Successful stock and bond investing doesn't have to be overly complicated. The sharp rise in the popularity of exchange-traded funds, or ETFs, over the past 30 years proves this point.
ETFs can provide instant diversification across a wide array of economic sectors or an easy way to gain exposure to a particular theme. However, they can vary dramatically in their expense ratios or the cost the fund charges investors for owning it.
For example, the average expense ratio across the diverse ETF universe is 0.47%. This means that the average fund charges $47 for every $10,000 invested on an annual basis. Vanguard ETFs, on the other hand, sport expense ratios that are 83% lower than the industry average, making them an exceptionally low-cost vehicle for stock and bond investors.
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Here's a brief overview of two growth-oriented Vanguard ETFs that stand out as top buy-and-hold vehicles right now.
A top-shelf small-cap growth fund
The Vanguard Small-Cap Value Index Fund (VBR 0.37%) invests in smaller companies that screen as undervalued. The fund's goal is to track the performance of the CRSP U.S. Small-Cap Value Index, which sports a minuscule expense ratio of 0.07% and a 10-year annualized return of 8.13%. At present, the VBR holds shares of 838 companies that operate across all 11 sectors of the global economy.
The VBR has badly underperformed the broader markets this year due to the rising cost of capital, which is the lifeblood of growth-oriented businesses. But several key metrics indicate that a return to form is a distinct possibility once the Federal Reserve pivots on interest rates at some point (hopefully) in 2024.
VBR Total Return Level data by YCharts.
Chief among them, the average annual earnings growth rate for companies within its diverse portfolio is an impressive 13.6% over the prior five years. Of course, past performance is no guarantee of future success, but the fund is geared toward companies with stellar earnings potential.
What's more, the average price-to-earnings ratio (p/e ratio) of the fund's holdings is only 10.8. That's markedly lower than the average p/e ratio of the S&P 500 benchmark index of nearly 25.
All in all, the VBR provides exposure to a diverse range of undervalued growth companies at a rock-bottom expense ratio.
A top-performing large-cap growth fund
The Vanguard Growth Index Fund (VUG 1.82%) focuses on large companies with above-average growth prospects. It's designed to track the performance of the CRSP US Large Cap Growth Index.
This Vanguard ETF sports a highly attractive expense ratio of 0.04%, along with a sizzling 10-year annualized return of 13.56%. The VUG holds shares of 222 companies -- many of which operate in the technology sector -- with a median market cap of $510 billion.
Thanks to its ownership of some of the hottest stocks in the market in 2023 such as Nvidia and Eli Lilly, the fund has dramatically outperformed the broader markets this year. However, this strong annual performance isn't unusual for the fund.
Over the past 10 years, VUG has delivered total returns of 249%, compared to 198% for the S&P 500. While the VUG is inherently riskier than a value-oriented ETF, it has proven to be an outstanding growth vehicle across both bull and bear markets alike. As such, this Vanguard ETF screens as a top buy-and-hold play for growth investors.
