Exchange-traded funds, or ETFs for short, can be wonderful investing vehicles. ETFs are cost and tax-efficient, trade-like individual stocks, and can provide instant diversification across a wide swath of the broader market, or within a specific theme. Not all ETFs are table-pounding buys, however. Some funds come with hefty expense ratios, which can diminish future returns.
Fortunately, there is a simple solution to this problem: Vanguard ETFs. Vanguard ETFs are designed to be investor friendly, evinced by their remarkably low expensive ratios. In fact, the firm's broad family of ETFs sport expense ratios that are 80% lower, on average, compared to the broader industry. Best of all, most Vanguard funds have 10-year performance records comparable, and often superior, to many actively managed funds, or even other types of passively managed funds.
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Which low-cost Vanguard funds are no-brainer buys right now? If you have a 10 to 20-year investing horizon, the following three funds ought to be on your radar right now.
Vanguard Dividend Appreciation Index Fund
Although dividend investing hasn't been a winning strategy in 2023 due to sticky inflation, dramatic interest rate hikes, and the possibility of a recession, companies that frequently boost their dividend have a proven track record as top capital appreciation vehicles over long periods of time (10 to 20 years).
This strategy, known as dividend growth investing, isn't new by any stretch of the imagination but it is highly effective. The one drawback associated with it is that sometimes companies with normally reliable dividends get hit with an unexpected setback, resulting in slower dividend growth, or worse still, a dividend reduction. This is where dividend appreciation ETFs come into play.
The Vanguard Dividend Appreciation Index Fund (VIG 0.10%) (aka VIG) tracks the performance of the S&P U.S. Dividend Growers Index. The VIG comes with a tiny expense ratio of 0.06%, it only requires a minimal investment of $1, and it has delivered phenomenal returns over the prior 10 years (up 172.4%).
The VIG's top five holdings (in rank order) are Microsoft (MSFT 1.82%), Apple (AAPL -0.35%), ExxonMobil, UnitedHealth Group, and JPMorgan Chase. Most of its holdings are large to mega-cap companies with enormous cash positions, healthy free cash flows, and reasonable levels of debt. As such, this low-cost ETF provides exposure to a wide range of blue chip companies, making it an ultra-low-risk dividend growth vehicle.
Vanguard 500 Index Fund
Stock investing doesn't have to be difficult. Many of the best investors in the world – including Warren Buffett – have often advised average investors to keep it simple by regularly buying shares of a low-cost index fund that tracks the benchmark S&P 500. The Vanguard 500 Index Fund (VOO 1.00%), or VOO, ticks both of those boxes.
The fund invests in companies in the S&P 500 and it comes with an ultra-low expense ratio of 0.03%. Its five top holdings are Apple, Microsoft, Amazon, Nvidia, and Alphabet. Over the past 10 years, the VOO has delivered cumulative returns in excess of 200% for shareholders. That's a pretty amazing return on investment for a passive index fund.
Vanguard Growth Index Fund
Want exposure to some of the most innovative and fastest-growing companies on the planet? Meet the Vanguard Growth Index Fund (VUG 1.82%), or VUG in common parlance. The VUG tracks the CRSP US Large Cap Growth Index and it comes with a bargain basement expense ratio of 0.04%. Since its inception in 2004, this large-cap growth ETF has delivered a blistering 544% total return on investment for shareholders. This year, the fund has dramatically outperformed the broader market, posting a remarkable 23.7% total return year-to-date.
VUG Total Return Level data by YCharts
What's in the VUG? The fund's top five holdings consist of Apple, Microsoft, Amazon, Nvidia, and Alphabet. Now, the VUG does lean heavily into pricey tech stocks, and some of these names may be due for a pullback from recent highs. Over the long term, though, these financially sound growth companies should continue to deliver strong top and bottom-line growth. The VUG, for its part, allows investors an easy way to benefit from this underlying growth trend without having to pick favorites.
