Vanguard’s ETFs provide diversification at a low cost.
Vanguard, the well-known fund investing powerhouse, premiered the first index fund in the 1970s, with the launch of the First Index Investment Trust tracking the S&P 500. The first Vanguard exchange-traded fund, the Vanguard Total Stock Market ETF (ticker: VTI), began trading in 2001, growing to more than $1.2 billion in assets during its initial seven months. Today, VTI alone boasts more than $200 billion in total assets as Vanguard has grown to command a staggering $6.2 trillion in global assets under management. With a wide array of Vanguard ETFs, there’s likely to be something that’s good for any investing strategy. Here’s a list of the 10 best Vanguard ETFs to spur your investing in 2021.
Vanguard Total Stock Market ETF (VTI)
The aforementioned VTI fund, a mainstay of Vanguard ETFs with more than $200 billion in assets, is popular for a reason as it tracks the performance of the entire U.S. stock market. This includes large-sized companies that are most popular, as well as mid-, small- and micro-cap stocks across a portfolio of roughly 3,600 holdings. As is typical for Vanguard index funds, investors get this broad exposure at rock bottom prices, with VTI only charging a mere 0.03% in annual expenses, or $3 on every $10,000 you invest. If you want to play the whole U.S. market without picking favorites, the Vanguard Total Stock Market ETF is the fund for you.
Vanguard S&P 500 ETF (VOO)
Close behind VTI with a massive $180 billion in total assets is the VOO fund from Vanguard, which tracks the S&P 500. As the preeminent index of U.S. stocks, comprised of the largest 500 public companies domiciled in the country, it makes an outstanding core holding for many portfolios. With top holdings including megacap stocks such as Microsoft Corp. (MSFT) and Amazon.com (AMZN), the fund is biased toward technology with about 25% of assets in that sector at present. Seeing as these dynamic names dominate U.S. markets, that may be just what some investors are looking for in a fund. Like the previous fund, VOO has an expense ratio of 0.03%.
Vanguard Total World Stock ETF (VT)
For one-stop stock market investing, the Vanguard Total World Stock ETF is ideal for investing in both foreign and domestic stocks. VT takes a similar approach to its U.S.-focused cousin but covers all world equity markets, including the U.S., and removes the need for multiple stock funds. It’s also great for investors seeking diversification with a small number of investment dollars. Top holdings right now include familiar U.S. names like Apple (AAPL) but also Chinese tech giant Tencent Holdings (TCHEY) and chipmaker Taiwan Semiconductor Manufacturing (TSM). The fund comes with an expense ratio of 0.08%.
Vanguard FTSE Emerging Markets ETF (VWO)
To bolster their diversification, investors can look beyond just developed markets like the U.S. and Europe to tap into the big potential of emerging markets like China, Brazil and India. After all, China’s economy was one of the few that expanded last year, while other nations suffered significantly — including a projected 7% decline or so for Europe’s gross domestic product in 2020. The Vanguard FTSE Emerging Markets ETF has about 42% of its assets in China and another 16% in neighboring Taiwan, so if you’re interested in this emerging market potential, then this Vanguard ETF could be an interesting option. VWO has an expense ratio of 0.1%.
Vanguard Growth ETF (VUG)
Another way to pursue growth in your portfolio is to stay within the U.S., and simply to follow an index that screens out the sleepy names and focuses instead of public companies growing their sales and profits. It’s not a surefire strategy, but it should be obvious that focusing on companies with a strong track record of growth could set you up for success more than simply buying everything on Wall Street. That’s what VUG offers, with a screening methodology that uses a narrow list of only about 250 large stocks with strong fundamentals. Perhaps unsurprisingly, that means you have very little exposure to materials stocks or consumer staples picks in this fund, but if you’re into growth investing, VUG may be worth a look. Top holdings include electric vehicle maker Tesla (TSLA) and home improvement store Home Depot (HD). The expense ratio is 0.04%.
Vanguard Value ETF (VTV)
The flip side of growth investing is, of course, value investing. This means investors seek out stocks that have material assets, stable operations and proven value on their balance sheets even if they may not be growing their sales at 10% a year like some more dynamic stocks. Top holdings in the Vanguard Value ETF exemplify this slow-and-steady approach, and include megabank JPMorgan Chase & Co. (JPM), health care giant Johnson & Johnson (JNJ) and personal products icon Procter & Gamble (PG). The fund is light on tech, but if you want stability over growth potential, then VTV is the best Vanguard ETF for you. The fund has an expense ratio of 0.04%.
Vanguard Health Care ETF (VHT)
If you’re comfortable making a direct bet on a specific sector of the stock market, VHT is a highly popular Vanguard ETF you may want to consider. As the name implies, the Vanguard Health Care ETF owns only U.S. health care stocks. However, with a deep bench of around 450 total holdings at present, you’re getting those big names like JNJ as well as smaller biotechnology and medical device companies. With almost $14 billion in assets, VHT is one of the most popular sector ETFs out there — and not just because of the pandemic. Looking at the long term, health care spending has marched steadily higher in the U.S. and provided a tailwind for many companies in this sector. The fund has an expense ratio of 0.1%.
Vanguard Consumer Discretionary ETF (VCR)
For more aggressive investors interested in the next big thing, 2021 may be the year that we see the Vanguard Consumer Discretionary ETF break out after the rough impact of the pandemic last year. Consensus forecasts are for the U.S. economy to see GDP expand at a rate of about 3.6%, and Washington continues to focus on providing a stimulus to Americans to help get through these tough winter months before the economy can get back to normal. The top companies in VCR, including McDonald’s Corp. (MCD), Nike (NIKE) and Starbucks Corp. (SBUX), could have a nice year if the cards fall right, and that may make this fund an interesting buy if you believe in the return of big consumer spending in 2021. VCR comes with an expense ratio of 0.1%
Vanguard High Dividend Yield ETF (VYM)
One strategy we’ve yet to discuss is investing for income. The Vanguard High Dividend Yield ETF is not focused on a specific flavor like growth versus value, nor is it focused on a specific sector or geography. Instead, the fund focuses on U.S. stocks that have a strong history of delivering dividends to investors. Top holdings in this Vanguard ETF include soft drink king Coca Cola Co. (KO) and telecom giant Verizon Communications (VZ). With a yield of 3.2% at present, which is roughly twice that of the broader S&P 500, this is a good way to stay invested in the stock market while keeping an eye on dividends and steady income. VYM has an expense ratio of 0.06%.
Vanguard Total Bond Market ETF (BND)
Another way to tap into fixed-income investing is a broadly diversified U.S. bond fund, like the strategy offered in the Vanguard Total Bond Market ETF. This fund provides exposure to the entire U.S. investment-grade bond universe, including corporate as well as government bonds. Unfortunately, thanks to the persistently low interest rate environment, the fund has a yield of only about 2.2% over the last 12 months. That said, this investment represents a much lower risk than stocks. For investors who are interested in stability over capital appreciation, this Vanguard ETF may have value. The expense ratio is 0.04%.
Top Vanguard ETFs to buy:
— Vanguard Total Stock Market ETF (VTI)
— Vanguard S&P 500 ETF (VOO)
— Vanguard Total World Stock ETF (VT)
— Vanguard FTSE Emerging Markets ETF (VWO)
— Vanguard Growth ETF (VUG)
— Vanguard Value ETF (VTV)
— Vanguard Health Care ETF (VHT)
— Vanguard Consumer Discretionary ETF (VCR)
— Vanguard High Dividend Yield ETF (VYM)
— Vanguard Total Bond Market ETF (BND)
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Update 02/05/21: This story was published at an earlier date and has been updated with new information.