The market has been thriving in recent months, and if you’re ready to get started investing in 2024, now could be a great opportunity. But it’s crucial to invest in the right places, because the wrong stocks or funds could potentially sink your entire portfolio.
Exchange-traded funds (ETFs) can be a fantastic option for new investors. Each fund contains dozens or hundreds of stocks bundled together into a single investment. This takes much of the guesswork out of where to buy, as you never need to research individual stocks. It also provides instant diversification, limiting your risk.
While everyone’s investing preferences will differ, there are three powerhouse Vanguard ETFs that can help protect your portfolio while maximizing your long-term earnings.
1. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (VOO 0.66%) tracks the S&P 500 index, which means it includes the same stocks as the index and aims to replicate its long-term performance. The S&P 500 includes stocks from 500 of the largest U.S. companies, including major names like Apple, Amazon, and Microsoft.
S&P 500 ETFs are one of the safest types of ETFs out there. The index itself has a decades-long track record of recovering from even the worst crashes, recessions, and bear markets. While there are no guarantees in investing, it’s highly likely this ETF will recover from future downturns as well.
With enough consistency, you could also make a lot of money over time. Historically, the market itself has earned an average rate of return of around 10% per year. This means that the annual highs and lows have averaged out to around 10% per year over several decades.
If you were to invest, say, $200 per month while earning a 10% average annual return, you’d have around $395,000 after 30 years. If you’re able to invest more per month or stay invested for longer, you could potentially earn far more.
Finally, the Vanguard S&P 500 ETF has a low expense ratio of just 0.03% per year, meaning you’ll pay $3 per year in fees for every $10,000 you have invested. This is far lower than many other ETFs, which could save you thousands of dollars in fees over time.
2. Vanguard Total Stock Market ETF
The Vanguard Total Stock Market ETF (VTI 0.52%) is similar to the S&P 500 ETF, except it’s much broader. The S&P 500 ETF only includes around 500 stocks from large companies, while the Total Stock Market ETF contains 3,761 stocks from large, midsize, and small companies.
VTI can be a good choice for those looking for maximum diversification. This ETF aims to track the stock market as a whole, and because it includes thousands of stocks from nearly a dozen different industries, that can help better protect your portfolio against volatility.
Also, because this ETF includes stocks from smaller and midsize companies as well as large corporations, that could potentially help your money go further. Smaller stocks often have more room for growth, and if any of the small-cap or mid-cap stocks in this fund take off, you could potentially see substantial returns.
This ETF has earned slightly lower returns since its inception in 2001, with an average rate of return of around 8% per year. Still, though, that could help you make a lot of money over time. By investing $200 per month at an 8% average annual return, you’d have roughly $272,000 after 30 years.
3. Vanguard Growth ETF
The Vanguard Growth ETF (VUG 1.08%) is a fund designed to beat the market, and it includes 221 stocks with the potential for above-average growth.
A Growth ETF can carry more risk than an S&P 500 ETF or Total Stock Market ETF, as growth stocks tend to be more volatile than their more established counterparts. However, there’s also a better chance you’ll earn higher-than-average returns over time with this type of investment.
While there are no guarantees that this ETF will actually beat the market, even slightly above-average returns can still add up over time. Since its inception in 2004, this ETF has earned an average rate of return of just under 11% per year.
If you were to invest $200 per month while earning an 11% average annual return, you’d have around $478,000 after 30 years.
| Investment | Average Annual Return | Approximate Total Portfolio Value: Investing $200 per Month for 30 Years |
|---|---|---|
| Vanguard S&P 500 ETF | 10% | $395,000 |
| Vanguard Total Stock Market ETF | 8% | $272,000 |
| Vanguard Growth ETF | 11% | $478,000 |
Data source: Investor.gov. Calculations by author.
Again, growth ETFs can sometimes be riskier than other investments. Be sure you’re comfortable with a greater level of volatility before you buy, and be prepared to stay invested for the long haul. This ETF can experience more extreme ups and downs in the short term, but historically, it’s been successful at earning above-average returns over decades.
There’s not necessarily a right or wrong way to invest, as it will depend on your personal preferences. By considering your goals and risk tolerance, you can decide on the best ETF to fit your unique needs.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Katie Brockman has positions in Vanguard Index Funds – Vanguard Growth ETF, Vanguard Index Funds – Vanguard Total Stock Market ETF, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, Vanguard Index Funds – Vanguard Growth ETF, Vanguard Index Funds – Vanguard Total Stock Market ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
