As Warren Buffett has said, it isn't necessary to do extraordinary things in investing to achieve extraordinary results. While it's completely possible to produce superior returns with a portfolio of individual stocks, there are effective ways to invest that aren't quite as hands-on.
In fact, you might be surprised at the wealth-building potential of low-cost index funds, specifically those offered by index fund pioneer Vanguard. Here are three in particular that could be smart additions to your portfolio now.
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3 wealth-building Vanguard ETFs to buy now
To be sure, there are dozens of excellent Vanguard ETFs, but here are three that could be excellent wealth-building additions to your portfolio:
- Vanguard Total Stock Market ETF (VTI 1.34%): Tracks an index designed to reflect the performance of the overall stock market over time. This is the largest Vanguard ETF by assets and has a rock-bottom 0.03% expense ratio. In a nutshell, as the stock market rises over time, this ETF should rise accordingly.
- Vanguard Dividend Appreciation ETF (VIG 1.06%): As many long-term dividend investors know, it isn't necessarily about what your dividend stocks pay now; it's about what they'll pay in the future. The Vanguard Dividend Appreciation ETF focuses on stocks with strong dividend-growth records. It has a 0.05% expense ratio and top investments include Broadcom (AVGO 1.43%) and Microsoft (MSFT 0.48%).
- Vanguard International High Dividend Yield ETF (VYMI 1.52%): International stock exposure can be a smart idea for several reasons, including diversification. Right now, international dividend stocks are trading at a steep discount to their U.S. counterparts, and the Vanguard International High Dividend ETF has a roughly 3% yield at its current price. And just because it's international doesn't mean it's a bunch of stocks you've never heard of -- top holdings include familiar companies like Nestle (NSRGY 0.21%) and Toyota (TM 1.93%).
What kind of returns should you expect?
To be clear, as with any stock-based investment, returns from these ETFs can vary dramatically from year to year. But over the long term, consider their average annualized returns:
- Vanguard Total Stock Market (since May 2001): 9.21% annualized
- Vanguard Dividend Appreciation (since April 2006): 9.99% annualized
- Vanguard International High Dividend Yield (Since Feb. 2016): 10.61% annualized
Here's what this means to you. This is an overall average annual return of just under 10%. Although past performance doesn't guarantee future returns, if you were to invest just $500 per month at this rate of return, you'd have a million-dollar portfolio after 30 years.
