Few Wall Street notables have looked out for retail investors as much as John Bogle did. As the founder of Vanguard, Bogle helped launch the first commercially viable index fund in 1976, increased transparency about mutual fund costs, and wrote multiple books on his investment philosophy.
Bogle was of the opinion that retail investors should stick to low-cost, broad-market index funds instead of picking stocks and trying to time the market. He once wrote: “Owning the stock market over the long term is a winner’s game, but attempting to beat the market is a loser’s game.”
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Despite his death in 2019, Vanguard continues to embody his legacy, notably in its lineup of exchange-traded funds, or ETFs. Currently, Vanguard’s ETF lineup spans 81 different options, covering equities and bonds from most sectors, styles, market caps and geographies.
Here are 10 of the best Vanguard ETFs to buy in 2023:
— Vanguard S&P 500 ETF (ticker: VOO)
— Vanguard Total Stock Market ETF (VTI)
— Vanguard Growth ETF (VUG)
— Vanguard Value ETF (VTV)
— Vanguard High Dividend Yield ETF (VYM)
— Vanguard Dividend Appreciation ETF (VIG)
— Vanguard FTSE Developed Markets ETF (VEA)
— Vanguard FTSE Emerging Markets ETF (VWO)
— Vanguard Total International Stock ETF (VXUS)
— Vanguard Total World Stock ETF (VT)
Vanguard S&P 500 ETF (VOO)
One of the lowest-cost ETFs in Vanguard’s lineup is VOO, which charges an expense ratio of 0.03%, or $3 per year for every $10,000 invested. The ETF keeps costs low by tracking the S&P 500 index, a highly popular benchmark of U.S. large-cap equity performance.
The stocks in the S&P 500 index are selected by the S&P committee based on a set of strict rules. VOO’s stock selection process must mirror that of the index, which helps keep fund turnover and costs low. According to a study by S&P Dow Jones Indices, 89.4% of large-cap U.S. equity funds failed to beat the S&P 500 index over the last 15 years. By buying VOO, investors can choose to bet on the winning side.
Vanguard Total Stock Market ETF (VTI)
The S&P 500 index is widely cited as a barometer of U.S. market performance, but it technically is not the entire market. Because the S&P 500 is restricted to about 500 large-cap U.S. stocks, it misses out on the performance of mid- and small-cap stocks.
To capture the performance of these stocks and thus the entire investable U.S. market, investors can buy VTI, which tracks the CRSP Total Market Index. Due to its market-cap-weighted approach, most of this ETF is still held in the same large-cap stocks seen in VOO.
Historically, VTI’s performance has been remarkably similar to VOO’s, which makes it a possible tax-loss-harvesting pair for the latter. VTI also charges a 0.03% expense ratio.
Vanguard Growth ETF (VUG)
Investors looking for a low-cost, growth-stock-oriented ETF may like VUG, which tracks the CRSP U.S. Large Cap Growth Index. This index only holds large-cap U.S. stocks screened for higher-than-average historical and future expected earnings-per-share growth, and investment-to-asset and return-on-asset ratios.
The result is a fairly concentrated portfolio of 253 stocks, 45.5% of which hail from the technology sector. VUG has a 30-day SEC yield of just 0.7%, but a lower yield means less tax paid on dividends, which may still work for those investing outside of a tax-advantaged account. VUG charges a 0.04% expense ratio.
Vanguard Value ETF (VTV)
VUG’s counterpart is VTV, which targets 343 large-cap U.S. value stocks by tracking the CRSP U.S. Large Cap Value Index. This index screens holdings for value by assessing their price-to-book, price-to-earnings (forward and historical), dividend-to-price and price-to-sales ratios.
Compared to VUG, VTV’s holdings are more concentrated in the financial and health care sectors at 19.8% and 19.4%, respectively. Income investors may also like VTV better for its greater 30-day SEC yield of 2.5%, thanks to the tendency of its underlying blue-chip value stocks to pay dividends. VTV also charges a 0.04% expense ratio.
