When it comes to looking for simple, low-cost tools for creating long-term wealth, Vanguard is a great place to start. Its roster of more than 100 ETFs come with broad diversification, razor-thin fees, and cover virtually every major corner of the market. That's something everyone can use for their portfolio.
And since you only need to buy a single share to get started, investors can begin building their portfolio with $1,000 (or less).
While many investors are focused on tech and artificial intelligence (AI) stocks right now, it's important to consider the larger picture. Long-term wealth building should involve constructing a strong core of low-fee index funds. These build the foundation of a portfolio that investors can buy and hold for decades.
One straightforward approach is to combine three Vanguard ETFs to build that foundation: the Vanguard Total Stock Market ETF (VTI 0.34%), the Vanguard Growth ETF (VUG 0.34%), and the Vanguard Total Bond Market ETF (BND 0.23%).
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VTI: Owning the entire U.S. stock market
Many people would choose the Vanguard S&P 500 ETF as the core equity component of their portfolios. There's nothing wrong with that choice, but I prefer the Vanguard Total Stock Market ETF because it includes large-, mid- and small-cap stocks in one fund.
NYSEMKT: VTI
Key Data Points
Even though small caps have underperformed large caps pretty consistently over the past five years, they remain an integral part of a long-term portfolio. Smaller companies carry more risk since many of them are still in the emerging stage, but their higher growth potential gives investors the opportunity to improve long-term returns.
Because the portfolio is market-cap-weighted, Nvidia, Apple, Microsoft, Alphabet, and Amazon are still the fund's top holdings, but you expand your coverage to more than 3,500 individual stocks.
VUG: Investing in innovation and long-term growth
Growth stocks often exhibit more volatility than defensive stocks or the S&P 500. In shorter time frames, that can be risky. If you're holding for decades, however, you've got a lot of time to ride out that volatility in the pursuit of bigger returns.
NYSEMKT: VUG
Key Data Points
The VUG ETF targets large-cap stocks and scores them based on several growth factors, including long-term earnings growth, growth in sales per share, and return on assets (ROA). Stocks with the best combination of those factors get included, and the final portfolio gets market-cap-weighted.
Currently, the Vanguard Growth ETF's portfolio looks very similar to that of many tech ETFs, since that sector demonstrates a lot of growth characteristics. In the long term, this is a great way to overweight some of those inventive, high-potential companies in your portfolio.
BND: Using bonds for managing volatility
Bonds may not be popular to have in your portfolio when tech stocks and Bitcoin are generating big returns. But there's still a strong case for maintaining at least a small percentage of your portfolio in fixed income. They can help mitigate risk when stocks turn volatile and provide an important income component to enhance total returns.
NASDAQ: BND
Key Data Points
BND is a great choice for this because it provides access to the entire bond market. That includes Treasuries, corporate bonds, and mortgage-backed securities. The fund targets only investment-grade bonds, so you wouldn't be exposed to the risks that come from lower-quality issuers. It can invest in bonds of all maturities and currently offers an annualized yield of 4.12% (as of Dec. 4).
All three ETFs not only make great core building blocks in a portfolio, but they're the kinds of investments that you can hold on to indefinitely. They may go in and out of favor at times, but over years and years, patience and discipline can be richly rewarded. Their low initial investment also makes them easily accessible to almost anyone.
