When the market is on a tear, it's tempting to hold back and wait for a pullback. The problem is that waiting usually works against you.
History shows that new highs aren't rare, and many times stocks never revisit those lower levels again. A J.P. Morgan study found that since 1950, the S&P 500 hit a new high on about 7% of trading days, and nearly a third of those times it never traded below that level again.
That's why dollar-cost averaging works. By putting money to work regularly, you take the guesswork out of timing and let compounding do the heavy lifting. Exchange-traded funds (ETFs) are one of the best tools to employ this strategy, and Vanguard remains the gold standard for low-cost, high-quality ETFs.
Here are three that you can buy and hold forever.
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1. Vanguard S&P 500 ETF
If I had to pick one ETF to own forever, the Vanguard S&P 500 ETF (VOO -0.58%) would be it. This fund mirrors the S&P 500, giving you instant ownership in 500 of the biggest U.S. companies. These include the undisputed winners of the last decade, including Nvidia, Microsoft, Apple, Alphabet, and Amazon. Together, these five giants make up about 29% of the index.
The beauty of this ETF is how it constantly adapts. When a company breaks out and becomes dominant, its weight in the index rises naturally, while the laggards fall by the wayside. It's a survival-of-the-fittest system that lets the winners pull the index higher.
That formula has delivered strong returns over the long term. Over the past 10 years, the Vanguard S&P 500 ETF has produced average annual gains of 13.6%, a stretch that included both bull and bear markets.
Costs are as low as you'll find, with an expense ratio of just 0.03%. For a core holding, it doesn't get much better. If you want a one-stop way to build wealth, this is it.
2. Vanguard Growth ETF
For investors who want to lean more into growth stocks, the Vanguard Growth ETF (VUG -1.16%) is a great choice. The fund tracks large-cap companies with strong sales and earnings momentum, which skews the portfolio toward tech and consumer discretionary names. Think of it as the growth half of the S&P 500.
Its top 10 positions are very similar to the S&P 500 but carry extra weight. Nvidia, for example, has a 12.6% weighting versus 8.1% for S&P 500 ETF. That tilt toward high-growth names has paid off in a big way. Over the past decade, the ETF has generated average annual returns of 16.3%, outpacing the broader market.
The trade-off is a bit less diversification, but you're getting more upside if growth leaders continue to run. With an expense ratio of 0.04%, the fund is still inexpensive compared to actively managed options.
If you believe that technology and innovation will remain the market's biggest drivers, this is the ETF for you.
3. Vanguard International High Dividend Yield ETF
Most investors are concentrated in U.S. stocks, but adding some international stocks to the mix can be a good thing. The Vanguard International High Dividend Yield ETF (VYMI -0.33%) is a simple way to add international exposure while also collecting dividend income. The fund tracks non-U.S. companies with above-average dividend yields, with heavy weightings in Europe and Asia. Top holdings include Nestlé, Roche, Toyota, and Shell.
That global diversification is valuable, and the ETF's performance has been strong recently. It is up nearly 27% this year, as of Aug. 26, and over the past five years, the fund has generated average annual returns of nearly 14% (as of the end of July). That's impressive considering how international markets have lagged the U.S. for much of the past decade.
The expense ratio is 0.17%, which is higher than domestic Vanguard ETFs but still low for international funds. For investors who want to round out a portfolio anchored in U.S. stocks, this fund adds both diversification and yield.
Overall, it's a strong long-term option that can help add some balance to most portfolios that tend to be dominated by large-cap domestic growth stocks.
