These 4 Vanguard ETFs Are All You Need for a Well-Rounded Stock Portfolio
There are many misconceptions about investing, and a common one is that it’s difficult. Are there many moving parts that are confusing, even for those who study this for a living? Absolutely. Does it have to be complicated or require “advanced knowledge”? Not at all.
One way to simplify investing is to use exchange-traded funds (ETFs). Seasoned investors preach the importance of a well-rounded and diversified portfolio, and using ETFs is arguably the easiest way to accomplish this goal. There’s no need to invest in dozens (or hundreds) of individual stocks if you don’t want to do so. A few ETFs can do the trick.
Following are four Vanguard ETFs that can give you a well-rounded portfolio you can lean on for the long haul.
1. Vanguard S&P 500 ETF
If you ask me, no single investment serves as a better one-stop shop than an S&P 500 ETF. The Vanguard S&P 500 ETF (NYSEMKT: VOO) is my largest holding and likely will be for the remainder of my investing journey.
The S&P 500 index tracks 500 of the largest U.S. companies on the market, so investing in this ETF exposes you to some of the world’s most accomplished and promising companies. It contains businesses from all the major sectors, many of which are industry leaders. Here’s how the ETF is broken down by sector (as of Sept. 30):
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Communication services: 8.9%
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Consumer discretionary: 10.1%
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Consumer staples: 5.9%
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Energy: 3.3%
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Financials: 12.9%
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Health care: 11.6%
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Industrials: 8.5%
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Information technology: 31.7%
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Materials: 2.2%
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Other: 0.1%
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Real estate: 2.3%
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Utilities: 2.5%
There’s volatility with any stock or ETF on the market. However, this ETF generally has more long-term stability because it contains all large-cap companies better built to weather whatever storms come their way. Since it was created, it has averaged impressive annual returns.
If you’re looking for a single ETF that can be the bulk of your portfolio, this is it.
2. Vanguard Mid-Cap ETF
The Vanguard Mid-Cap ETF (NYSEMKT: VO) contains just over 310 mid-sized companies. Typically, mid-cap companies have a market capitalization between $2 billion and $10 billion. Because of the size of the companies in this ETF, it can be the sweet spot between stability and growth.
On the one hand, mid-cap companies are small enough to be agile and take on new growth opportunities. On the other hand, companies that managed to hit this market size typically have sustainable business models.
This ETF also contains companies from all major sectors, but it’s more diversified than the S&P 500. The top five represented sectors are industrials (21.1%), consumer discretionary (12.3%), financials (12.6%), technology (13.8%), and healthcare (9.2%).
I would feel comfortable with up to 10% of my stock portfolio being in mid-cap companies.
3. Vanguard Small-Cap ETF
Small-cap stocks are generally those with a market cap between $300 million and $2 billion. The Vanguard Small-Cap ETF (NYSEMKT: VB) contains over 1,300 of these companies, with a median market cap of $7.8 billion. This ETF doesn’t follow the Russell 2000 index like many other small-cap ETFs, but is still broad and diversified.
Small-cap stocks come with more risk than larger companies because they’re generally more volatile and still finding their lane in their respective industries, but they can also have more upside because of their growth potential.
To be clear, not all small-cap companies are young or early-stage companies; many are established businesses operating in niche markets.
Similar to mid-cap stocks, having around 10% of your stock portfolio is a good goal. That’s just enough to benefit from growth without relying too much on it.
4. Vanguard Total International Stock ETF
Part of having a well-rounded portfolio is investing in companies abroad. The Vanguard Total International Stock ETF (NASDAQ: VXUS) is a great way to do this because it contains companies from both developed and emerging markets.
Developed markets have more stable economies, a higher level of infrastructure, and mature financial markets (think the U.S., U.K., Japan, and Australia). Emerging markets have younger economies, increasing industrialization, and developing infrastructure (think: Brazil, China, Mexico, and Thailand).
Investing in companies from both markets is beneficial because they come with different risks and benefits. Developed markets are less risky because they have more economic (and often political) stability. However, they may not have room for rapid growth. Emerging markets carry more risk because of increased volatility and potential political instability, but they offer the possibility of higher growth.
I don’t recommend having a large portion of your portfolio in international stocks (mostly because U.S. companies have historically shown more long-term growth potential), but anything up to 20% of your portfolio is acceptable.
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Stefon Walters has positions in Vanguard Index Funds-Vanguard Mid-Cap ETF, Vanguard Index Funds-Vanguard Small-Cap ETF, Vanguard S&P 500 ETF, and Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Vanguard Index Funds-Vanguard Mid-Cap ETF, Vanguard Index Funds-Vanguard Small-Cap ETF, Vanguard S&P 500 ETF, and Vanguard Total International Stock ETF. The Motley Fool has a disclosure policy.
These 4 Vanguard ETFs Are All You Need for a Well-Rounded Stock Portfolio was originally published by The Motley Fool
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