5 Best Vanguard ETFs to Buy and Hold Forever

Hey, friends, in this post, I’ll go through the five best Vanguard ETFs to buy and hold forever, that can easily turn you into a multimillionaire and get you that much closer to financial independence.

And to top it off, I’ll also mention one specific Vanguard ETF that I wouldn’t suggest you touch with a 10-foot pole because it’s that bad.

I always recommend buying and holding these things for as long as possible because the stock market likes to act like a little five-year-old. That constantly has temper tantrums in the short-term.

But over a long period of time, the odds of you doubling, tripling, or even quadrupling your money greatly increases.

1. Vanguard Total Stock Market ETF (VTI)

Vanguard Total Stock Market ETF (VTI)-Best Vanguard ETFs to Buy and Hold Forever

Now, if there was one on this list that I think everyone should be holding, it’s this one. VTI seeks to track their performance of the US stock market as a whole.

Now, because of that, it basically holds a little bit of all of the 4,100 stocks traded on the stock market.

Since the Total Stock Market ETF holds that many stocks, it’s diversified among large, mid, and small-cap companies, based on their market cap.

Total Stock Market ETFVTI
Large (>12.9B)87.12%
Mid (>2.7B)9.87%
Small (>600M)2.48%

This is a passive Index Fund ETF, so there’s very little manager risk involved with the types of stocks that
are actually bought and sold, which is a really good thing.

When you invest in the Vanguard Total Stock Market ETF, you’re essentially placing your bet that US stocks will continue to dominate the world. Over the past 50 years, the total market has only
seen about 10 of them that have ended with a loss.

So, 80% of the time, someone investing in this type of ETF ended up with more money.

It’s like going to a casino, AKA the stock market, and every time you spin that roulette wheel, AKA buy stocks there’s an 80% chance that you’ll end up making money in any given year.

A $10,000 investment into this fund 10 years ago would have turned into over $63,000.

That’s because it has a

  • one-year return of 32%,
  • three-year return of 15%,
  • five-year return of 16.8%,
  • ten-year return of 16.6%.

Now, while it’s always fun to talk about how much the Vanguard Total Stock Market ETF has made over the past 10 years.

It’s always good to understand how bad things can get when the market has a downturn. You won’t hear many people mentioning this, but all good investors understand the upside potential. As much as they understand the downside potential as well.

In 2007, VTI saw its largest drop due to the financial crisis. It had a maximum drawdown at that time of 50%, and it took three years and one month to recover.

Since this fund is passively managed, there is very little stock picking going on.

The fund manager and their team are handling more of the high-level decisions, to help keep everything running properly.

Because of that, the yearly cost to own VTI is a very low .03% or 30 cents for every $1,000 you have invested. Because the Vanguard Total Stock Market ETF holds 100% stocks, Vanguard has this one rated at a four on the risk potential scale.

Since VTI tracks the total stock market, the sector breakdown is going to be based on the size of the company. Because the largest companies are tech-related,

We can see the 25% of the fund is in that sector, followed by financial services at 13%, healthcare at 13%, consumer cyclical at 12%, and communication services at 10%.

If things change over time to where we’ll say tech companies become a smaller share of the stock market or financial services become a larger share of the market, then the fund will automatically adjust for that.

So, you don’t really have to do anything. The top 10 holdings are going to be a ton of companies that you most likely recognize like

  • Microsoft,
  • Apple,
  • Google,
  • Amazon, and
  • Tesla.

In total, they make up about 25% of the total net assets. The Vanguard Total Stock Market ETF is for any investor who wants to match the returns. Since it’s weighted by market cap and the top 10 make up
a huge part of this, the majority of the returns are going to come from those top 10 stocks.

The good news is that they’re all pretty solid companies that have a good hold on the industries that they dominate. So, it’s very unlikely that they’re going to go away anytime soon.

While some people might be concerned that VTI is extremely concentrated in tech, it’s only that way because that’s what the market has decided it should be.

