Even though the market has been running strong over the past few years, that doesn’t mean you should wait for a pullback before investing. This is probably one of the biggest mistakes investors can make because when investors try to time the market, they tend to wait while the market continues to climb.
Instead, the best strategy is to pursue dollar-cost averaging, which involves investing a certain amount, say $1,000, every month regardless of how the market performs. This helps eliminate the worry of investing at the wrong time and straightens out your cost base.
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One of the best ways to employ this strategy is with exchange-traded funds (ETFs), which provide you with an instant portfolio of stocks. Let’s look at two Vanguard ETFs that I started cost averaging today at $1,000 and held for the long term.
If I could only choose one ETF to invest in, Vanguard S&P 500 ETF (NYSEMKT:VOO) would be my top pick. The ETF tracks the S&P 500 Index, a market capitalization-weighted index of approximately 500 of the largest U.S. stocks
Since the S&P 500 is market cap-weighted, this means the larger the company’s market cap (share price times shares outstanding), the larger the shares in the ETF. That keeps fund winners running, which is a big reason why most actively managed funds fail to keep pace with the indexes. In fact, only about 14% of actively managed large-cap funds have outperformed the index over the past decade.
Over the past 10 years, the ETF has averaged annual returns of more than 15.5%, and its performance over the past three years has been even better, with an average annual return of 21.1%. These are some nice gains that accrue over time.
Another Vanguard ETF I really like is Vanguard Growth ETF (NYSE: VUG). Growth stocks have outperformed the market for much of the past decade, causing the Vanguard Growth ETF to outperform its more well-known ETF peers during that period. During this period, the fund returned 18% annually, compared with an average return of 27.7% over the past three years.
The fund invests primarily in top artificial intelligence (AI) and other technology stocks, with about two-thirds of its portfolio in the technology sector. Since artificial intelligence is still in its early stages of development and tech stock valuations overall look quite reasonable, this is an excellent ETF to invest in for the long term.
Should you buy Vanguard S&P 500 ETF shares now?
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Jeffrey Thaler Take a position in the Vanguard S&P 500 ETF. The Motley Fool owns and recommends the Vanguard Growth ETF and the Vanguard S&P 500 ETF. Motley fool has a Disclosure policy.
2 Vanguard ETFs to Buy with $1,000 and Hold Forever originally posted by Motley Fool