There's beauty in simplicity. This is particularly true when it comes to investing. The strategy that's easier to understand and implement often outperforms the more complex approach.
If you'd like to simplify your retirement plan, read on. The following two exchange-traded funds (ETFs) can be the foundation of your long-term investment portfolio. Whether you'd like to build a nest egg of $1 million or more, these proven wealth-builders can help you achieve your financial goals.
A bedrock index fund
The Vanguard S&P 500 ETF (VOO +1.23%) lies at the core of many astute investors' retirement portfolios. The exchange-traded fund is designed to track the S&P 500 index and gives people an easy and low-cost way to own a piece of 500 of the largest and most profitable companies in America.
The Vanguard S&P 500 ETF is broadly diversified across industries, such as technology, financials, and healthcare. It's market-cap weighted, so the biggest -- and often best -- companies have an outsized impact on returns. Apple, Microsoft, Nvidia, Berkshire Hathaway, and Eli Lilly count among the fund's largest holdings.
NYSEMKT: VOO
Key Data Points
Moreover, Vanguard's fees are often among the lowest in the mutual fund industry. The Vanguard S&P 500 ETF has an expense ratio of 0.03%, which equates to just $0.30 per $1,000 invested per year.
These low fees are a big part of why famed investor Warren Buffett is a fan of S&P 500 index funds -- and Vanguard's offering, in particular. He believes that people who invest in ultra-low-cost S&P 500 index funds will achieve superior long-term results, compared to those who choose higher-fee alternatives.
The data supports Buffett's view. The S&P 500 has generated higher returns than over 90% of actively managed large-cap funds over the past two decades, according to data from S&P Global.
Smaller businesses, larger potential returns
If you'd like to add an additional growth element to your retirement accounts, consider the Schwab US Small-Cap ETF (SCHA +2.06%). This fund can provide you with low-cost exposure to companies with significantly smaller market values than those in the S&P 500 -- and substantially more expansion potential.
NYSEMKT: SCHA
Key Data Points
The Schwab US Small-Cap ETF tracks the Dow Jones U.S. Small-Cap Total Stock Market index. The average market capitalization of its over 1,700 stock holdings is roughly $4 billion. That's in stark contrast to the median market cap of the stocks held by the Vanguard S&P 500 ETF, which checked in at over $200 billion at the end of January.
Interestingly, the valuations of the stocks held by the Schwab US Small-Cap ETF are currently quite attractive, relative to many larger companies. The fund's price-to-earnings (P/E) ratio of 15 is about 37% lower than the Vanguard S&P 500 ETF's P/E of 24. This discrepancy is due, in part, to the performance of megacap companies like the "Magnificent Seven," which have produced spectacular returns for investors in recent years. Yet buying the Schwab US Small-Cap ETF at a discount today could boost your returns in the coming years.
Better still, with an annual expense ratio of only 0.04%, this small-cap fund's fees are quite reasonable. Pairing the Schwab US Small-Cap ETF with the Vanguard S&P 500 ETF could thus provide you with a low-cost way to profit from a broader swath of the U.S. economy. Owning both funds would also add a greater element of diversification to your retirement investments, thereby lessening volatility and reducing your overall risk.
