By all standards, we're officially in a new bull market. Many experts made the call last year after the S&P 500 rose by more than 20% from its low point in late 2022. But on Jan. 19, the index also surpassed its previous all-time high, making it official by all measures that a bull market is here.
Right now is an exciting time to invest, as stock prices are quickly climbing. By diving into the market during the early stages of a bull market, you could set yourself up for substantial gains.
Investing in exchange-traded funds (ETFs) can be a fantastic way to build wealth with very little effort on your part. The right ETF can help minimize risk while still helping you make a lot of money over time. There are three Vanguard ETFs I'm loading up on right now.
1. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (VOO 1.00%) tracks the S&P 500 index, meaning it aims to mimic the index's composition and returns over time.
The S&P 500 itself includes around 500 stocks from the largest and strongest companies in the U.S. When you invest in just one share of this ETF, you're actually investing in hundreds of stocks at once. This can create an instantly diversified portfolio with just one investment, significantly cutting down the time you have to spend researching stocks.
One major advantage of investing in an S&P 500 ETF is that it's almost guaranteed to see positive long-term returns. The index itself has a decades-long history of recovering from even the most severe crashes, recessions, and bear markets. While past performance isn't indicative of future returns, it's extremely likely this investment will rebound from any future downturns, too.
Finally, this ETF has a low expense ratio of just 0.03%, meaning you'll pay $3 per year in fees for every $10,000 in your account. This is far lower than many other funds, which can save you thousands of dollars in fees over time.
2. Vanguard Total Stock Market ETF
The Vanguard Total Stock Market ETF (VTI 0.93%) is similar to the S&P 500 ETF, except it's broader and includes far more stocks.
While the S&P 500 ETF only includes stocks from 500 large companies, the Total Stock Market ETF contains 3,750 stocks from large-, mid-, small-, and micro-cap stocks. It aims to replicate the performance of the market as a whole, covering all industries with corporations of all sizes. If you're aiming for a diversified portfolio, it doesn't get much more diversified than this.
The advantage of this ETF is that it offers more exposure to smaller stocks than the S&P 500 ETF. Smaller stocks can carry more risk than their large-cap counterparts, but they also often have more room for growth. If any of these stocks turn into superstar performers, you could see substantial returns.
3. Vanguard Growth ETF
The Vanguard Growth ETF (VUG 1.82%) is designed to earn above-average returns, containing 208 stocks with the potential for faster-than-average growth.
Of the three ETFs on this list, it's the least diversified. It contains fewer stocks than the other two funds, and it's also more heavily weighted toward the tech industry -- with more than half of the ETF's entire composition made up of tech stocks.
However, if you're looking to beat the market, this ETF is more likely to do it. By definition, the S&P 500 ETF and Total Stock Market ETF cannot earn above-average returns. Both of those funds are designed to follow the market, so they can't beat it. The Vanguard Growth ETF, however, has a history of earning higher-than-average returns.
Over the past 10 years, this fund has earned an average rate of return of 13.98% per year. The S&P 500 ETF and Total Stock Market ETF, by comparison, have earned average returns of 12% and 11.44% per year, respectively, in that time.
While that may not seem like much of a difference, it adds up over time. If you were to invest, say, $200 per month, here's approximately how much you could accumulate, depending on your average returns:
| Number of Years | Total Portfolio Value: 14% Avg. Annual Return | Total Portfolio Value: 12% Avg. Annual Return | Total Portfolio Value: 11% Avg. Annual Return |
|---|---|---|---|
| 20 | $218,000 | $173,000 | $154,000 |
| 25 | $436,000 | $320,000 | $275,000 |
| 30 | $856,000 | $579,000 | $478,000 |
| 35 | $1,665,000 | $1,036,000 | $820,000 |
Data source: Author's calculations via investor.gov.
Again, past performance doesn't guarantee future returns, so you may or may not see earnings like this over time. Growth ETFs, in general, also tend to be more volatile than broad-market funds. But if you're willing to take on more risk for the chance at earning above-average returns, you could potentially make a lot of money over time with this ETF.
The right ETF for you will depend on your goals and risk tolerance. If you're looking for a safer, more reliable investment, the S&P 500 ETF or Total Stock Market ETF may be smart bets. If you're more comfortable with risk and want to potentially beat the market, the Growth ETF could be a fantastic option. By weighing the pros and cons of each fund, you can decide which one is the best fit for your portfolio.
