What if one of Vanguard's most overlooked ETFs could turn $1,000 a month into $1 million?
The Vanguard Extended Market ETF (VXF +0.55%) has historically generated returns capable of doing exactly that. And there's good reason to think its investment case could become more compelling over the coming decade.
Here's what investors should know.
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This Vanguard ETF goes where the S&P 500 doesn't
The Vanguard Extended Market ETF tracks the S&P Completion Index, which essentially owns the total U.S. stock market minus the S&P 500. This gives investors exposure to thousands of mid- and small-cap companies, rather than familiar (and probably over-owned) mega-cap stocks, such as Nvidia (NVDA +1.02%), Microsoft (MSFT -0.92%), and Apple (AAPL +0.76%).
The fund charges just 0.05% annually and has returned an average of 9.9% annually since its December 2001 inception.
NYSEMKT: VXF
Key Data Points
Imagine that an investor contributed $1,000 every month and earned that same 9.9% annualized return. They would have reached the $1 million mark in roughly 23 years.
Of course, past returns don't suggest what the fund will do in the future. But this example demonstrates what a combination of time, regular contributions, and the long-term power of compounding can accomplish.
Smaller companies offer big opportunities
The Vanguard Extended Market ETF's long-term investment case becomes more interesting when you consider which stocks have led the market lately.
Large-cap stocks, particularly mega-cap tech companies, have dominated most of the past decade. As a result, this fund experienced some difficult stretches. Its performance includes a 35% total drawdown during the 2022 bear market and annualized returns of only around 6% over the past five years.
But market leadership doesn't remain that concentrated or unchanged forever.
VXF has already begun showing signs of life in 2026. The fund is outperforming the S&P 500 by nearly 1% this year, has returned 14% over the past 12 months, and has delivered a three-year annualized return of around 18%.
With earnings growth for smaller companies expected to accelerate over the next several quarters, thanks to the artificial intelligence (AI) boom, opportunities outside the S&P 500 look pretty attractive.
More importantly, the Vanguard Extended Market ETF holds companies that may be earlier in their growth journeys. Today's mid-cap stocks often graduate into the S&P 500, and this fund allows investors to own those names before that happens.
Here's how I'd use VXF
I wouldn't replace an S&P 500 ETF with this fund. Instead, I'd use them together.
An investor could keep 80%-90% of a U.S. equity allocation in an S&P 500 fund like the Vanguard S&P 500 ETF and put the remaining 10%-20% in the Vanguard Extended Market ETF. That adds thousands of smaller companies while maintaining substantial exposure to America's biggest ones. Plus, it gives you the flexibility to adjust those exposures as needed.
