3 Vanguard ETFs to Buy With $500 and Hold Forever
Key Points
VUG has outperformed the S&P 500 in almost every year since its inception.
VYM has averaged a 3% dividend yield over the past decade.
VOO offers a great way to get exposure to the broader U.S. economy.
- 10 stocks we like better than Vanguard Index Funds - Vanguard Growth ETF ›
When someone asks me about stocks to invest in, I never shy away from telling them about how effective exchange-traded funds (ETFs) can be. They may not be as flashy or attention-grabbing as individual stocks, but they can be just as rewarding, with much less risk.
Vanguard, in particular, is a financial institution that puts together some great ETFs, with a few being in my own personal portfolio. If you're looking to add a few to your portfolio, the following three are worth considering. Whether you're investing $500 in each or $500 total, you likely won't regret adding these stocks to your portfolio.
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1. Vanguard Growth ETF
The Vanguard Growth ETF (NYSEMKT: VUG) has been one of Vanguard's best-performing ETFs over the past decade, focusing on companies with above-average revenue and earnings growth in their respective industries. The growth focus has made the ETF tech-heavy (almost 63% of the ETF), but it still holds a good number of companies in the consumer discretionary (17.6%), industrials (7.7%), and healthcare (5.9%) sectors.
If you're investing in a growth ETF, the one thing you're looking for is an ETF that can routinely outperform the S&P 500, the stock market's go-to benchmark. Luckily, VUG has managed to do just that. Since its January 2004 inception, it has returned 874% compared to the S&P 500's 490%.
Over the past decade, the gap has widened, as some of the big tech stocks that are more heavily represented in VUG have driven much of the market's overall gains.
^SPX data by YCharts.
I wouldn't expect VUG to maintain 16% average annual returns, but it's well-equipped to continue its market-beating run over the long haul. Even if it maintained a 10% annual average, a one-time $500 investment could double to $1,000 in about 7.2 years.
2. Vanguard High Dividend Yield ETF
A dividend-focused ETF like the Vanguard High Dividend Yield ETF (NYSEMKT: VYM) is a good complement to a growth ETF, because it typically holds companies from sectors that aren't as heavily represented in growth ETFs. To be included in VYM, a company must have a high forecast dividend over the next 12 months, excluding REITs.
The top five holdings in VYM are Broadcom (8.69%), JPMorgan Chase (4.06%), ExxonMobil (2.34%), Johnson & Johnson (2.32%), and Walmart (2.24%).
At the time of this writing, VYM's dividend yield is 2.4%, which is below its 3% average over the past decade (though a spike during the COVID-19 pandemic's height skews it a bit). It isn't as high as other dividend ETFs, but it's still double the S&P 500 average.
VYM Dividend Yield data by YCharts.
If VYM's dividend yield were to stay at 2.4%, a $500 investment would pay out $12 annually. It's not much in the grand scheme of things, but it can compound, especially if you reinvest it to acquire more shares.
3. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (NYSEMKT: VOO) is my favorite way to invest in stocks because it mirrors the S&P 500, which tracks the 500 largest American companies on the market. Although the two aren't directly connected, investing in VOO (or the S&P 500 in general) is akin to investing in the broader U.S. economy.
That has proven to be one of the better investments someone can make, especially if you're holding for the long term.
VOO has also become tech-heavy, with nine of its top 10 holdings being tech companies, but it also includes companies from every major sector in the U.S. economy. It's not as diversified as it has historically been, but it still covers a lot of ground and contains almost every major blue chip stock.
With a 0.03% expense ratio, VOO is also one of the cheapest ETFs on the market. That's only a $0.15 annual fee per $500 invested. This ensures you can keep more gains to yourself instead of putting them in Vanguard's pockets.
When you invest in VOO, you know you're getting the trifecta: Diversification, proven results, and low cost. Those are boxes you want checked for an ETF you plan to hold for the long haul.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Stefon Walters has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends JPMorgan Chase, Vanguard Index Funds-Vanguard Growth ETF, Vanguard S&P 500 ETF, Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF, and Walmart. The Motley Fool recommends Broadcom and Johnson & Johnson. The Motley Fool has a disclosure policy.
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