Contrary to popular belief, you don't need a lot of money to start investing. In fact, you can start with a little as $100 (or even lower, depending on your stockbroker). The key, though, is that you need to continue to consistently invest each and every month after that initial purchase, as a one-time $100 investment can only go so far.
Through the use of what is known as dollar-cost averaging, investing a set amount each month regardless of where the market is trading, you can build wealth over the long term, even starting with a small amount. For example, if you invest $100 each month and get a 12.5% average annual return, you'd end up with more than $340,000 at the end of 30 years. If you can do that with three $100 investments each month, then you'd have over $1 million over that timespan.
For investors just starting out or for those looking to invest a small amount, I'd recommend investing in exchange-traded funds (ETFs), as they give you access to a portfolio of stocks, which diversifies the risk and improves your chances of growth. Vanguard ETFs are a great place to start, given that the company is known as the low-cost fund leader. High fund expense ratios, even as seemingly low as 1%, can greatly eat into returns over time, especially as account balances grow. With Vanguard, you know you're getting some of the lowest expense ratios around.
Let's look at three Vanguard funds you can buy into with a $100 investment and hold forever.
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The Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (VOO 1.63%) is the largest ETF in the world and for good reason. It tracks the performance of the S&P 500, which is considered the benchmark for the U.S. stock market. An investment in the ETF gives you a portfolio of about 500 of the largest U.S. companies.
NYSEMKT: VOO
Key Data Points
The index is market capitalization (market cap) weighted, which means the larger a company is, the bigger the position it holds in the ETF. As such, companies like Nvidia, Apple, and Microsoft carry much more weight in the ETF's performance than smaller companies. Typically, the performance of these top stocks is what helps drive the ETF's performance.
The Vanguard 500 S&P ETF has been a strong performer over the years. The ETF has produced an average annual return of 14.6% during the past 10 years and 17.6% over the past five years. Meanwhile, it has an ultra-low expense ratio of just 0.03%.
The Vanguard Growth ETF
Growth stocks have been the driving force of the market for the past decade, which makes the Vanguard Growth ETF (VUG 2.15%) a great option for investors. The ETF tracks the CRSP US Large Cap Growth Index, which is basically the growth half of the S&P 500.
NYSEMKT: VUG
Key Data Points
The fund's top holdings are very similar to the Vanguard S&P 500 ETF's top holdings, although investors are getting these stocks in an even heavier concentration. For example, Nvidia is the Vanguard S&P 500 ETF's top holdings with a nearly 8% position, while it has a 12% weighting in the Growth ETF.
That growth bent has helped the ETF outperform in recent years. Over the past decade, it's generated a yearly average return of 17.4% and 18.4% over the past five years. Meanwhile, it has a low expense ratio of 0.04%.
The Vanguard Dividend Appreciation ETF
For a bit more balanced approach, the Vanguard Dividend Appreciation ETF (VIG 1.09%) is a nice option. The fund tracks the performance of the S&P U.S. Dividend Growers Index, which is invested in companies that have consistently increased their dividends for at least 10 straight years. However, this is not a high-yield ETF for income-oriented investors, as it actually excludes the top 25% highest-yielding stocks (top 15% for existing stocks already in the index) that would be eligible.
NYSEMKT: VIG
Key Data Points
This method gives you a nice mix of high-quality blue-chip stocks across industries, while helping to avoid potential value traps whose dividend yields have climbed. The ETF has been a solid performer, up an average of 12.8% over the past 10 years and 13.6% over the past five. It also has a low expense ratio of just 0.05%.
What $100 gets you
It should be noted that all three of these ETFs trade for more than $100 per share. A $100 investment will buy a partial share, which many brokerages allow users to buy with the help of fractional shares. When you buy with that $100, you will receive a fraction of a share proportional to the purchase price, and it will perform just like. full share. If all you have to invest is $100, it may be a good idea to find a broker that supports fractional share trading.
