Exchange-traded funds (ETFs) now hold $10.3 trillion in U.S. assets, yet most investors still overpay for the basic market exposure that such funds provide. While the average index equity ETF charges 0.14%, Vanguard continues to undercut the competition through its unique investor-owned structure -- the fund company is literally owned by its funds, which are owned by shareholders. This structure eliminates profit-seeking middlemen and explains why Vanguard can offer an S&P 500 fund with an annual fee of just three basis points, or 0.03%.
The difference between paying 0.03% per year and 0.50% per year might seem trivial, but when compounded over decades, it's the difference between keeping 97% of your returns versus surrendering a meaningful slice of your wealth to Wall Street. Here are five Vanguard ETFs that deliver broad market access without the wealth-destroying fees that plague most funds.
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The no-brainer core holding
The Vanguard S&P 500 ETF (VOO -0.17%) carries an expense ratio of just 0.03% -- that's a fee of $3 per year on a $10,000 investment -- and provides a simple way to take a stake in 500 of the largest American companies. The fund has delivered a total return of 16% over the past 12 months and roughly 14.5% annually over the past 10 years, tracking the benchmark S&P 500 with near-perfect precision.
This Vanguard fund is often used as a core holding in modern portfolio construction. Because the index and the fund are weighted by market cap, Apple, Microsoft, and Nvidia alone represent over 20% of its holdings, giving investors concentrated exposure to some of the biggest tech companies driving the market's performance at the moment. The Vanguard S&P 500's 1.16% dividend yield won't make anyone rich, but by reinvesting your distributions, you can further compound your returns into serious wealth over the long term.
A growth tilt that actually works
The Vanguard Growth ETF (VUG -0.47%) filters the large-cap universe for companies with above-average sales growth, earnings expansion, and return on assets. With an expense ratio of 0.04%, it costs just one basis point more than the Vanguard S&P 500 ETF while delivering targeted exposure to 200 leading growth companies. The fund has returned nearly 25% annually over the past three years, outpacing the broader market during this golden period for the tech sector.
The Vanguard Growth ETF's portfolio includes profitable giants like Amazon and Alphabet that generate massive free cash flow while still growing at double-digit percentage rates. This fund is a prime example of how to tilt toward growth without paying active management fees or betting on unproven business models.
The tech concentration play
The Vanguard Information Technology ETF (VGT -0.41%) provides surgical exposure to the one sector that has been driving most of the market's earnings growth lately. Despite holding over 300 tech stocks, the fund is reasonably concentrated -- the top 10 holdings represent about 60% of assets. With an expense ratio of 0.09%, it's still cheaper than most sector funds, but offers a comprehensive array of hardware, software, and semiconductor companies.
The fund has delivered annualized returns of nearly 27% over the past three years, crushing the broader market. Yes, tech valuations look stretched, but this sector has been generating the highest returns on invested capital and continues capturing an increasing share of global profits. For investors who believe software will keep eating the world, the Vanguard Information Technology ETF offers direct exposure to this theme.
The diversification anchor
The Vanguard Real Estate ETF (VNQ -0.15%) offers investors real estate investment trust (REIT) exposure for just a 0.13% expense ratio, providing diversification benefits and income generation that pure equity portfolios lack. The fund yields about 3.5% at the time of this writing, nearly triple the S&P 500's average yield, and the assets in it have different types of economic sensitivity than stocks or bonds.
The real estate sector lagged during the Fed's interest-rate-hiking cycle, but that creates opportunity. To wit, REITs have historically outperformed during periods when the Fed pivots to cutting rates. With over 160 holdings whose portfolios span apartments, warehouses, data centers, and cell towers, the Vanguard Real Estate ETF represents the core infrastructure of the modern economy.
The factor everyone ignores
The Vanguard Small-Cap Value ETF (VBR -0.01%) charges an expense ratio of just 0.07% for access to 835 smaller companies that are trading at discounted valuations. The small-cap value segment of the market has historically delivered the highest risk-adjusted returns of any equity factor, yet most portfolios completely ignore it. Its portfolio holdings have a median market cap of $8.7 billion, so the fund actually skews toward mid-cap territory, providing more stability than a pure small-cap fund would.
The Vanguard Small-Cap Value ETF won't win any performance contests during growth-led rallies, but patient investors will get compensated over full market cycles. When large-cap growth inevitably stumbles, small-cap value typically shines. This unloved segment offers better risk-reward balance than the "Magnificent Seven", most of which trade at over 30 times expected forward earnings.
