Vanguard is well-known as a pioneer when it comes to offering low-cost, index-tracking mutual and exchange-traded funds (ETFs) for investors to use to build their nest eggs. The beauty of such funds is that they tend to be very inexpensive to manage, since they attempt to track (rather than beat) indexes. As a result, they tend to have lower fees and suffer fewer churn-related costs than more actively managed investment funds.
That structure gives investors a great chance to track either the market as a whole or a specific sector of it, receiving really closely matched performance for almost no effort or overhead costs. As a result, Vanguard's index-tracking funds are a wonderful, individual-investor-friendly innovation that can help ordinary people become millionaires over time. With that in mind, here are three Vanguard ETFs that could help you retire a millionaire.
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No. 1: Consider owning the entire world
The Vanguard Total World ETF (VT -0.32%) seeks to track an index that looks across the U.S., other developed markets, and emerging markets to cover pretty much the entire investable world of stocks. That makes it perhaps the ultimate example of a broad-based index fund.
Its extremely large coverage and virtually "no decisions needed" operating style allow it to charge a minuscule 0.08% management fee.Add to that a very low 2.3% turnover rate, and you get a very low-cost, very low-churn fund that does an excellent job of tracking very close to how the overall world stock market performs.
No. 2: Be like Buffett and bet on America
Warren Buffett has long been bullish on America and American stocks. If you share his perspective, then the Vanguard Total Stock Market ETF (VTI -0.47%) might be just the type of index-oriented ETF that you're looking for. That ETF tracks an index that covers publicly traded American companies across the market capitalization spectrum -- from small to large.
It does so with a remarkably low 0.03% expense ratio, giving investors a great opportunity to own a broad swath of American businesses for virtually no overhead charges. Its turnover rate of around 8% is lower than that of most actively managed funds, and it does reflect the fact that companies occasionally get bought out or change their headquarters to be outside the U.S.
No. 3: As the old saying goes, they're not making more land
Real estate is often viewed as a way to hedge against inflation. After all, land is a generally finite resource, and related real estate often has high fixed start-up costs and relatively modest ongoing costs. That combination can give real estate investors the opportunity to profit during inflationary times by raising rents in line with inflationary pressures while their largest costs remain mostly fixed.
If that sort of thinking appeals to your sensibilities in the current market, then the Vanguard Real Estate Index Fund ETF (VNQ -0.57%) may be worth considering. As a fund that tracks an index focused on U.S.-based property real estate investment trusts (REITs), it provides a great opportunity to get exposure to a broad swath of investment real estate in one transaction.
The fund carries with it a modest 0.12% expense ratio, and with a mere 2.9% turnover, it offers that index tracking with a minimum of churn. In addition to that reasonable fee and low churn, if the companies involved do earn profits, they are obligated to pay at least 90% of what they earn as dividends. This is because that's a requirement of the companies' choosing to structure as REITs.
What that means is that if those companies do manage to profit from real estate's traditional role as a hedge against inflation, they'll pass on a huge part of that profit directly to their shareholders. And since holders of that ETF get the benefits of owning the underlying shares, that will be passed on to the ETF's shareholders.
ETFs make it easy, but you have to make the investment
The beauty of these Vanguard ETFs is that they offer low-cost, one-stop sources of fairly broad market indexes. That allows individual investors the opportunity to get returns very close to the underlying markets being tracked with a single, simple purchase. To earn those returns, however, you need to first put your money into one or more of these ETFs.
So decide for yourself if these ETFs look like a reasonable fit for your investing goals. If so, get yourself in a position of being able to invest, and then make it a reality. The sooner you get started, the sooner you can start actually earning the long-term returns that the markets covered by these Vanguard index ETFs will deliver. Keep making regular investments for long enough, and they might even help you retire a millionaire.
