Three Vanguard Exchange-Traded Funds Worth Considering for a $2,000 Long-Term Investment
Looking for a simpler, passive investment approach without compromising potential gains? Consider exchange-traded funds (ETFs). These pre-selected baskets of stocks, bought and sold as a group, eliminate the need to choose individual companies. And as history shows, simpler strategies often yield better results than complex ones designed to pick stocks.
Let's dive into three complementary Vanguard ETFs that could fit nicely in your portfolio:
Start with the basics
Solid advice for investors over time is to begin with an index fund reflecting the S&P 500's performance. Index funds are a strong choice, as over five years, 77% of actively managed mutual funds lagged this benchmark, with a staggering 85% underperforming over the past decade[1]. By simply holding a piece of this market barometer, you're likely to match the benchmark's average annual gain of around 10%[1]. By choosing Vanguard's S&P 500 ETF (VOO) that mirrors the S&P 500, your returns are likely to be close, given its low annual expense ratio of 0.03%[2]. This fund is perfect for long-term, buy-and-hold investments (you're likely to ignore it unless you're actively selling).
Reliable dividend growth can serve more than one purpose
Beyond traditional growth focuses, dividend-earning ETFs are worth considering. Vanguard's Dividend Appreciation ETF (VIG) mimics the S&P U.S. Dividend Growers Index. It includes U.S. stocks that have increased their dividends annually for 10 consecutive years. Although its current dividend yield of 1.7% is low, the dividend growth historically has been substantial, with dividend payments roughly doubling in a decade[1]. This ETF usually outperforms other stocks over time, and the option to turn dividend reinvestment on and off without selling can save you from potential tax bills.
This sector is likely to continue leading the market
Lastly, add the Information Technology ETF (VGT) to your portfolio for exposure to this high-growth sector, where influential technological changes are continuously shaping our world. This sector is represented by companies like Apple, Microsoft, Nvidia, and Broadcom[1]. Despite the inherent risks suitable for long-term investors, the Information Technology sector is likely to remain a market leader because of its pivotal role in societal advancement. According to enrichment data, top-performing long-term Vanguard ETFs also include the Vanguard 500 Index Fund (VFIAX) and Vanguard Dividend Appreciation ETF (VIG)[1].
[1] Source: Bankrate
[2] Source: Charles Schwab
Investing in Vanguard's S&P 500 ETF (VOO) with a low annual expense ratio of 0.03% can provide you with returns similar to the S&P 500's average annual gain, making it a great choice for long-term, passive investors looking to manage their finance. Furthermore, by incorporating Vanguard's Dividend Appreciation ETF (VIG) into your portfolio, you can benefit from its potential to outperform other stocks over time due to its focus on stocks that have increased their dividends annually for a decade, even if its current dividend yield is relatively low.