I think we can all agree that technology has been a big part of the world’s growth up until now and I would expect it to continue that way in the future.

2. Vanguard Real Estate ETF (VNQ)

Vanguard Real Estate ETF (VNQ)-Best Vanguard ETFs to Buy and Hold Forever

If you’re someone who currently holds VTI and wants to diversify your portfolio a little more, so it’s not extremely concentrated in tech companies, then another ETF to consider is the Vanguard Real Estate ETF, VNQ.

This ETF is set up to track the broad US real estate market and is made up of 171 different stocks.

Just like the Vanguard Total Stock Market ETF, VNQ is a cap-weighted fund. So the larger companies will make up a larger portion of this one. Think of the Vanguard Real Estate ETF as a fund of funds.

That’s because it holds stocks that are basically REITs. These REITs manage and develop basically every type of real estate that you can think of: construction, development, specialized, commercial, and residential real estate.

A $10,000 investment into VNQ 10 years ago would have turned into a little over $29,000.

When you think about real estate, there’s going to be two main ways that you make money: monthly cashflow and property appreciation.

Now, because of that, this ETF is going to give you a little bit of income through dividends of 2.5% along with stock price appreciation. So far, it has a

  • One-year return of 31.6%,
  • Three-year return of 13%,
  • Five-year return of 10%, and
  • Ten-year return of 11%.

Because the Vanguard Real Estate ETF has only been around since 2004, I went ahead and pulled
the mutual fund diversion to get a larger sample size, to determine how many down
years it’s had since inception.

This mutual fund holds the exact same stocks as VNQ. The only difference is that it’s existed for a longer period of time. Over the past 26 years, we’ve only had six of them that ended in a negative, which is the kind of thing that you wanna see from any sort of ETF that you might be investing in.

But we need to cover the downsides to give you an idea of how things played out during the bad times because all asset classes will react differently.

The largest drawdown came in 2007 where VNQ saw a max drawdown of 68% and it took three years and four months to recover.

Keep in mind that this downturn in the market was extra hard on any type of real estate because the crash was caused by that specific sector.

VNQ is very inexpensive, coming in at a yearly cost of .12% or $1.20 for every $1,000 invested.

Vanguard lists this ETF at a four on the risk level scale because it is 100% stocks.

The sector breakdown for VNQ is, of course, you guessed it because you’re super smart, 100% real estate. But the sector breakdown within real estate looks like this. 38% in specialized, 38% in commercial, and almost 14% in residential real estate.

The rest are spread among the four smaller sectors. The top 10 holdings make up about 44% of the overall portfolio. Now, this might sound like a lot because it technically is, but this is usually the case with sector-specific ETFs that are based on market cap.

Which type of Investor might Invest in VNQ?

VNQ is for the investor who wants to get some exposure to the real estate market in a very cost-effective way without actually owning and managing physical properties on your own.

If you are someone who has a few rental properties, then you might already have enough exposure in that asset class, so it probably wouldn’t make sense to add this ETF to your portfolio.

Overexposure in one asset class or specific stock is something that you wanna double-check before adding any ETF to your portfolio. If you hold something like an S&P 500 ETF or the Vanguard Total Stock Market ETF and are concerned that too much of your money is concentrated into large-cap stocks, then you might wanna consider adding a small-cap fund,

3. Vanguard Small-Cap ETF (VB)

Vanguard Small-Cap ETF (VB)-Best Vanguard ETFs to Buy and Hold Forever

This ETF seeks to track the US small-cap index and is made up of over 1,500 stocks.

Now, small-cap stocks are generally considered to be companies with a market cap size of anywhere between 300 million and $2 billion.

I know, $2 billion sounds like a lot and it kind of is, but when you compare it to a large-cap stock like Apple that has a $2.8 trillion market cap, $2 billion sounds like peanuts. A smaller cap ETF is inherently more volatile in the short-term compared to an S&P 500 ETF.

