Vanguard’s ETFs ushered in a new era of easy diversification and low-cost investing.
In 1976, John “Jack” Bogle, chairman of the Vanguard Group, launched the flagship Vanguard 500 Index Fund (ticker: VFINX), the world’s first index fund available to retail investors. Since then, Vanguard has grown to over $7.1 trillion in assets under management, with more than 17,000 employees and 200 U.S. funds listed. With a history of investor advocacy and fee reduction, it’s no surprise that retail investors have come to love Vanguard’s offerings. And with such a wide array of exchange-traded funds, or ETFs, to choose from, any investor can mix and match them to create a diversified, well-performing portfolio. Here’s a list of the 10 best Vanguard ETFs to buy and hold in 2022.
Vanguard Total World Stock ETF (VT)
Investors looking to follow Bogle’s philosophy of “buying the haystack” as closely as possible should consider making VT the core, or even sole, holding in their portfolio. For a low management expense ratio, or MER, of just 0.08% (or $8 per $10,000 invested), you get exposure to 9,350 stocks from across the world. The fund is diversified across market capitalization sizes, and across U.S., international developed and international emerging markets. If you want to capture the world stock market’s returns for minimal effort, VT is the fund to buy and hold for the long term.
Vanguard Total Stock Market ETF (VTI)
Investors who still subscribe to the “buying the haystack” philosophy but are more bullish toward the U.S. stock market should consider VTI instead. VTI tracks the performance of 4,136 stocks covering 99% of the investable U.S. stock market. The ETF is 82% large-cap, with the top 10 holdings making up 25% of the total weight. The rest of VTI is made up of various small- and mid-cap stocks, which adds a little bit more volatility but also boosts returns over long periods of time. When it comes to fees, VTI is as cheap as it gets, with an MER of just 0.03%. This minimizes tracking error and makes VTI a very good long-term buy and hold for passive investors.
Vanguard S&P 500 ETF (VOO)
Warren Buffett advocates for most individual investors to simply buy and hold the S&P 500 index. If you want to follow his sage advice, VOO is the fund for you. Widely seen as the barometer of U.S. stock market performance, VOO tracks the stock performance of about 500 of the largest and most prominent publicly traded U.S. companies. With top holdings consisting of mega-cap growth stocks like Apple Inc. (AAPL) and Microsoft Corp. (MSFT), the fund has become rather tech-heavy in recent years. However, with a 25-year compound annual growth rate of 10%, it still outperforms many active fund managers as the benchmark to beat. You can buy and hold VOO for a dirt-cheap MER of 0.03%, making it an excellent choice for investors bullish on large-cap U.S. stocks.
Vanguard S&P Small-Cap 600 Value ETF (VIOV)
In investing, size matters, but not in the way you might think. Small-cap stocks — those with a market cap of less than $2 billion — are riskier, and investors are compensated for that risk with the potential for better returns. Value stocks — those with lower price-book and price-earnings ratios — are also riskier, and investors holding them tend to see better returns over the long run. Combine these two traits in a single ETF, and you get VIOV. While small-cap value stocks did suffer in the last decade during the tech bull run, they consistently outperformed in various 20-year rolling periods going all the way back to 1982. Tilting your portfolio to overweight these stocks by buying VIOV could be a way to “beat the market” over the long term. VIOV carries an MER of 0.15%, making it more expensive than the previous ETFs but not prohibitively so.
Vanguard Growth Index Fund ETF (VUG)
Are you a believer in high-flying, large-cap growth stocks like Tesla Inc. (TSLA), Alphabet Inc. (GOOG, GOOGL) and Nvidia Corp. (NVDA)? Want to avoid all the sleepy old-fashioned value stocks present in every other U.S. index? VUG might be the right ETF for you. With 50% of the underlying 267 holdings concentrated in the tech sector, VUG is a high-risk, high-reward play. Investors who can tolerate high volatility might be rewarded over time with massive bursts of outperformance, like what we saw from 2019 to 2021. Buying VUG will only cost you an MER of 0.04%, making it an affordable way of gaining exposure to otherwise pricey growth stocks.
