Want to know a winning investment strategy that requires only two steps? First, buy a low-cost index fund. Second, hold it for the long term.
Of course, there are some important details glossed over in those two steps. For example, you'll want to buy funds that are likely to perform well over time. It's not hard to find such funds, though. Here are three Vanguard exchange-traded funds (ETFs) to buy with $1,000 and hold forever.
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1. Vanguard S&P 500 ETF
Warren Buffett revealed years ago that his will instructs that most of the money his family inherits be invested in a low-cost index fund. The legendary investor specifically recommended Vanguard. I suspect Buffett had the Vanguard S&P 500 ETF (VOO +1.00%) in mind.
As its name indicates, this Vanguard ETF owns all the stocks in the S&P 500 (^GSPC +0.98%) index. That translates to 504 stocks, as some members of the S&P 500 have multiple share classes.
NYSEMKT: VOO
Key Data Points
Probably the best thing about investing in the Vanguard S&P 500 ETF is that you'll own positions in the most successful companies in the country. And the more successful they become, the greater weight they'll make up in the S&P 500 index (and therefore the Vanguard S&P 500 ETF).
The Vanguard S&P 500 ETF has delivered an average annual return of nearly 15% since its inception in 2010. That's higher than the long-term historical return of around 10% for the S&P 500. But these kinds of gains, combined with a low annual expense ratio of only 0.03%, make this Vanguard ETF one of the best investments around for long-term investors.
2. Vanguard Russell 1000 Growth ETF
What's the best-performing Vanguard ETF of all? The honor goes to the Vanguard Russell 1000 Growth ETF (VONG +0.59%). This fund has delivered an average annual return of 17.4% since its inception in 2010.
The Vanguard Russell 1000 Growth ETF attempts to track the performance of the Russell 1000 Growth Index. This ETF currently owns 391 stocks, with top holdings including Nvidia (NVDA 1.06%), Apple (AAPL +1.78%), Microsoft (MSFT 1.48%), Broadcom (AVGO 1.91%), and Amazon (AMZN +1.51%). These five stocks make up roughly 46% of the fund's portfolio.
NASDAQ: VONG
Key Data Points
One primary common denominator with the stocks owned by this Vanguard ETF is high growth. The average earnings growth rate for the fund's portfolio is 31%. Another similarity is the large size of the companies represented. The median market cap of the stocks in which the Vanguard Russell 1000 Growth ETF is invested tops $1.5 trillion.
There's no guarantee that this ETF will continue to produce the high returns going forward that it has achieved in the past. However, the structure of the Russell 1000 Growth Index ensures that the stocks with the strongest growth are more heavily weighted. I predict that long-term investors will be happy with the performance they'll get with this Vanguard ETF.
3. Vanguard Small-Cap Value ETF
The Vanguard Small-Cap Value ETF (VBR +2.52%) isn't anywhere close to ranking among the top-performing Vanguard ETFs. Since its inception in 2004, this ETF has delivered an average annual return of 8.92%. That's not bad, but it's low compared to the returns delivered by the Vanguard S&P 500 ETF and Vanguard Russell 1000 Growth ETF.
Why should you consider investing in the Vanguard Small-Cap Value ETF? Over the long term (we're talking several decades here), small-cap value stocks have outperformed every other type of equity.
NYSEMKT: VBR
Key Data Points
The Vanguard Small-Cap Value ETF, as its name suggests, focuses on stocks with smaller market caps that have relatively attractive valuations. This fund owns 843 stocks. The average price-to-earnings ratio of its portfolio is 17.6, well below the earnings multiple of 28.9 for the Vanguard S&P 500 ETF.
Investors can own such a large basket of small-cap value stocks cost-effectively, too. The annual expense ratio for the Vanguard Small-Cap Value ETF is only 0.07%, much lower than the average expense ratio of 1.1% for similar funds.
