Vanguard ETFs ushered in a new era of easy diversification and low-cost investing.
John Bogle, the founder of Vanguard and pioneer of the index fund, once wrote: “The two greatest enemies of the equity fund investor are expenses and emotions.” Bogle was a proponent of passive investing, a philosophy that seeks to emulate the returns of notable stock market benchmarks as closely as possible. This approach involves keeping fees low, diversification high and bad investment behaviors in check. A great way to kick-start this investing strategy is via an allocation to Vanguard exchange-traded funds, or ETFs, which collectively boast some of the lowest fees in the industry. Currently, Vanguard has a lineup of 81 ETFs available, covering stocks and bonds from most markets around the world. Investors can easily mix-and-match these funds to create a portfolio that will match the market’s long-term average return. Here are the 10 best Vanguard ETFs to buy today.
Vanguard Total Stock Market ETF (ticker: VTI)
The U.S. stock market remains one of the most popular investments for passive investors worldwide thanks to its high returns and leading companies. Currently, U.S. stocks account for about 60% of the world’s market by market-capitalization weight. A great way to buy the entire investable U.S. market is VTI, which tracks the CRSP Total Market Index. This ETF holds more than 4,000 large-, mid- and small-cap U.S. stocks from all 11 market sectors, according to their market-cap weights. With an expense ratio of 0.03%, or $3 annually per $10,000 invested, it’s also extremely affordable.
Vanguard S&P 500 ETF (VOO)
A popular alternative to VTI is VOO, which tracks the S&P 500 index. Compared to VTI, VOO only holds 502 large-cap U.S. stocks selected by the S&P committee. However, over the long term its returns are very similar to VTI’s. This is because the holdings in VOO already comprise about 80% of VTI by weight, as both ETFs are market-cap weighted. Because VOO and VTI track different indexes yet perform similarly, they make for great tax-loss harvesting pairs. VOO also costs an expense ratio of 0.03%.
Vanguard Total Bond Market ETF (BND)
Not many investors have the risk tolerance to handle the volatility of a 100% equity portfolio. For these investors, an allocation to high-quality bonds can help lower fluctuations and drawdowns. A great pick here that serves as the bond counterpart to VTI is BND, which tracks the Bloomberg U.S. Aggregate Float Adjusted Index. This ETF holds U.S. government Treasurys, agency bonds, investment-grade corporate bonds and mortgage-backed securities of all maturities. If VTI is the total U.S. stock market, then BND is the total U.S. bond market. The ETF also costs an expense ratio of 0.03%.
Vanguard Total International Stock ETF (VXUS)
The U.S. stock market might account for 60% of the world right now, but it’s not the only market worth investing in. Stocks from countries such as Canada, the U.K., China and Japan are certainly worth a spot in a diversified portfolio. Holding these stocks can provide a diversification benefit when U.S. markets stagnate, as they did in the “lost decade” of 2000 to 2009. A great one-size-fits-all pick here is VXUS, which tracks the FTSE Global All Cap ex U.S. Index. This ETF holds more than 7,900 stocks from all around the world according to their market-cap weights and costs a low expense ratio of 0.07%.
Vanguard Total International Bond ETF (BNDX)
The bond equivalent of VXUS is BNDX, which tracks the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index. This ETF holds government and investment-grade corporate bonds from places such as Australia, Canada, various European countries and Japan. Because interest rates can move differently in foreign countries, holding non-U.S. bonds can help investors diversify their bond allocations. The ETF is also currency-hedged to minimize fluctuations between the U.S. dollar and foreign currencies. Buying BNDX saves investors the need to conduct credit analysis of individual foreign bonds. It comes at a cheap cost, too, with an expense ratio of 0.07%.
Vanguard FTSE Developed Markets ETF (VEA)
Investors who want to “slice and dice” the stock allocation in their portfolios can split the international stocks in VXUS up into two components: developed and emerging markets. For developed markets, a good pick is VEA, which tracks the FTSE Developed All Cap ex U.S. Index. This ETF holds more than 4,000 stocks from countries such as Japan, the U.K., Canada, France, Switzerland, Australia, Germany, South Korea and Sweden. Using an ETF like VEA allows investors to access foreign stocks without converting currency or buying an American depositary receipt. VEA costs an expense ratio of 0.05%.
Vanguard FTSE Emerging Markets ETF (VWO)
Emerging-market equities, or companies listed in Chinese, Indian, Taiwanese, Brazilian, South African and Mexican markets, among others, make up the other part of VXUS. Historically, emerging markets have displayed a lower correlation with U.S. equities, which can make them good diversifiers. In particular, emerging markets such as China strongly outperformed from 2000 to 2007 while U.S. markets languished. A good ETF with which to buy more than 5,000 emerging-market stocks via a single ticker is VWO, which tracks the FTSE Emerging Markets All Cap China A Inclusion Index. The ETF costs an expense ratio of 0.08%.
Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)
This year showed many investors that their portfolios, and especially their fixed-income allocations, were vulnerable to the effects of high inflation and rising interest rates. A good pick to hedge against these conditions is VTIP, which holds Treasury inflation-protected securities, or TIPS, with short maturities. If inflation suddenly spikes, the yield on VTIP will as well, offering investors some protection. In addition, VTIP currently has an average duration of just 2.4 years. All else being equal, a 1% increase in interest rates will only cause VTIP to lose 2.4% in value. The ETF currently has a yield-to-maturity of 4%, which is the average yield on all of its underlying bonds if held until maturity. VTIP charges an expense ratio of 0.04%.
Vanguard S&P Small-Cap 600 Value ETF (VIOV)
A potential way of beating the market over the long term is by investing in small-cap value stocks. These are stocks with market capitalizations of between $300 million to $2 billion that appear to be trading below their intrinsic values. This approach is backed by the works of Nobel Prize winners Eugene Fama and Kenneth French, who discovered the “size” and “value” risk factors as predictors of above-average investment returns. A good ETF to passively index small-cap value stocks is VIOV, which tracks the S&P SmallCap 600 Value Index. This index employs various quantitative screeners to sift out small-cap stocks with profitability and value traits. VIOV costs an expense ratio of 0.15%.
Vanguard Total World Stock ETF (VT)
VT offers passive investors the most automated approach possible to equity investing. This ETF can be thought of as VTI plus VXUS, which gives investors access to a portfolio of global equities. With more than 9,000 holdings from U.S., international-developed and international-emerging markets held according to their market-cap weights, VT is designed to replicate the returns of the global stock market. The ETF is self-rebalancing and will adjust its weighting of U.S. and international stocks as the world’s market composition changes. By buying VT, investors can stay completely hands-off and not have to worry about which country or sector is doing well or poorly at the moment. The ETF costs an expense ratio of 0.07%.
10 best Vanguard ETFs to buy:
— Vanguard Total Stock Market ETF (VTI)
— Vanguard S&P 500 ETF (VOO)
— Vanguard Total Bond Market ETF (BND)
— Vanguard Total International Stock ETF (VXUS)
— Vanguard Total International Bond ETF (BNDX)
— Vanguard FTSE Developed Markets ETF (VEA)
— Vanguard FTSE Emerging Markets ETF (VWO)
— Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)
— Vanguard S&P Small-Cap 600 Value ETF (VIOV)
— Vanguard Total World Stock ETF (VT)
More from U.S. News
10 of the Best Bank Stocks to Buy for 2023
9 Highest Dividend-Paying Stocks in the S&P 500
10 Best Growth Stocks to Buy for 2023
10 Best Vanguard ETFs to Buy originally appeared on usnews.com
Update 12/15/22: This story was previously published at an earlier date and has been updated with new information.
