While the market has been on a strong run the past few years, that doesn't mean you should wait for a pullback before investing. That can be one of the biggest mistakes an investor can make, as when investors try to time the market, they are often left waiting while the market continues to climb.
Instead, the best strategy is to take a dollar-cost averaging approach, where you invest a set amount each month, like $1,000, regardless of how the market is performing. This helps take away the worry of investing at the wrong time and smooths out your cost basis.
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One of the best ways to employ this strategy is with exchange-traded funds (ETFs), which give you an instant portfolio of stocks. Let's look at two Vanguard ETFs that I'd start dollar-cost averaging into with $1,000 today and hold for the long term.
1. The Vanguard S&P 500 ETF
NYSEMKT: VOO
Key Data Points
If I could choose only one ETF to invest in, the Vanguard S&P 500 ETF (VOO 0.39%) would be my top choice. The ETF tracks the S&P 500 index, which is a market-cap weighted index made up of about the 500 largest stocks in the U.S.
Since the S&P 500 is market-cap weighted, that means the bigger a company is by market capitalization (stock price multiplied by shares outstanding), the larger the stock is in the ETF. This lets the fund's winners keep running, which is a big reason most actively managed funds fail to keep pace with the index. In fact, only about 14% of of actively managed large-cap funds have outperformed the index over the past decade.
Over the past 10 years, the ETF has generated an average annual return of more than 15.5%, while it's been even better over the last three years, with an average annual return of 21.1%. Those are some nice gains that build up over time.
2. The Vanguard Growth ETF
NYSEMKT: VUG
Key Data Points
The other Vanguard ETF I really like is the Vanguard Growth ETF (VUG 0.95%). Growth stocks have outperformed for much of the past 10 years, which has led to the Vanguard Growth ETF outperforming its better-known ETF peer over this period. During that stretch, the fund has produced an 18% annual return, while its up an average of 27.7% over the past three years.
The fund is heavily weighted toward top artificial intelligence (AI) and other tech stocks, with about two-thirds of its portfolio in the tech sector. With AI still looking as if it is in its early innings and tech valuations looking pretty reasonable overall, this is a great ETF to invest in for the long haul.