But actually, historically, small-cap companies have outperformed large-cap companies. $10,000 invested into the Vanguard Small-Cap ETF would have turned into a little bit over $45,000 today.

VB has had a

  • One-year return of 22.5%,
  • Three-year return of 15.3%,
  • Five-year return of 13.1%, and
  • Ten-year return of 13.8%.

Even though historically, small-caps have dominated large-caps, I’ll have to admit that over the past 10 years, large-cap companies have absolutely dominated small-cap companies.

Here’s a side-by-side just to give you an idea of how different the returns have been. This is because large-cap stocks like Apple, Google, and Amazon have grown at rates never seen before within the past few years.

These already large companies are always expected to grow, of course. But holy smokes, not in the way that
Apple has been recently. They’ve grown by almost five times within the past five years, going from a market cap of $608 billion in 2016 to a $2.9 trillion market cap in 2021.

The question is, how much longer will that growth actually continue?

Now, if you think it has to slow down soon, then we might start seeing Small-Cap ETFs start to outperform.

As always, the draw-downs will happen when you own any type of ETF. For the Vanguard Small-Cap ETF, we saw its biggest drawdown of 53% in 2007 where a took one year
and 10 months to recover.

Vanguard Small-Cap ETF is also inexpensive, coming in at a yearly cost of .05% or 50 cents for every $1,000 invested. The risk level for this ETF is on the high-end at five because small-cap stocks are naturally more risky due to their size and short-term volatility.

The sector breakdown is spread pretty well for the top six sectors ranging from 9% to 16%. From a sector diversification perspective, this is pretty good.

The top 10 holdings is an interesting one compared to the ETFs that we’ve already covered because they only make up 3.3% of the total net assets.

If you remember, the Total Stock Market ETF was something like 24% and the Real Estate ETF was something like 44% in the top 10. 3.3% is probably what you wanna see in a Small-Cap ETF anyways, to help spread your risk out just a little bit more.

This Small-Cap ETF is for the investor who is looking for more exposure to small-cap companies to help balance out a portfolio that might be large-cap heavy. If you hold something like a Total Market Index or S&P 500 index as a large portion of your portfolio, then this might be a good one to add to gain some more exposure to some of those smaller up-and-coming stocks.

Don’t invest in this Small-Cap ETF if you were someone who freaks out every time that you look at your portfolio and see that it’s down. It is very common for something like a Small-Cap ETF to be down a couple percentage points within a one-day period.

4. Vanguard Growth ETF (VUG)

Vanguard Growth ETF (VUG)-Best Vanguard ETFs to Buy and Hold Forever
Vanguard Growth ETF (VUG)-Best Vanguard ETFs to Buy and Hold Forever

Growth stocks have been ruling the world over the past few years. So, we had to add the
Vanguard Growth ETF, VUG. VUG tracks the large-cap growth index.

This is going to be made up of large US companies whose stocks are on the rise. Most of these stocks are going to be above average when it comes to a sound balance sheet, so the companies are pretty solid place

In total, there are currently 278 stocks that make up this ETF. To keep things in check a little bit, the fund has kept the amount that it can hold within one individual stock at 10%.

So, even if one of the companies that it holds continues to grow at insane rates, it won’t be allowed to basically take over a huge portion of the Vanguard Growth ETF.

$10,000 invested into the Vanguard Growth ETF since inception would have turned into over $74,000.

With interest rates being so low for so long, it’s really benefited growth stocks the most. VUG has had a

  • One-year return of 30.5%,
  • Three-year return of 30.1%,
  • Five-year return of 24.6%,and
  • Ten-year return of 19%.

When we’re thinking about the largest drawdowns for this ETF, the largest one came in 2007, where it dropped 47% and took two years to recover.

The third largest was in 2018 when the Federal Reserve increased interest rates for just a short period of time, which, of course, scared the crap out of the stock market.

