Exchange-traded funds (ETFs) can be incredibly powerful investments for building long-term wealth. With enough time and consistency, it's possible to generate hundreds of thousands of dollars or more, and the right investment can transform your finances.
There's no single best ETF for every portfolio, but these three Vanguard ETFs can be great choices for long-term growth no matter your investment goals.
1. Vanguard S&P 500 ETF
A staple in many investors' portfolios, the Vanguard S&P 500 ETF (VOO +0.30%) is a broad-market fund tracking the S&P 500 (^GSPC +0.37%). With 504 holdings across all market sectors, this ETF offers ample diversification without overly concentrating on any single industry.
S&P 500 ETFs tend to carry less risk than many other funds, making this an optimal choice for investors who prefer to play it safer. The S&P 500 itself has recovered from every downturn it's ever faced, making it all but guaranteed this ETF will bounce back from volatility with enough time.
NYSEMKT: VOO
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Despite its relative stability, this ETF still has a long history of growth. Over the last 10 years, the Vanguard S&P 500 ETF has earned an average rate of return of 14.60% per year. If you were to invest $200 per month at that rate, you could accumulate around $234,000 after 20 years.
2. Vanguard Growth ETF
The Vanguard Growth ETF (VUG +0.11%) is more targeted toward growth stocks, with 160 holdings that have the potential for above-average returns. Most of this fund is allocated toward stocks in the technology industry, which can be a double-edged sword.
Tech stocks can be more volatile in the short term, often experiencing more severe downturns or even underperforming the S&P 500 during economic rough patches. Over many years, though, the tech industry has proven to be lucrative with returns far outpacing the market.
NYSEMKT: VUG
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The Vanguard Growth ETF has earned a 17.43% average annual return over the past decade. By investing $200 per month at that rate, you'd have roughly $329,000 after 20 years.
3. Vanguard High Dividend Yield ETF
Dividend ETFs like the Vanguard High Dividend Yield ETF (VYM +0.54%) can provide additional income on top of their standard earnings. This ETF contains 566 stocks, all with a history of consistently paying out high dividends.
Investing in a dividend ETF can help create a source of passive income. This fund most recently paid a dividend of around $0.84 per share, and while that may sound insignificant, it can add up over time. Even if you only buy one or two shares per month, you can eventually build a passive income stream generating thousands of dollars per year.
NYSEMKT: VYM
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A high dividend yield is the most compelling advantage of this ETF, and its average annual return is slightly lower than the other two funds at 10.93% per year over the last decade. Even at that lower rate, though, $200 per month could add up to around $153,000 after 20 years.
Which ETF is right for you?
All three Vanguard funds on this list have unique advantages and disadvantages, and the right fit for you will depend on your investing goals.
- Vanguard S&P 500 ETF: This fund is a great fit for more risk-averse investors who value stability. While broad-market funds like this one generally earn lower long-term returns than growth ETFs, they also tend to experience less severe short-term fluctuations.
- Vanguard Growth ETF: For those who want to maximize their earnings, this fund could be a fantastic buy. While it does carry more risk for volatility, it has significantly outperformed the market in recent years and could help you earn hundreds of thousands of dollars more over time than a broad-market fund.
- Vanguard High Dividend Yield ETF: This ETF is ideal for income-focused investors. It takes time and consistency to build significant dividend income, but with enough shares, it can help generate a stable passive income stream.
There are countless ETFs out there, all with their own advantages and disadvantages. The right mix of investments, however, can transform your savings and build wealth that lasts a lifetime.
