3 Unstoppable Vanguard ETFs to Buy With $5,000 and Hold Forever

Picking individual stocks can be difficult. In fact, a J.P. Morgan study found that between 1980 and 2020, 40% of stocks in the Russell 3000 Index had negative returns and that two-thirds of stocks underperformed the overall market.

That said, investing itself doesn’t have to be that difficult. Picking some high-quality index exchange-traded funds (ETFs) from low-cost fund leader Vanguard and dollar-cost averaging into them over time can be a great way to build real wealth.

If you can start with $5,000 and invest an additional $1,000 a month over the next 30 years, your portfolio would balloon to $3.2 million by the end of this period with a 12% average return. Best of all, nearly 90% of this would have come from market gains. Also, note that you can start with less than $5,000 and still get some robust gains. In fact, if you only start with $1,000, your ending balance would be close to $3.1 million. The key is investing consistently through both good and bad markets.

Let’s look at three great Vanguard ETFs to start investing in today.

1. Vanguard S&P 500 ETF

Quite simply, the Vanguard 500 ETF (VOO +1.49%) should be a core holding for most individual investors. The ETF tracks the performance of the S&P 500, which is the benchmark index for the U.S. stock market.

The S&P 500 is made up of 500 large U.S. stocks chosen based on specific criteria. It’s a market capitalization (market cap) weighted index, meaning that the larger a company is (share price multiplied by shares outstanding), the greater its weighting within the index. This dynamic is why the index has performed so well historically, while many individual stocks have struggled. Basically, its secret sauce is just letting its winners keep winning.

The fund has been a strong performer over the years. It has an average annual return of 14.6% over the past 10 years as of the end of September, and 17.6% over the past five years.

2. Vanguard Mega Cap Growth ETF

Large-cap growth stocks have been leading the market higher for a long time, and no Vanguard ETF captures this trend more than the Vanguard Mega Cap Growth ETF (MGK +2.57%). The ETF consists of just 66 stocks, and you’re getting a concentrated portfolio of some of the biggest and best growth stocks around.

The ETF is dominated by the tech sector, which makes up nearly 70% of its portfolio, and this doesn’t even include top-10 positions Amazon (4.3% position) and Tesla (4.2% position), which it categorizes as consumer discretionary stocks. The so-called “Magnificent Seven” stocks, meanwhile, account for nearly 60% of its portfolio.

The ETF has been a great long-term performer. It’s up an average of 18.3% per year over the last 10 years and 19.3% the past five years.

3. Vanguard Dividend Appreciation ETF

Today, most portfolios are heavily weighted toward growth stocks, which have nicely outperformed over the years. However, the Vanguard Dividend Appreciation ETF (VIG +0.79%) has an interesting twist to help give your portfolio a little more balance.

The ETF mirrors the S&P U.S. Dividend Growers Index, but this is not your typical high-yield ETF investment. In fact, the index excludes the top 25% highest-yielding stocks (top 15% for existing stocks currently in the index) that would qualify. This helps investors avoid value traps, where a high yield may be a signal of distress. Instead of focusing on yield, it emphasizes dividend growth and only includes companies that have steadily raised their distributions for at least 10 straight years.

Its portfolio is a nice balance of sectors, with technology and financials being its two largest. It also doesn’t shy away from growth stocks, with Broadcom and Microsoft being its two largest holdings.

The ETF has performed well over the years, with an average annual return of 12.8% over the past 10 years and 13.6% over the last five.