Investing in Vanguard funds makes a lot of sense for long-term investors. Not only are the funds diversified, but they also charge incredibly low fees, ensuring that expenses don't make a big dent in a fund's overall returns, as fees can add up significantly over the long term.
Vanguard funds can thus be excellent options for building a portfolio around or for an investor to allocate the bulk of their money to. Three excellent exchange-traded funds (ETFs) that can make for ideal forever holdings include the Vanguard Morningstar Growth ETF (NYSEMKT:VUG), the Vanguard High Dividend Yield ETF (NYSEMKT:VYM), and the Vanguard S&P 500 ETF (NYSEMKT:VOO).
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Vanguard Morningstar Growth ETF
To capitalize on the market's long-term gains, investors will want to have exposure to top growth stocks. That's where this ETF comes into play. The Vanguard Morningstar Growth ETF gives investors exposure to the country's top growth stocks.
At around 130 holdings, it strikes a good mix in terms of diversification. The portfolio is not so small that it offers limited diversification, but it's also not so large that most holdings account for only a nominal percentage of the overall portfolio.
Due to its focus on growth, the fund has significant exposure to tech, with Nvidia, Apple, and Microsoft as its three largest holdings. Together, they make up approximately 36% of the fund. Tech accounts for more than 70% of the portfolio, so there's likely to be some volatility given the sector's ups and downs.
However, for long-term growth, this can be precisely the type of investment to hang on to forever. While there may be bumps in the road, investing in a top growth-focused ETF can be an excellent way to generate significant long-term returns, but patience will be necessary.
Vanguard High Dividend Yield ETF
For investors seeking more dividend income than growth, there's the Vanguard High Dividend Yield ETF. As its name suggests, it targets high-yielding stocks in its portfolio. Specifically, however, its focus is on stocks expected to generate above-average yields; the fund isn't solely chasing the highest-yielding stocks, which can sometimes be risky.
There are nearly 600 stocks in this fund, which can seem excessive, but when it comes to dividends, that isn't a bad thing, as it minimizes the risk and exposure to any one stock. It also covers a broad mix of sectors, with tech, industrials, healthcare, financials, and energy stocks each making up more than 10% of the fund. Most of the stocks in the fund account for less than 1% of the portfolio.
The fund is currently yielding 2.2%, which may seem modest, but that's still about twice the rate of the average S&P 500 stock. Rising valuations have brought down yields in recent years. But with an excellent mix of dividend stocks, this can be another top ETF to buy and hold forever.
Vanguard S&P 500 ETF
The ultimate forever ETF might just be the Vanguard S&P 500 ETF, which tracks the entire S&P 500 index. It effectively serves as a gauge of overall market performance. Historically, the S&P 500 has generated average annual gains of about 10%.
While there are fluctuations along the way, for investors who want a great way to track the market without incurring heavy fees, the Vanguard S&P 500 ETF is a solid option, with an expense ratio of just 0.03%, comparable to the other funds on this list.
With this ETF, investors can benefit from the market's long-term growth without having to worry about tracking which are the top stocks to own at any given time; the fund will have that covered as the index rebalances over time. This ETF can appeal to both novice and experienced investors, as it's a great pillar to build any portfolio around.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, Vanguard High Dividend Yield ETF, Vanguard Morningstar Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
3 Vanguard ETFs to Buy and Hold Forever was originally published by The Motley Fool
