Investing in exchange-traded funds can be a relatively effortless way to generate wealth. ETFs are low-cost and low-maintenance investments that also provide the benefit of immediate diversification, because each fund may contain hundreds or thousands of stocks.
Not all ETFs are created equal, though, and some are better investments than others. While the funds you choose will depend on your preferences and investing style, there are two Vanguard ETFs I plan to keep in my portfolio forever.
1. Vanguard S&P 500 ETF (VOO)
The Vanguard S&P 500 ETF (NYSEMKT: VOO) includes 507 stocks from 500 of the largest U.S.-based corporations. The largest holdings in the fund are primarily tech stocks — including Apple, Microsoft, and Amazon — but it also includes companies from a wide variety of industries.
I chose this fund because it’s a relatively safe investment and likely to earn consistent growth over time, regardless of what the market does.
The S&P 500 index itself has experienced countless downturns, corrections, and crashes since its inception in 1959. However, it’s still managed to earn an average rate of return of around 10% per year over time. In other words, while the market has had its good years and bad years, those highs and lows have historically averaged out to around 10% per year.
Because this ETF tracks the S&P 500, there’s a very good chance it will also earn positive returns, on average, over the long run — even if the market experiences several crashes in that time.
Those 10% average returns can add up substantially over time, too. If, for example, I invest $400 per month in this ETF while earning a 10% average annual return, I’d have around $790,000 accumulated after 30 years.
2. Vanguard Growth ETF (VUG)
The Vanguard Growth ETF (NYSEMKT: VUG) includes 288 stocks from companies that have the potential to experience faster-than-average growth. This ETF is heavy on the tech sector, with technology companies making up around half of the fund. It includes stocks from multiple other industries, however.
This ETF is slightly higher risk than the S&P 500 ETF for a couple of reasons. For one, it includes around half the number of stocks, which provides less diversification. Also, growth stocks can be riskier than stocks from more established companies because they tend to be more volatile.
That said, the largest holdings in this fund are major tech companies like Amazon, Apple, Microsoft, and Alphabet — companies that experience rapid growth but are also enormous and relatively stable corporations.
The advantage of investing in a growth ETF is that you’re likely to see higher-than-average returns. In fact, since this fund’s inception in 2004, it has earned an average rate of return of close to 12% per year. If I were to invest $400 per month in this ETF while earning a 12% average annual return, I’d have around $1.158 million after 30 years.
Making the most of your investments
Regardless of where you choose to invest, you can maximize your earnings by investing consistently for as long as possible. Both of these ETFs make fantastic long-term investments. By investing now and holding them for decades, you could earn more than you may think.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Katie Brockman owns shares of Vanguard Growth ETF and Vanguard S&P 500 ETF. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, Vanguard Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.