The stock market continues to rip higher, but that doesn't mean investors should be sitting on the sidelines waiting for a pullback. The reason is that timing the market is extremely difficult.
First, it's pretty common for the market to hit all-time highs. In fact, JP Morgan Chase found that since 1950, the market hit a high about 7% of the time. Meanwhile, it never traded lower a third of those times, meaning you would have missed out waiting for a market dip.
At the same time, even if you correctly predict a market correction, you then have to time getting back in correctly as well. Most of the market's best days come after its worst days, and J.P. Morgan found that if you missed the 10 best days for stocks over a 20-year period then your returns would be nearly cut in half.
To impeccably time the market on the way down and up is pretty unlikely, and I wouldn't suggest trying it. Instead, the much smarter move is to use a dollar-cost averaging strategy where you consistently invest at set intervals, taking the guesswork out. In my view, the best investment vehicles to employ this strategy with are exchange-traded funds (ETFs), which give you an instant portfolio of stocks. Meanwhile, given their low costs, sticking with Vanguard funds can be a smart more.
Let's look at four Vanguard ETFs you can start dollar-cost averaging into today, with say $1,000, to build long-term wealth over time. Just remember $1,000 is the starting point, and you want to be investing each month, if possible.
1. Vanguard S&P 500 ETF
NYSEMKT: VOO
Key Data Points
If you only want to invest in one ETF, the Vanguard S&P 500 ETF (VOO +1.00%) is your best option. The fund tracks the performance of the S&P 500 index, which gives you a diversified portfolio of the 500 largest companies in the U.S. Meanwhile, the larger a company is, the bigger the percentage of your portfolio it becomes.
The ETF has been a stellar performer over the years, generating an average annual return of 16.3% over the past five years and 15.3% over the past 10.
2. Vanguard Growth ETF
NYSEMKT: VUG
Key Data Points
Growth stocks have been leading the market higher for more than the past decade, which is why the Vanguard Growth ETF (VUG +1.64%) is another great Vanguard ETF option. The ETF mirrors the CRSP US Large Cap Growth index, which is basically the growth side of the S&P 500.
The ETF is made up of about 60% tech stocks, and its top eight holdings consist of some of the largest tech companies leading the charge in areas like artificial intelligence (AI). This growth bent is why the ETF has outperformed in recent years. Over the past five years, it's returned an average of 16.7%, while over the past decade it's produced an average annual return of 18%.
3. Vanguard Information Technology ETF
NYSEMKT: VGT
Key Data Points
The best-performing Vanguard ETF over the past decade has been the Vanguard Information Technology ETF (VGT +1.53%) with a 23.4% average annual return. It too is an index fund, tracking the MSCI US Investable Market Information Technology 25/50 index. However, this is no ordinary index, as it's only focused on the tech sector, and its top three holdings of Nvidia, Apple, and Microsoft make up nearly 44% of its portfolio.
That concentration adds risk, which is why I wouldn't suggest it be the only ETF you invest in. However, its results speak for themselves, and that is a pretty attractive lineup of stocks to own. Overall, the fund owns more than 300 stocks, just many of the positions are pretty small.
Image source: Getty Images.
4. Vanguard International High Dividend Yield ETF
The Vanguard International High Dividend Yield ETF (VYMI +0.47%) brings something completely different to the table than the three other ETFs on this list. Instead of being concentrated in U.S. growth stocks, it's invested in international stocks that pay dividends with above-average yields.
That may not sound exciting, but it adds some nice diversity to a portfolio. The ETF has also been one of Vanguard's best-performing ETFs this year, up nearly 29% year to date. It also has a strong 15.4% average annual return over the past five years.
If you are only looking to invest in one ETF, I wouldn't choose the Vanguard International High Dividend Yield ETF, but if you're looking to buy multiple ETFs, this is a great way to diversify your portfolio with a proven winner.