Vanguard Total World Bond ETF (BNDW)
Investors with a lower risk tolerance and shorter time horizon should consider adding a bond ETF to their portfolio. For those who are investing in VT, BNDW is the perfect complement, providing broad, diversified exposure to the global investment-grade bond market. BNDW holds both government and corporate bonds from around the world, with 50% of the ETF being U.S. bonds and the rest from other developed and emerging markets. With an average duration of 7.6 years, BNDW strikes the perfect sweet spot between interest rate risk and hedging against equity risk. Holding BNDW will cost you an MER of 0.06%, making it an excellent low-cost diversifier.
Vanguard Total Bond Market ETF (BND)
Like with VTI, investors more bullish on the U.S. market should consider using BND instead as their bond ETF of choice. BND provides exposure to an array of investment-grade U.S. bonds, with the majority (66%) comprising U.S. Treasurys of all maturities and a smaller allocation (33%) of corporate bonds. BND has an average duration of 6.8 years. Investors looking for safety of principal and some potential for income should strongly consider an allocation to BND. Buying and holding BND will cost you 0.035%, which is as cheap as it gets for bond ETFs.
Vanguard Long-Term Treasury ETF (VGLT)
Investors looking for the strongest hedge to a volatile equity position should consider a long-duration treasury bond ETF like VGLT. Unlike BND, VGLT holds no corporate bonds, making it virtually immune from default risk. Instead, it holds an array of U.S. government Treasury bonds with an average duration of 17.9 years. Because of this, VGLT offers great protection during times of crisis, with the price of long-term Treasurys shooting up during the dot-com bubble, the 2008 subprime crisis and the 2020 COVID-19 crash. However, because the duration of VGLT is so long, it is vulnerable to interest rate risk, with falling rates increasing its price and rising rates decreasing its price. However, in the long term, VGLT remains one of the best hedges against stocks, especially with a cheap MER of just 0.04%.
Vanguard Intermediate-Term Treasury ETF (VGIT)
If the high interest rate sensitivity of VGLT is too much to bear, consider adding VGIT to your portfolio instead. Like VGLT, VGIT holds an array of U.S. government Treasury bonds, but with a shorter average duration of 5.4 years. This decreases its interest rate risk but does reduce its ability to serve as a hedge during a crash. Still, holding VGIT in sufficient amounts can still provide adequate protection and decent income over time. Investors with a shorter time horizon, such as those on the verge of retiring in five to 10 years, should consider adding VGIT to their portfolio. The ETF costs 0.04% to hold.
Vanguard Short-Term Treasury ETF (VGSH)
Finally, investors looking for maximum safety and preservation of capital should hold VGSH. Like VGLT and VGIT, VGSH holds an array of U.S. government Treasury bonds, but with the shortest average duration of 1.9 years. This effectively immunizes it from interest rate risk but does severely reduce its ability to act as a “parachute” during a stock market crash. Despite this, the stability of VGSH makes it a great “anchor” for your portfolio to keep volatility low. In fact, Warren Buffett instructed his trustee to combine VOO and VGSH in a 90/10 allocation for his wife’s investment portfolio after he passes away. A popular use of VGSH for low-risk investors is using it to park cash for short-term needs, such as retirement income. The ETF charges an MER of just 0.04% to hold.
The top 10 Vanguard ETFs to buy:
— Vanguard Total World Stock ETF (VT)
— Vanguard Total Stock Market ETF (VTI)
— Vanguard S&P 500 ETF (VOO)
— Vanguard S&P Small-Cap 600 Value ETF (VIOV)
— Vanguard Growth Index Fund ETF (VUG)
— Vanguard Total World Bond ETF (BNDW)
— Vanguard Total Bond Market ETF (BND)
— Vanguard Long-Term Treasury ETF (VGLT)
— Vanguard Intermediate-Term Treasury ETF (VGIT)
— Vanguard Short-Term Treasury ETF (VGSH)
More from U.S. News
8 Best Cheap Stocks to Buy Now Under $5
15 of the Best Dividend Stocks to Buy for 2022
8 Best Defense Stocks to Buy in 2022
10 Best Vanguard ETFs to Buy originally appeared on usnews.com
Update 03/09/22: This article was published at an earlier date and has been updated with new information.
