The Vanguard Group is one of the giants in the investment world, with a reputation built on its portfolio of low-cost index funds. It has emerged as the second-largest provider of exchange-traded funds, or ETFs, with about $1.8 trillion in ETF assets under management, second only to iShares, which is owned by BlackRock (BLK -1.30%).
Vanguard offers about 75 different ETFs, tracking just about every sector, style, industry, and asset class you can think of. There are three that stand out for their popularity, performance, and price that could help you build a sizable nest egg and retire a millionaire.
1. Vanguard Russell 1000 Growth ETF
Vanguard offers two great large-cap growth ETFs: Vanguard Russell 1000 Growth ETF (VONG -0.06%) and the Vanguard S&P 500 Growth ETF (VOOG -0.09%). The two have similar performance histories, but I like the Russell 1000 Growth ETF a little better as it provides slightly more diversification with 498 stocks in the portfolio, including some mid-cap names. It also has a lower expense ratio, just 0.08%, compared to 0.10% for the S&P 500 Growth ETF.
The Russell 1000 Growth Index ETF tracks the Russell 1000 Growth Index, and its three largest holdings are Apple, Microsoft, and Amazon. Not only is it cheaper, but it has better long-term performance. Through June 30, the ETF is down 18.8% for the past year, but it has annualized returns of 14.2% and 14.7% for the five- and 10-year periods -- which is the best of just about any Vanguard ETF, except the one that will be featured next in this article.
2. Vanguard Information Technology ETF
The one ETF that has a better 10-year track record than the Russell 1000 Growth ETF is the Vanguard Information Technology ETF (VGT 0.28%). While the technology sector has gotten beat up in this current bear market, it has been the dominant force in the market for the past 20 years -- and in this digital age we are living in, expect that dominance to continue in the years to come.
This ETF tracks the MSCI USA IMI Information Technology Index, and includes roughly 400 information technology stocks across the market-cap spectrum -- although it is cap-weighted, so the bulk of it is in large-caps. The three largest holdings -- similar to the Russell 1000 Growth ETF -- are Apple, Microsoft, and Nvidia.
Over the past one-year period through June 30, it is down 17.5%, while its five- and 10-year annualized returns are 19.5% and 18.2%, respectively. What sets it apart from most of its competitors is its low expense ratio of just 0.10%.
3. Vanguard Value ETF
While the first two suggested ETFs are built for long-term growth, the Vanguard Value ETF (VTV -0.34%) balances things out a bit. It invests in the CRSP US Large Cap Value Index, which tracks about 350 large-cap value stocks that meet value screens for various metrics, including price-to-book (P/B) ratio, price-to-sales (P/S) ratio, price-to-earnings (P/E) ratio, and price-to-dividend ratio. The three largest holdings are Berkshire Hathaway, Johnson & Johnson, and UnitedHealth.
This ETF is only down 1.8% over the past one-year period through June 30. It has an annualized return of 9.2% over the past five years through June 30, and 11.8% over the past 10 years. Its expense ratio is a minuscule 0.04%.
Retire a millionaire?
It is certainly possible to retire a millionaire with investments in these three Vanguard ETFs with a long enough time horizon. So for the sake of this hypothetical, lets look out 10 years and see where you'd be, based on their annualized returns over the past decade.
If you started with a total of $15,000 and invested $5,000 in each ETF every year, with $100 contributed to each ETF every month, you'd have a total of about $140,000 after 10 years.
Now, we don't have a track record for these funds that goes back 30 years, but we can make a calculation based on their benchmarks. The Russell 1000 Growth Index has posted an annualized return of about 8.5% over the past 30 years through July 11, the CRSP Large Cap Value Index has returned about 8.2% annually over that stretch, and technology stocks, as measured by the Nasdaq Composite Index, have returned about 10.5% on an annualized basis over 30 years.
Using those long-term returns, a $5,000 initial investment in each, with $100 contributed every month, would total about $809,000. That's not quite $1 million, but with Social Security and any funds in an employer-sponsored plan, you'd be in that ballpark. If you have less than 30 years to retirement, the goal of reaching $1 million becomes a lot tougher and would require a larger initial investment and monthly contributions.
But if you have a good 401(k) and have contributed to it since you started working in your twenties, you should be well on your way to the $1 million mark. And an investment in these ETFs outside of that will help you get there faster.