Investing in the stock market is one of the most effective ways to generate long-term wealth, and exchange-traded funds (ETFs) are a fantastic way to maximize your earnings with minimal effort.
An ETF is a basket of securities grouped into a single investment. By investing in just one ETF, you'll instantly own a stake in dozens or even hundreds of different stocks -- making it nearly effortless to build a well-diversified portfolio.
This approach requires much less research and can be more cost-effective than investing in individual stocks. The stocks in each fund are already chosen for you, and all of the ETFs on this list are priced at less than $500 per share, as of this writing. While there are countless ETFs to choose from, these three Vanguard ETFs can be a fantastic place to start.
1. Vanguard S&P 500 ETF (VOO)
The Vanguard S&P 500 ETF (VOO +1.41%) is perfect for both beginners and those who simply want a simple, set-it-and-forget-it type of investment. This ETF tracks the S&P 500 index, meaning it includes all the stocks within the index and aims to match its performance over time.
NYSEMKT: VOO
Key Data Points
The S&P 500 is one of the foundations of the entire stock market, and it's made up of 500 of the largest and strongest companies in the U.S. When you invest in this ETF, then, you're buying a stake in all of those stocks -- from tech giants like Microsoft and Amazon to well-established brands like Coca-Cola and 3M.
Because each S&P 500 ETF contains hundreds of powerhouse stocks, it's more protected against downturns. While all investments are subject to short-term volatility, the S&P 500 itself has a decades-long history of recovering from even the worst crashes, bear markets, and recessions. No matter what the future holds, it's extremely likely this ETF will continue rebounding.
2. Vanguard Total Stock Market ETF (VTI)
The Vanguard Total Stock Market ETF (VTI +1.51%) is a much broader ETF compared to VOO. While VOO only contains stocks from 500 large companies, VTI aims to track the entire stock market. It includes a whopping 3,371 stocks from companies of all sizes, ranging from large-, mid-, small-, to micro-cap stocks.
If you're looking for maximum diversification, this ETF may be your best bet. With such a wide range of stocks of all sizes across all industries, it doesn't get much more diversified than this. More variety in your portfolio can reduce your risk, and if that's a primary goal for you, VTI could be a smart option.
NYSEMKT: VTI
Key Data Points
One downside to a total stock market ETF, though, is that it can sometimes earn lower returns than other funds. Case in point, over the last 10 years, VTI has earned an average rate of return of 11.98% per year -- compared to 12.66% per year for VOO in that time period. While that's not a huge difference, it can add up over time.
3. Vanguard Growth ETF (VUG)
If you're looking to maximize your long-term returns, the Vanguard Growth ETF (VUG +1.65%) can be a fantastic option. This fund includes 208 stocks with the potential for above-average growth, and it's designed to beat the market over time.
This ETF offers less diversification than the other two on the list, especially considering nearly 56% of the fund is allocated to stocks in the tech sector. A heavy focus on any industry (especially one as volatile as tech) does bring more risk.
NYSEMKT: VUG
Key Data Points
That said, VUG has managed to significantly outperform the market, earning an average rate of return of 14.74% per year over the past decade. If taking on slightly more risk in exchange for potentially higher returns is something you're comfortable with, this ETF may be right for you.
A side-by-side comparison
To be clear, you don't necessarily need to choose just one of these ETFs. You may opt for more than one to further diversify your portfolio, especially if you invest in a growth ETF that carries more risk. But it can still be helpful to see how all three of these ETFs stack up to each other.
| ETF | Price per Share (as of Current Writing) | 10-Year Average Annual Return | Biggest Advantage | Biggest Disadvantage |
|---|---|---|---|---|
| Vanguard S&P 500 ETF (VOO) | $480.70 | 12.66% | Perfect track record of recovering from downturns | Highest price per share and less diversification than VTI |
| Vanguard Total Stock Market ETF (VTI) | $259.90 | 11.98% | Most diversification and less risk | Lower average returns |
| Vanguard Growth ETF (VUG) | $344.20 | 14.74% | Higher-than-average returns | Less diversification and more risk |
There's no right or wrong answer as to where you should invest, as it will depend on your investing goals and risk tolerance. To decide which ETF is the best fit for you, consider what you want out of an investment and which of these funds most closely aligns with your goals.
ETFs can be a smart way to build wealth over time with little effort on your part, but choosing the right investment is key. All three of these Vanguard ETFs can make fantastic choices, and by weighing the pros and cons of each, it will be easier to decide which is the best fit for you.
