Exchange-traded funds (ETFs) are fantastic tools to have in your investment arsenal. These baskets of stocks can be bought and sold like individual stocks, yet they give you exposure to whatever market sectors or investment style you'd like to target. There's even a selection of ETFs that mimic the broader market's returns, allowing you to essentially own the S&P 500 (for example) with just one purchase.
Vanguard ETFs are among the most popular with beginner and seasoned investors alike due to their strong track records and extremely low expenses. Let's look at a few that could easily fit into most long-term portfolios.
1. VTI: Own the market
Why spend lots of time trying to build a portfolio that might beat the market when you can match the market's returns with just one purchase? That's the main value of the Vanguard Total Stock Market Index Fund (VTI +1.30%). This ETF tracks the performance of essentially all large-capitalization, mid-cap, and small-cap companies that trade on U.S. stock exchanges. It is highly popular among investors, with $1.5 trillion of assets under management.
NYSEMKT: VTI
Key Data Points
The Vanguard Total Stock Market Index Fund is aggressive in that it doesn't include exposure to bonds. Its composition is tilted toward the companies that account for most of the market's earnings, too. In practice, that means you're getting more tech stocks and less of everything else.
The fund's top 10 holdings read like the list of "Magnificent Seven" stocks, including Microsoft, Nvidia, and Meta Platforms. As long as you're aware of that concentration, it's still a fantastic fund to lean on when you're not sure which individual stock you want to purchase next.
2. VYM: Dividends pay well
If dividends are more your style, consider buying the Vanguard High Dividend Yield ETF (VYM +0.83%). It also focuses on large U.S. companies, but it's a much different animal than the Vanguard Total Stock Market Index Fund.
As its name implies, the Vanguard High Dividend Yield ETF aims for high dividend income. Its yield as of early April is sitting at 3% compared to the 1.4% you'd get by owning the S&P 500 or the 2.1% delivered by the Dow Jones Industrial Average. You'll gain exposure to many Dow giants by owning this ETF, though. Its top holdings include ExxonMobil, Home Depot, and Procter & Gamble.
Keep in mind that this fund will not closely track the wider stock market. During tech-led rallies, like the one we've seen in the past year, the Vanguard High Dividend Yield ETF tends to underperform the S&P 500. On the flip side, it should hold up well during downturns or when fears spike over a potential recession on the way.
3. VUG: Growth focused
Finally, there's the Vanguard Growth ETF (VUG +1.52%) for investors who want exposure to quickly expanding businesses without the risk associated with owning individual stocks. The Vanguard Growth ETF, in some ways, looks like the Vanguard Total Stock Market Index Fund in that several of its top 10 holdings are members of the "Magnificent Seven."
This fund is much more heavily weighted toward these high-growth winners, though. A full 56% of the fund's assets are invested in tech stocks compared to the Vanguard Total Stock Market Index Fund's 33% exposure.
NYSEMKT: VUG
Key Data Points
As you might expect, the Vanguard Growth ETF has fared better than the wider market during this tech-led rally. It is up nearly 40% in the past year, while the S&P 500 has gained 27%. Be prepared to see a weaker performance for this growth specialist when markets turn negative, though.
In any case, you'll pay close to zero annual expenses to own the Vanguard Growth ETF, making it far cheaper than its growth-focused ETF peers. And keeping expenses low is one of the surest paths toward higher returns over the long term.
