2 Low-Cost Vanguard ETFs for Set-and-Forget Investors

Investing doesn't have to be complicated or time-consuming. For those who prefer a hands-off approach, Vanguard offers a range of exchange-traded funds (ETFs) that can form the backbone of a solid investment portfolio.

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Let's explore two Vanguard ETFs that are particularly well-suited for set-and-forget investors.

Vanguard S&P 500 ETF: A cornerstone for equity exposure

The Vanguard S&P 500 ETF (NYSEMKT: VOO) tracks the performance of the S&P 500 index, providing investors with exposure to 500 of the largest U.S. companies. This ETF is a favorite among passive investors for good reason. It offers broad market exposure at an incredibly low cost.

VOO data by YCharts

With an expense ratio of just 0.03%, the Vanguard S&P 500 ETF is one of the cheapest ways to invest in the U.S. stock market. This low fee structure means more of your money stays invested and working for you. The fund has delivered a total return of 592% since its inception, outperforming many actively managed funds.

The ETF's top holdings read like a who's who of American business giants. Apple, Microsoft, and Nvidia currently occupy the top three spots, collectively accounting for nearly 20% of the fund's assets. This concentration in tech stocks has been a key driver of the fund's performance in recent years.

Vanguard Total Bond Market Index Fund: Adding stability to your portfolio

While stocks offer growth potential, bonds can provide stability and income. The Vanguard Total Bond Market Index Fund (NASDAQ: BND) offers broad exposure to U.S. investment-grade bonds, including Treasuries and mortgage-backed securities of all maturities. This characteristic makes it an excellent choice for investors seeking a core bond holding.

BND data by YCharts

Like its equity counterpart, this bond ETF has a low expense ratio of 0.03%. This figure is significantly lower than the average expense ratio of 0.56% for similar funds. The fund's low costs contribute to its ability to closely track its benchmark index, the Bloomberg U.S. Aggregate Float Adjusted Index. This index is a broad representation of the U.S. investment-grade bond market.

As of Sept. 30, 2024, the fund held 11,341 bonds with an average effective maturity of 8.3 years and an average duration of 6.0 years. These figures suggest a moderate level of interest rate sensitivity. The fund's yield to maturity of 4.2% provides a steady income stream for investors.

A strategy backed by Warren Buffett

The combination of these two ETFs aligns closely with Warren Buffett's famous 90/10 investment strategy. Buffett recommends allocating 90% of investments to low-cost S&P 500 index funds and 10% to short-term government bonds. This approach capitalizes on the long-term growth potential of the U.S. economy while providing some cushion against market volatility.

Buffett's endorsement of this strategy stems from his belief that the stock market will outperform other investments over the long run. He also maintains that most active money managers struggle to consistently beat the S&P 500, making low-cost index funds an attractive option for many investors.

The set-and-forget investor's dream come true

For investors who prefer to set and forget their portfolios, these Vanguard ETFs offer a compelling solution. The Vanguard S&P 500 ETF provides broad exposure to the U.S. stock market, capturing the growth of America's largest companies. Meanwhile, the Vanguard Total Bond Market Index Fund adds a layer of stability and income to the portfolio.

Both funds feature rock-bottom expense ratios, ensuring that more of your money stays invested and compounds over time. Their broad diversification helps mitigate the risk of any single company or sector dragging down your entire portfolio.

Remember, being a set-and-forget investor doesn't mean being careless. It means choosing a sound, long-term strategy and sticking to it. By regularly investing in these Vanguard ETFs, you're positioning yourself to capture the long-term growth of the U.S. economy while maintaining a balanced and diversified portfolio. This approach is a simple yet powerful strategy that has stood the test of time.

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George Budwell has positions in Apple, Microsoft, Nvidia, Vanguard S&P 500 ETF, and Vanguard Total Bond Market ETF. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, Vanguard S&P 500 ETF, and Vanguard Total Bond Market ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.