With the stock market pulling back from its all-time highs, now can be a great time to start investing for the long haul. One of the best ways to do this is with exchange-traded funds (ETFs), which can help you build an instant portfolio. Meanwhile, as the low-cost fund leader, Vanguard has a number of great investment options.
A $1,000 investment can be a great initial amount, although the key is consistency. If you can invest $1,000 each month through a dollar-cost averaging strategy, you will build real wealth over the long term. However, you have to stick with the plan and continue to invest both in bull and bear markets, not veering from the strategy.
If you invest $1,000 a month for the next 30 years, at a 14.6% yearly return (which is the average annual return of the S&P 500 over the past decade as of the end of September), you'd end that period with a $5.2 million portfolio. That's a huge amount, and 93% of that would be from gains and only 7% from contributions. Even with just a 10% annualized return over that period, you'd end up with over $2 million.
Let's look at three Vanguard ETFs you can employ this strategy with now.
The Vanguard S&P 500 ETF
NYSEMKT: VOO
Key Data Points
Often, it's smart to keep things simple, and that's why the Vanguard S&P 500 ETF (VOO +1.00%) is a great option. Only about 14% of actively managed funds have been able to outperform the S&P 500 over the past decade, which makes a low-cost ETF that tracks the benchmark index a smart investment. For its part, the Vanguard ETF's expense ratio is a tiny 0.03%.
The S&P index consists of about 500 of the largest companies in the U.S., so an investment in the ETF gives you an instant portfolio of about 500 stocks. The index is market cap weighted, which means that the bigger a company is by market cap (share price times shares outstanding), the greater the weighting within the index it has. So when you invest in the Vanguard S&P 500 ETF you're not getting an investment of 500 stocks with similar weightings. In fact, its top 10 holdings make up more than 40% of its entire portfolio.
Over the past 10 years, the ETF has achieved an average annual return of 14.6%, and over the past five years the yearly return stands at 17.6%, as of the end of September.
The Vanguard Growth ETF
NYSEMKT: VUG
Key Data Points
While it's been difficult for funds to outperform the S&P 500, the Vanguard Growth ETF (VUG +0.63%) has been up to the task. The reason why is actually quite simple. The ETF tracks the CRSP US Large Cap Growth Index, which is basically just the growth side of the S&P 500. And growth stocks have been helping lead the market higher for much of the past decade.
Essentially, you're getting an ETF that works similarly to the S&P 500 but is just more heavily concentrated in growth and tech stocks, with tech stocks accounting for more than 60% of the ETF. That has led to strong outperformance over the years.
The ETF has produced an average annual return of 17.4% over the past 10 years and 18.4% over the past five.
Image source: Getty Images.
Vanguard International High Dividend Yield ETF
NASDAQ: VYMI
Key Data Points
Most investors' portfolios are currently concentrated in large-cap U.S. growth stocks. That's not a bad thing, but sometimes it can be good to diversify and have investments with a little less correlation. The Vanguard International High Dividend Yield ETF (VYMI +1.26%) can add both a touch of international stocks as well as dividend-paying value stocks to your portfolio.
The ETF holds more than 1,500 dividend-paying stocks from around the world. Over 40% of its holdings are in European stocks, while 26% are in the Asia-Pacific region, 22% in emerging markets, and 8% in Canadian equities. These are more value-oriented stocks, as the average price-to-earnings ratio (P/E) of the fund is only 12.7 times.
This fund has been Vanguard's top performer this year, up nearly 33% as of Nov. 14. Meanwhile, it has generated a yearly average return of 16.1% over the past five years.
