Portfolio Managers Rarely Beat This Simple Strategy. The Data Keeps Proving It.

So far in 2026, active fund managers are having one of their best years in nearly two decades. Goldman Sachs says that 57% of large-cap active mutual fund managers are beating their benchmarks, far above the long-term average.

Unfortunately, that's only one year. The long-term data shows that active managers have a pretty miserable record of staying ahead of their benchmarks. Over the past 10 years ending in 2024, 84% of large-cap active mutual funds lagged their benchmarks.

This is the core reason why investment in index funds has surged over the past couple of decades. After years of paying high fees for underperformance, investors figured out that buying an ultra-low-fee index exchange traded fund (ETF) and simply matching the index instead of trying to beat it is a great idea. Today, the largest ETFs, including the Vanguard S&P 500 ETF and the iShares Core S&P 500 ETF, manage hundreds of billions of dollars and often have expense ratios of 0.05% or less.

That makes these ETFs ideal for long-term portfolio building. They're so diversified, that it often takes just a couple of funds to construct a complete equity portfolio that can be held forever.

One of the best long-term portfolios consists of two ETFs -- one for U.S. stocks and one for international stocks. That data has proven that passively managed index funds are the way to go long term. These two can set you up for life.

Source: Getty Images.

Vanguard Total Stock Market ETF

The Vanguard Total Stock Market ETF (NYSEMKT: VTI) is a one-stop shop for the entire U.S. equity market. It includes roughly 3,500 stocks across all sizes, and its 0.03% expense ratio ensures that virtually every dollar that the fund earns will stay in your pocket.

Many people will choose the Vanguard S&P 500 ETF for their U.S. stock coverage, and that's understandable, but I prefer the total market approach. I like the inclusion of mid-cap and small-cap stocks because it provides a better mix of asset-class returns that can smooth out volatility over time.

Vanguard Total International Stock ETF

The Vanguard Total International Stock ETF (NASDAQ: VXUS) does for international stocks what the above fund does for U.S. stocks. Covering pretty much the entire investable universe, including developed and emerging markets, it invests in an astonishing 8,600 stocks, making it one of the most comprehensive international equity ETFs you'll find. Plus, it only charges a razor-thin expense ratio of 0.05%.

The two-ETF total stock portfolio

International stocks have been largely ignored for more than a decade, due to their underperformance relative to the S&P 500. That has changed in 2026.

U.S./international stock leadership tends to swing back and forth in multiyear cycles. After a 15+ year leadership stretch for U.S. stocks, the time may finally be here for international stocks. This is the case for having them in a diversified portfolio.

Your specific allocation between these two ETFs may vary. An 80/20 mix between U.S. and international stocks may be a good starting point, but always shift to your personal situation and preferences.

David Dierking has positions in Vanguard Total International Stock ETF and Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF, Vanguard Total International Stock ETF, and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.