Buying individual stocks isn’t the only way to grow your nest egg.
As Warren Buffett has said, it isn’t necessary to do extraordinary things in investing to achieve extraordinary results. While it’s completely possible to produce superior returns with a portfolio of individual stocks, there are effective ways to invest that aren’t quite as hands-on.
In fact, you might be surprised at the wealth-building potential of low-cost index funds, specifically those offered by index fund pioneer Vanguard. Here are three in particular that could be smart additions to your portfolio now.
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3 wealth-building Vanguard ETFs to buy now
To be sure, there are dozens of excellent Vanguard ETFs, but here are three that could be excellent wealth-building additions to your portfolio:
- Vanguard Total Stock Market ETF (VTI 1.10%): Tracks an index designed to reflect the performance of the overall stock market over time. This is the largest Vanguard ETF by assets and has a rock-bottom 0.03% expense ratio. In a nutshell, as the stock market rises over time, this ETF should rise accordingly.
- Vanguard Dividend Appreciation ETF (VIG 0.40%): As many long-term dividend investors know, it isn’t necessarily about what your dividend stocks pay now; it’s about what they’ll pay in the future. The Vanguard Dividend Appreciation ETF focuses on stocks with strong dividend-growth records. It has a 0.05% expense ratio and top investments include Broadcom (AVGO 2.77%) and Microsoft (MSFT 11.88%).
- Vanguard International High Dividend Yield ETF (VYMI +0.19%): International stock exposure can be a smart idea for several reasons, including diversification. Right now, international dividend stocks are trading at a steep discount to their U.S. counterparts, and the Vanguard International High Dividend ETF has a roughly 3% yield at its current price. And just because it’s international doesn’t mean it’s a bunch of stocks you’ve never heard of — top holdings include familiar companies like Nestle (NSRGY +1.93%) and Toyota (TM +2.48%).
What kind of returns should you expect?
To be clear, as with any stock-based investment, returns from these ETFs can vary dramatically from year to year. But over the long term, consider their average annualized returns:
- Vanguard Total Stock Market (since May 2001): 9.21% annualized
- Vanguard Dividend Appreciation (since April 2006): 9.99% annualized
- Vanguard International High Dividend Yield (Since Feb. 2016): 10.61% annualized
Here’s what this means to you. This is an overall average annual return of just under 10%. Although past performance doesn’t guarantee future returns, if you were to invest just $500 per month at this rate of return, you’d have a million-dollar portfolio after 30 years.
Matt Frankel, CFP has positions in Vanguard International High Dividend Yield ETF. The Motley Fool has positions in and recommends Microsoft, Vanguard Dividend Appreciation ETF, and Vanguard Total Stock Market ETF. The Motley Fool recommends Broadcom and Nestlé. The Motley Fool has a disclosure policy.