Buy These 3 Vanguard Index Funds and You Could Beat the S&P 500 Over the Next 5 Years

Look, the S&P 500 (SNPINDEX: ^GSPC) is great. Buying the Vanguard S&P 500 ETF and forgetting about it for 30 years is a perfectly respectable way to build wealth. Nobody’s going to judge you at the retirement party, especially if you can afford serving lobster thermidor and Wagyu beef.

But “hard to beat” isn’t the same as “unbeatable.” Some Vanguard index funds tend to outperform the S&P 500 over rolling five-year periods. The market-beating margins can be substantial, whether the stock market soars or hits speed bumps.

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Here are three of my favorites in that elite group. The charts below highlight each fund’s total returns relative to the S&P 500 (and VOO) across various five-year periods, with sharp ups and downs.

Vanguard Information Technology ETF (NYSEMKT: VGT) is for investors who look at the S&P 500 and think, “not enough tech.” It’s a concentrated bet, but tech has been the market’s chief growth engine for a while now. This exchange-traded fund (ETF) lets you lean into the ongoing artificial intelligence (AI) boom without picking individual winners.

Vanguard Small-Cap Growth ETF (NYSEMKT: VBK) targets smaller U.S. companies with growth characteristics. Small caps carry more volatility, but they’ve historically delivered strong returns over long time horizons. They have underperformed the S&P 500 in recent years because they don’t carry the tech titans found in the information technology ETF above.

Finally, the Vanguard International High Dividend Yield ETF (NASDAQ: VYMI) takes a completely different approach. It provides both geographic diversification and serious income. Instead of chasing volatile growth stocks in North America, it hands you a 3.5% yield from international stocks. Turn on dividend reinvestment and diversify abroad.

Before you buy stock in Vanguard Information Technology ETF, consider this:

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Anders Bylund has positions in Vanguard Information Technology ETF and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard Index Funds-Vanguard Small-Cap Growth ETF and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Buy These 3 Vanguard Index Funds and You Could Beat the S&P 500 Over the Next 5 Years was originally published by The Motley Fool