3 No-Brainer Vanguard ETFs to Buy With $500 and Hold for the Next 20 Years
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3 No-Brainer Vanguard ETFs to Buy With $500 and Hold for the Next 20 Years
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You don’t need thousands of dollars to start building your portfolio. You don’t need to identify the next Nvidia to be successful, either.
If I had $500 to invest today and didn’t plan on needing the money for at least 20 years, I’d focus on three things: diversification, long-term growth, and minimal fees. Happily, you can find all three of those things in a good exchange-traded fund (ETF) that tracks the stock market in general or specific sectors in particular.
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Vanguard is one of the leaders in this kind of ETF, and you can even begin by buying fractional shares for as little as $1.
In the current environment, here are the three ETFs I’d buy.
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ETF No. 1: Vanguard Total Stock Market ETF
As is the case with most of my portfolio ideas, I’d start with the Vanguard Total Stock Market ETF (NYSEMKT: VTI). That’s because it gives investors a fully diversified U.S. stock portfolio, including large-caps and small-caps, in a single ETF with a 0.03% expense ratio.
This ETF owns roughly 3,500 different companies of all sizes. Its biggest positions are still Nvidia, Apple, Microsoft, and Alphabet, but it also includes hundreds of smaller stocks that investors may never have even heard of.
That’s what makes the Vanguard Total Stock Market ETF an attractive long-term core portfolio holding. You get exposure to the entire U.S. economy, not just the largest companies.
ETF No. 2: Vanguard Growth ETF
If VTI provides the foundational piece to a portfolio, the Vanguard Growth ETF (NYSEMKT: VUG) allows you to be a little more aggressive. Growth stocks tend to be more volatile, but they also offer higher growth potential. With 20 years to invest, you have plenty of time to ride out that volatility in the pursuit of higher returns.
The Vanguard Growth ETF primarily targets U.S. large-cap companies that exhibit higher earnings and revenue growth, better return on assets (ROA), and significant investment in the business.
Not surprisingly, the artificial intelligence (AI) boom means tech stocks make up the vast majority of the portfolio. But these are also the companies generating the biggest growth at the moment. That means substantial exposure to all of the stocks mentioned above, as well as Amazon, Meta Platforms, and Broadcom.
There’s obviously high overlap with the Vanguard Total Stock Market ETF right now. There’s still reason to own both because the Vanguard Growth ETF will adapt over time to wherever growth is coming from, whether that’s in tech or not.
ETF No. 3: Vanguard Total International Stock ETF
U.S. stocks have significantly outperformed international stocks for most of the past 15 years. A lot of investors gave up on foreign equities long ago due to comparatively lagging performance.
But it won’t be like that forever. In fact, history shows U.S. and international stocks have traded leadership multiple times over the past several decades.
The Vanguard Total International Stock ETF (NASDAQ: VXUS) owns more than 8,000 stocks across both developed and emerging markets. That makes it one of the most comprehensive ETFs you’ll find covering these regions. That includes the United Kingdom, Canada, China, India, Germany, and France.
The other big advantage of investing internationally is valuation. This portfolio trades at a forward price-to-earnings (P/E) ratio of just 15 at recent prices, compared to 20 for the Vanguard S&P 500 ETF (NYSEMKT: VOO).
With growth estimates beginning to accelerate, this could be a good time to go global in your portfolio.
Combining these three ETFs
Since these are all stock ETFs, they’re designed to be held for years, if not decades. Trying to buy and sell them opportunistically in order to outperform the market can be dangerous and negatively impact total returns.
With a hypothetical 8% annual return, a $500 investment would turn into more than $2,300 over the course of 20 years. No return is guaranteed, of course, but it’s a reasonable outcome for such a long time frame.
With a 20-year time horizon, time is your biggest advantage with all three of these Vanguard ETFs. Stay invested and let the power of long-term compounding do its thing.
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David Dierking has positions in Apple, Vanguard Morningstar Total Stock Market ETF, and Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Microsoft, Nvidia, Vanguard Morningstar Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
