Vanguard exchange-traded funds (ETFs) are known for low fees and broad diversification. The quality they offer makes many of them excellent options for all types of long-term investors to build their portfolios around.
There are many Vanguard funds to choose from, but two of the best ones for long-term investors include the Vanguard S&P 500 ETF (VOO +0.81%) and the Vanguard Growth ETF (VUG +0.96%). Here's why these two ETFs can be excellent pillars for any portfolio.
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Vanguard S&P 500 ETF
This ETF is simple in its approach, mirroring the S&P 500, a collection of the top 500 stocks on U.S. markets. This is an effective and easy way to gain broad exposure to a diverse mix of stocks across all major market sectors. It enables investors to benefit from the overall market's growth, since the index's performance is also an indication of the market's performance, and at least to some extent, how the economy is doing.
By investing in the Vanguard S&P 500 ETF, investors can track the major index while incurring incredibly low fees, as the fund's expense ratio is nominal at just 0.03%. For long-term investing, those low fees can make a significant difference: on a $50,000 investment, they would amount to just $15 in fees per year, whereas if the fee were around 1%, the cost would be $500. Over a long-term window, the difference in fees can add up significantly, especially as the balance grows.
NYSEMKT: VOO
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Low-cost index funds are popular for this reason, and it's why the Vanguard S&P 500 ETF is a great option to simply buy and hold. Historically, the S&P 500 has averaged an annual return of 10%. While it can vary from one year to the next, tracking the index has been one of the safest and most effective ways for investors to grow their portfolios for decades.
Vanguard Growth ETF
For a more growth-oriented approach, the Vanguard Growth ETF is another great option to consider. At 0.03%, its expense ratio is the same as that of the VOO ETF. The big difference between this fund and the Vanguard S&P 500 ETF is that it focuses on the country's best growth stocks, rather than just diversification. Although it's a diverse ETF, currently, it's heavily tilted toward the tech sector, with those stocks accounting for close to 70% of its overall weight.
That might not sit well with risk-averse investors, but tech is what is normally responsible for much of the market's growth over the long run. Tech stocks can be vulnerable to significant declines, but for investors who are holding the ETF for the long run, the gains can still be significant. Over the past decade, the Vanguard Growth ETF has vastly outperformed the Vanguard S&P 500 ETF, with gains of about 360% for the growth fund versus about 245% for the broader index fund.
Big tech giants Nvidia, Apple, and Microsoft account for just under one-third of the entire portfolio, so while the fund does hold close to 150 stocks, a big chunk will inevitably center around the biggest and best growth stocks in the world, which can be a blessing in times when the market is doing well, but a curse when it's in a downturn.
NYSEMKT: VUG
Key Data Points
Together, these two ETFs can give investors a couple of excellent low-cost investments to hold on to. While there will be some inevitable overlap in their holdings, the makeup of these two ETFs is vastly different, and that can make a significant difference in the long run, because while the Vanguard S&P 500 ETF can provide better diversification and overall stability, the Vanguard Growth ETF can potentially generate much stronger long-run returns.
