When the market is sitting near all-time highs, it's natural to wonder if the smart move is to sit on the sidelines and wait for a pullback. The problem is that history shows waiting usually works against you. Markets tend to go up over time, and when new highs are set, they often never revisit those lower levels again.
According to J.P. Morgan, the S&P 500 has hit new highs on about 7% of trading days since 1950, and nearly a third of those times, it never traded below that high again. That's why trying to time the market can be so costly.
A far better approach is to use dollar-cost averaging. By steadily buying into the market regardless of where prices are, you stop guessing and let compounding work in your favor. Exchange-traded funds (ETFs) are one of the best tools for this because they often spread your money across hundreds of companies, removing the pressure of having to pick individual winners.
Even starting with $500 can make a real difference if you keep adding over time. Consistent investing, even in small amounts, has proven to be the surest way to build wealth. For example, if you invest $500 a month for the next 30 years, it could turn into just over $1 million at a 10% annual return and about $1.5 million at a 12% return.
Vanguard Group has built a reputation as being the low-cost leader for high-quality index ETFs. Let's look at two Vanguard ETFs that are worth buying today and holding forever.
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1. Vanguard S&P 500 ETF
If you want a single investment that can anchor your entire portfolio, the Vanguard S&P 500 ETF (VOO -0.50%) is as close to perfect as it gets. This ETF mirrors the S&P 500, which includes roughly 500 of the largest U.S. companies. It gives you instant ownership of the market's largest companies, which have gotten there in the first place because they have been the market's biggest winners over time.
The beauty of this fund is that it naturally evolves as the market changes. When a company like Nvidia grows faster than the rest, its weighting in the index increases, while the laggards fade into the background. That self-adjusting approach lets the ETF lean into the winners without you having to lift a finger.
Over the past decade, that has paid off handsomely, with the ETF delivering a 15.3% average annual gain. Let's not forget that this period includes a few bear markets, including during the COVID-19 pandemic.
The Vanguard S&P 500 ETF's expense ratio is only 0.03%, meaning almost every dollar of market return the S&P index returns you capture. For investors who want a simple and proven way to invest over the long term, the Vanguard S&P 500 ETF is a great option.
2. Vanguard Growth ETF
For investors looking to focus more on growth stocks, the Vanguard Growth ETF (VUG -0.42%) is a great option. This fund tracks the CRSP US Large Cap Growth Index, which is essentially the growth side of the S&P 500. The ETF will give you much more exposure toward technology and consumer-driven stocks, and less to typical value sectors like financials and telecom.
The ETF's top 10 positions are very similar to those of the S&P 500 ETF, but they tend to carry a higher weighting. For example, Nvidia represents a 12.3% position compared to 7.8% for the S&P 500 ETF. That heavier concentration in tech has helped the Vanguard Growth ETF post annualized returns of about 18% over the past decade.
The trade-off with a growth-focused ETF is that it's less diversified, and if market sentiment shifts toward value stocks, it will underperform. However, with artificial intelligence (AI) still in its early innings, growth stocks could quite easily continue to power the market higher for the next decade, as well. The Vanguard Growth ETF is a nice way to get more growth stock exposure at a low expense ratio of just 0.04%.