Vanguard High Dividend Yield ETF (VYM)
VTV may offer a decent yield, but it is not focused solely on dividend-paying stocks. The value screener in its index just happens to ensure decent dividend exposure.
Investors interested in a targeted dividend strategy may prefer VYM, which tracks the FTSE High Dividend Yield Index. This index selects stocks that currently pay higher-than-average dividend yields.
Like VTV, VYM’s largest underlying sectors are financials and health care at 20.7% and 14.3%, respectively, but there is also a decent allocation to consumer staples and energy at 12.3% and 10.7%.
VYM currently pays a 30-day SEC yield of 3% and charges a 0.06% expense ratio.
[SEE: 11 Top Sector ETFs to Buy.]
Vanguard Dividend Appreciation ETF (VIG)
Another way to implement a dividend strategy is by investing in dividend growth. That is, investors can target companies that have a track record of consecutive dividend increases.
An ETF that puts this strategy into play is VIG, which tracks the S&P U.S. Dividend Growers Index. This index targets large-cap U.S. stocks that have consistently increased dividends every year for at least 10 years. The index also excludes the top-25% highest-yielding companies to avoid “yield traps,” which are high-yielding companies with possible poor financials or stagnating growth.
VIG pays a 30-day SEC yield of 1.9% and charges a 0.06% expense ratio.
Vanguard FTSE Developed Markets ETF (VEA)
For U.S. investors, the term “international stock” refers to the shares of any company listed on non-U.S. exchanges. When it comes to stocks from countries like Canada, the U.K., Germany, France, Australia and Japan, the term used is “developed markets,” referring to their higher degree of economic development.
Diversifying outside of U.S. markets to also hold developed-market stocks can help investors hedge against the possibility of the U.S. market underperforming. A great low-cost pick here is VEA, which tracks the FTSE Developed All Cap ex US Index.
For a 0.05% expense ratio, investors get over 4,000 stocks from the aforementioned countries and others.
Vanguard FTSE Emerging Markets ETF (VWO)
The other portion of the international stock market is composed of companies from emerging markets.
This refers to nations undergoing rapid growth, industrialization and economic development, with notable examples being China, India and Brazil. Historically, these stocks have been capable of robust growth, but also high volatility. For investors willing to tolerate the risk, a diversified option could be VWO, which tracks the FTSE Emerging Markets All Cap China A Inclusion Index.
In return for a 0.08% expense ratio, investors receive exposure to more than 5,600 emerging-market stocks.
Vanguard Total International Stock ETF (VXUS)
For a complete global stock portfolio, investors can make do with a mixture of VTI, VEA and VWO. This approach provides exposure to U.S., developed-market and emerging-market stocks.
The trick is adjusting the proportions between each ETF. As different markets pull ahead, investors must periodically rebalance to bring each ETF in line with its current market-cap weight.
To simplify this task, investors can merge VEA and VWO by purchasing VXUS, which tracks the FTSE Global All Cap ex US Index. Right now, this ETF is around 75% developed and 25% emerging markets, but this allocation is dynamic and can change over time. VXUS charges a 0.07% expense ratio.
Vanguard Total World Stock ETF (VT)
By buying VTI and VXUS according to their current market-cap weights, investors obtain a two-ETF portfolio that matches the returns of the global stock market.
For those desiring even greater simplicity, VT offers a true one-ticker solution for a globally diversified stock portfolio. This ETF tracks the FTSE Global All Cap Index, which holds more than 9,500 stocks split roughly 60% U.S., 30% developed and 10% emerging markets. These allocations are based on each geography’s current world market-cap weight, and can change in the future as the global economy does. For an all-inclusive 0.07% expense ratio, VT delivers global market exposure in a transparent and efficient manner.
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10 of the Best Vanguard ETFs to Buy originally appeared on usnews.com
