broad, tracking major indexes, or they can be sliced and diced to track smaller segments. For a retirement account, the best option is an ETF you can set and forget with broad diversification and a track record of steady returns and low expenses. The Vanguard Large-Cap ETF (NYSEMKT:VV) fits that description.
Outperforming its S&P 500 counterparts
The Vanguard Large-Cap ETF is a little different from its large-cap ETF counterparts that track the S&P 500 or the Russell 1000. This ETF tracks the CRSP U.S. Large Cap Index, a broadly diversified index that encompasses 85% of investable market capitalization, including both large- and mid-cap stocks. Overall, it holds 556 names, so slightly more than the S&P 500 ETFs but considerably less than the Russell 1000 ETFs. About 28.5% is in the technology sector, followed by 16.5% in consumer discretionary, 13.4% in healthcare, and 12.6% in industrials.
The ETF has outperformed its large-cap competitors over the long term, including offerings from Schwab, State Street, BlackRock, and other Vanguard funds like the Vanguard S&P 500 ETF. The Vanguard Large-Cap ETF has a three-year total return of 48.5% and a five-year total return of 92.2% as of Oct. 31. On an annualized basis, it has a five-year average annual return of 12% and a 10-year average annual return of 13.1%. By comparison, the S&P 500 has an annualized return of about 9.5% since Dec. 2010.
In terms of fees, its expense ratio is a minuscule 0.04%, which is just about as low as it gets. There are only a handful of ETFs in this category with lower expense ratios than that.
Set it and forget it
As this ETF includes the bluest of the blue chips and the biggest companies in the world, investors know they are investing in the most stable, high-quality businesses on the market. The top holdings are currently Apple, Microsoft, Amazon, Alphabet, Facebook, and Berkshire Hathaway. Since its inception in Jan. 2004 -- through the Great Recession and housing market crash, the 2010s bull market, and the 2020 COVID crash -- this ETF has managed to deliver a 9% annualized return.
If you had invested $10,000 in this ETF 16 years ago and contributed $100 per month at that 9% rate of return, you'd have nearly $85,000 in your nest egg by now. That provides some good ballast to a diversified portfolio.