Exchange-traded funds, or ETFs, can be superb investing vehicles. ETFs are both cost- and tax-efficient, and they can instantly diversify a portfolio across a broad swath of the equity markets or within a specific sector/theme.
However, the immense diversity within the ETF universe represents a fundamental problem for investors. For instance, some of these vehicles fail to track their benchmark index accurately, resulting in the fund underperforming on a consistent basis.
There is a simple solution, however. Vanguard ETFs are highly prized among investors for their remarkable ability to track their benchmark indices' performance closely. Moreover, this family of ETFs all come with industry-low expense ratios, making them excellent choices for most investors. Here is a brief overview of three Vanguard ETFs that should cover the performance requirements of most investors with a 10- to 20-year horizon.
Image source: Getty Images.
Vanguard 500 Index Fund
Many investors would love to claim that they can consistently beat the benchmark S&P 500, but the truth is that even most professional money managers fail to do so. Therefore, a smart strategy is simply to match the performance of the S&P 500. The Vanguard 500 Index Fund (VOO 1.00%), or VOO, is one of the best ETFs for this purpose. The fund has an extremely low expense ratio of 0.03%, a dividend yield of 1.62%, and has historically mirrored the performance of the S&P 500 in the strictest sense.
The VOO is also widely owned by individual investors, mutual funds, hedge funds, and institutional investors. The fund's popularity comes from its impressive performance. In the last 10 years, the VOO has generated total returns on capital (assuming dividends were reinvested) of more than 200%. That's remarkable for a passive index fund that requires investors only to buy shares regularly.
Vanguard Growth Index Fund
Want market-beating growth? Meet the Vanguard Growth Index Fund (VUG 1.82%). The VUG is a large-cap growth fund that holds shares of some of the most innovative and fastest-growing companies on the planet. Moreover, most of these companies are known for their fortress-level balance sheets, which considerably lower their risk compared to their mid- and small-cap peers.
But don't be fooled by VUG's large-cap focus. This fund has been delivering tremendous returns for shareholders since its inception in 2004. Over this nearly 20-year period, the VUG has generated total returns on capital of 635% as of this writing. The S&P 500, on the other hand, has delivered total returns of 431%, which is still great, but it doesn't hold a candle to the VUG. Best of all, the fund comes with an uber-low expense ratio of 0.04% and a modest dividend yield of 0.62%.
Vanguard Information Technology Index Fund
Interested in investing in cutting-edge technologies like artificial intelligence (AI)? If so, the Vanguard Information Technology Index Fund (VGT 1.72%) should be on your radar. The VGT owns stakes in several of the world's leading AI companies, such as Adobe, Nvidia, Microsoft, and Palantir Technologies. As a result of its focus on next-gen tech, this Vanguard ETF has produced market-crushing total returns of 979% since its inception in 2004.
VGT Total Return Level data by YCharts.
The VGT's expense ratio of 0.10% is a bit higher than its peers on this list, but that figure pales in comparison to the 0.99% average expense ratio of similar funds. The fund's modest dividend yield of 0.78% also comfortably covers its costs. So, if you're not up to picking individual tech stocks and want a simple, cost-effective way to gain exposure to this group, the VGT screens as a smart choice.
