Investing does not require a complex strategy or constant portfolio monitoring. Academic studies consistently show that one of the most effective ways to build wealth is dollar-cost averaging in low-cost, passively managed exchange-traded funds (ETFs) that track broad market segments.
Vanguard stands out in the ETF world for its shareholder-owned structure, which allows for industry-leading low fees. A complete portfolio using Vanguard products can achieve returns comparable to, and often better than, benchmark indices. Here are three funds that together provide the essential components for a balanced, long-term investing approach.
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The Vanguard S&P 500 ETF(NYSEMKT: VOO) follows the S&P500the most followed benchmark for the US stock market. The fund charges just an expense ratio of 0.03%, compared to an average of 0.77% for comparable funds. The beta of 1 indicates that the price is moving exactly in line with the market, while the alpha of -0.04 shows that it is close to the benchmark returns, taking into account risks and costs.
The Vanguard S&P 500 ETF’s top holdings include Apple at 7.11%, Nvidia at 6.76%, Microsoft at 6.26%, Amazon at 3.61%, and Metaplatforms at 2.57%. A starting investment of $10,000 would now be worth $71,640, with the dividends reinvested in a tax-advantaged account. The current yield of the fund is 1.17%.
VOO Total Return Level Chart
VOO Total Return Level data according to YCharts.
The Vanguard Growth Index Fund ETF Shares(NYSEMKT: VUG) focuses on large US companies with strong growth prospects. It charges just 0.04%, compared to the category average of 0.94%. The fund’s beta of 1.2 means it will amplify market moves by 20%, while its alpha of -2.33 suggests slightly lower risk-adjusted returns than its benchmark.
The Vanguard Growth ETF has delivered exceptional returns, with a total return of 341.7% over the past ten years, compared to just 68.7% for the past ten years. Vanguard Total International Stock Index Fund ETF Shares (NASDAQ: VXUS).
This dramatic outperformance reflects the dominance of American technology companies, which have built formidable competitive advantages through artificial intelligence, cloud computing and other technological advances.
While traditional portfolio theory suggests holding a fair amount of international stocks through a diversified fund like the Vanguard Total International Stock Index Fund ETF Shares, this modified strategy emphasizes U.S. large-cap growth stocks through the Vanguard Growth ETF, with the broad competitive position of American banks is recognized. leading technology companies.
Delving deeper into the details, the fund’s top holdings include larger allocations to tech giants, with Apple at 11.71%, Nvidia at 10.94%, Microsoft at 10.80%, Amazon at 6% and Meta Platforms at 4.70%. Thanks to the outperformance of most of these tech giants, a $10,000 investment in this Vanguard fund would now be worth $103,860 at inception, with the dividends reinvested in a tax-advantaged account.
VUG Total Return Level Chart
VUG Total Return Level data according to YCharts.
The Vanguard Total Bond Market Index Fund(NASDAQ:BND) provides essential portfolio stability through diverse fixed income exposures. It tracks the Bloomberg US Aggregate Float Adjusted Index, with a beta of 0.99 indicating near-perfect market tracking and an alpha of -0.08 showing it closely tracks the benchmark’s risk-adjusted returns.
With an expense ratio of 0.03% and a current yield of 4.41%, this fund is an efficient hedge against equity market volatility. However, a $10,000 investment would be worth only $16,860 at the outset if the dividends were reinvested, underscoring the dramatic underperformance of bonds versus stocks since the turn of the century.
A traditional rule of thumb suggests subtracting your age from 100 to determine your stock allocation, while investing the remainder in safe havens such as bonds and cash. However, given the longer life and historical outperformance of US stocks, many financial experts are now recommending a more aggressive change to this approach.
Here is a general framework for age-based allocations, modified from the traditional rule to reflect a more growth-oriented attitude:
Age 20: 90% stocks, 10% bonds
Age 30: 80% stocks, 20% bonds
Age 40: 70% stocks, 30% bonds
Age 50: 60% stocks, 40% bonds
Individual circumstances may warrant adjustments to these allocations. Factors such as job stability, other sources of income, and personal risk tolerance can influence whether you should be more aggressive or conservative with your mix.
For the equity portion, investors at any age can consider a higher allocation to the Vanguard 500 Index Fund for its stability, increasing exposure to the Vanguard Growth Fund for greater growth potential. The Vanguard Growth Fund’s substantial outperformance versus international stocks demonstrates the benefits of maintaining significant U.S. exposure, although this concentration also increases risk.
This three-fund strategy offers compelling advantages through its simplicity, low costs and proven track record. For investors looking for a simple approach to building wealth, these Vanguard ETFs provide the essential components of a well-constructed portfolio that can be easily adjusted as conditions change.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. George Budwell has positions in Apple, Microsoft, Nvidia, Vanguard S&P 500 ETF and Vanguard Total Bond Market ETF. The Motley Fool holds and recommends Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Vanguard Index Funds-Vanguard Growth ETF, Vanguard S&P 500 ETF, Vanguard Total Bond Market ETF, and Vanguard Total International Stock ETF. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
3 Vanguard ETFs That Can Help You Build Your Perfect Portfolio originally published by The Motley Fool
