Picking stocks can be difficult, but investing in index ETFs is a great way to start investing for the long term.
Few actively managed funds can outperform the S&P 500 over the long term, making the S&P 500 ETF an excellent choice.
As growth stocks continue to lead the market higher, the Vanguard Growth ETF is a great ETF to invest in.
10 stocks we like better than the Vanguard S&P 500 ETF ›
December is typically a good month for the stock market, so now is the perfect time to get in on the action. But for investors just starting out, jumping into the market near all-time highs can be nerve-wracking.
These concerns are not entirely unfounded. Picking individual stocks is difficult, and JPMorgan actually found that about 40% of stocks posted negative returns between 1980 and 2020. Meanwhile, only about 13% of actively managed funds managed by professional investors beat their benchmarks S&P 500 Index Index over the past ten years.
That said, these statistics shouldn’t deter you from investing. Instead, they should help guide how you invest. For the average person, the best way to start investing is through exchange-traded funds (ETFs). These ETFs can provide you with a real-time stock portfolio that tracks the performance of a stock market index.
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However, when it comes to truly building wealth over time, investing in one or two index ETFs is only half the battle. Don’t worry, though, the second key to investing isn’t difficult. Instead of just buying an ETF and letting it sit idle, you need to employ what’s called a dollar-cost averaging strategy. This is simply investing the same amount every month over a long period of time, regardless of how the market is doing. This is important because when investors try to time the market, the results are often poor.
It’s not uncommon for markets to hit all-time highs. This happens about 7% of all trading days, so waiting for a pullback could result in missed gains. At the same time, the biggest gains in most markets tend to occur after big pullbacks, so you don’t want to stop investing during a bear market and miss out on the rebound.
Let’s take a look at two excellent Vanguard ETFs you can start buying today and hold for the long term.
If you can’t beat them, join them. As mentioned above, few actively managed funds outperform the S&P 500, so a simple strategy is to only invest in ETFs that mimic its performance. this Vanguard S&P 500 ETF(NYSE: VOO) It’s a solid choice given its low expense ratio (0.03%) and near-perfect correlation.
By investing in this ETF, you’ll instantly gain access to a portfolio of approximately 500 of the largest U.S. companies. The S&P 500 is a market capitalization (market capitalization) weighted index, which means that the larger a company is, the greater its percentage of the index will be, so larger companies, e.g. NVIDIA and applehas a greater impact on its performance than smaller companies.
The ETF has a strong track record, with average annual returns of 14.6% over the past decade through the end of September and 17.6% over the past five years.
Growth stocks have outperformed value stocks for much of the past 20 years, here’s why Vanguard Growth ETF(NYSE: VUG) is another great low-cost (0.04% expense ratio) option. It formally tracks the performance of an index called “The Index” CRSP U.S. Large Cap Growth Stocks Index, basically just the growth side of the S&P 500.
Like the S&P 500, this is a cap-weighted index; however, you will get a more concentrated portfolio. With this ETF, you’ll own 160 stocks in the S&P 500 that are considered growth stocks. As such, the fund is primarily composed of technology stocks (63%) and consumer discretionary stocks (18%).
Overall, the ETF has performed strongly, with average annual returns of 17.4% over the past 10 years and 18.4% over the past five years. If growth and artificial intelligence (AI) stocks continue to lead the market higher over the next decade, this is an excellent ETF to buy and hold for the long term.
Before buying shares of the Vanguard S&P 500 ETF, consider the following factors:
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JPMorgan Chase is an advertising partner of Motley Fool Money. Geoffrey Seiler holds a position in the Vanguard S&P 500 ETF. The Motley Fool holds and recommends Apple, JPMorgan Chase, Nvidia, Vanguard Index Funds-Vanguard Growth ETF and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
Two Top Vanguard ETFs to Buy Now and Hold Forever Originally published by Motley Fool