So, they turned around and lowered them back down again. Keep this in mind for when the Federal Reserve decides to increase rates again because when they do, this ETF might suffer a little bit for who knows how long.

VUG is extremely inexpensive at a yearly cost of .04% or 40 cents for every $1,000 invested. The risk level is at a four, which is to be expected. Since it only holds a basket of stocks, but not a five because all of these companies are pretty large with healthy balance sheets.

The sector breakdown is tech. It does make up 40% of this ETF, which basically means that when tech is down, VUG will be down as well. The Vanguard Growth ETF is made up of companies we’re all very familiar with: Apple, Microsoft, Google, Amazon, Home Depot, and Visa.

Because these companies are massive and they’re each capped at 10% holdings, the top 10 makes up 50%of the fund’s holdings, which is pretty high.

These companies are going to be what really moves this ETF up or down. An ETF like VUG is going to be for anyone looking to add some of the largest growth-related stocks to your portfolio.

Because 40% of the fund is made up of tech companies, it’s not well-diversified in other areas, which is perfectly fine if you’re not worried about that.

If you currently hold something like the Vanguard Total Stock Market ETF or an S&P 500 ETF, then you technically already have a lot of exposure to the top 10 in this ETF.

Because of that, if you’re dead set on adding this one to your portfolio, then it might not make sense to make VUG a large portion of your overall holdings.

5. Vanguard Total International Stock ETF (VXUS)

So far, we’ve covered all US-based ETFs. It’s time to give some love to the international money-making stocks out there. To cover that area of the market, we have to talk about the Vanguard Total International Stock ETF, VXUS.

This ETF seeks to track their performance of the Global All Cap ex US Index, which measures the investment
return of stocks issued by companies located outside of the United States.

In total, there are 7,800 different international stocks held within this ETF. $10,000 invested into the Vanguard Total International Stock ETF since inception would have turned into a little over $20,000.

VXUS has had a

  • One-year return of 11.4%,
  • Three-year return of 10.5%,
  • Five-year return of 9.5%, and
  • Ten-year return of 7.3%.

The largest drawdown for this ETF came in 2018 when it dropped by 25% and took eight months to recover. The second largest came in 2014. It lost 20% and took a little over a year to recover.

Just like the rest of the ETFs on this list, VXUS is very inexpensive at a yearly cost of .08% or 80 cents for every $1,000 invested. Since this ETF only holds stocks outside of the US, there’s inherent risk associated with that type of investment.

Because of that, Vanguard rates the risk potential at a five. When it comes to the sectors that make up this ETF, it’s not overly exposed to one particular area.

The largest part of it is financial services at 18%, followed by tech and industrials both at 13%.

When we look at the top 10 holdings, you’ll probably recognize most of them. They all rely heavily on the US market, which is a big reason they all look so familiar.

One thing to note is that these top 10 only make up a little less than 10% of the overall holdings within this ETF, which isn’t a lot.

The region allocation for the Vanguard Total International ETF are mainly in Europe at 40% followed by Emerging Markets and Pacific at 26 and 25%.

The Vanguard Total International Stock ETF is for the investor who wants to diversify somewhere other than US stocks. While US businesses are the most dominant in the world, that could change at some point in the future.

Now, I personally don’t think that it’s going to happen anytime soon, but let’s be honest, crazier things could happen. If you’re like me and still a little skeptical about putting money into an international ETF, then just make it a small holding within your overall portfolio at, I don’t know, five or 10%.

Investing in an international ETF can help diversify your overall portfolio. But I personally wouldn’t touch the Vanguard Total World ETF with a 10-foot pole.

This ETF holds 63% in US stocks and 37% in international stocks, which, in my opinion, is absolutely insane. 37% in international is what my grandpa would call, “Too much meat for the sandwich.”

The potential for international to underperform US going forward isn’t a reason to completely avoid it, but I wouldn’t believe in it enough to bet 37% of my portfolio on that outcome.

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