The 8 best Vanguard ETFs for 2023
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An ETF – or exchange traded fund – is a pool of investments in different companies. ETFs are sliced up and traded on the stock market, just like with regular shares. But instead of with a regular share, investors can get exposure to a variety of companies without worrying about picking the right one.
Vanguard offers ETFs and mutual funds that are popular with investors. In fact, its founder, Jack Bogle, created the first index fund, a security designed to track a specific market benchmark. Now, nearly 50 years later, Vanguard has retained their reputation for consistently matching the overall market.
This article will dive into some of Vanguard’s best ETFs. Together, these ETFs can help investors build a well-diversified portfolio for a passive index investing strategy that captures growth, generates revenue, and mitigates risk.
8 best Vanguard ETFs to build a diversified portfolio
1. Vanguard Total Stock Market ETF (VTI)
- Expense ratio: 0.03%
- 1-year performance: 16.53%
- Performance since inception: 7.78%
- Dividend yield: 1.57%
The Vanguard Total Stock Market ETF tracks the CRSP US Total Market Index. This index is a good representation of the entire stock market as it includes a variety of large-, mid-, and small-cap stocks. With over 4,000 companies in the ETF’s portfolio, it gives investors exposure to the earnings of high-performing companies. Its top holdings include Apple, Microsoft, Amazon, Tesla, and Google’s parent company Alphabet.
VTI is a popular alternative to the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) mutual fund. This mutual fund uses the same index of American companies but requires a $3,000 start-up investment. VTI has no minimum requirement and a low expense ratio which makes it easier for new investors to get started.
2. Vanguard S&P 500 ETF (VOO)
- Expense ratio: 0.03%
- 1-year performance: -0.37%
- Performance since inception: 13.29%
- Dividend yield: 1.58%
The Vanguard S&P 500 ETF (VOO) is a good complement to VTI. VOO tracks the S&P 500 Index. This index includes the top 500 U.S.-based companies on the stock exchange. These are typically high-growth stocks concentrated in the tech sector.
VOO is also a good barometer of the overall health of the economy. It allows investors to capture peaks as the economy grows but also troughs when it contracts. Like VTI, VOO gives investors exposure to many of the same high-performing companies without individually investing in any of them.
Read more: VOO vs. VTI: What's the wiser choice in 2022?
3. Vanguard Growth ETF (VUG)
- Expense ratio: 0.04%
- 1-year performance: -0.63%
- Performance since inception: 10.15%
- Dividend yield: 0.61%
The Vanguard Growth ETF (VUG) is a high-risk, high-reward index fund. It tracks the performance of large growth stocks tracking alongside the CRSP US Large Cap Growth Index. More than 40% of its assets are invested in Apple, Microsoft, Amazon, Tesla, and Alphabet.
Why is this a big deal? Read more about FAANG Stocks.
Compared to Vanguard’s other composite ETFs, VUG has had higher cumulative growth. That being said it also is more volatile. Compared with other ETFs on this list, VUG has seen a higher year-over-year decline and has provided investors with a much lower yield. Additionally, it offers a lower dividend yield than many other ETFs with similar holdings. For more aggressive investors, VUG has the potential to produce a greater return on overall investment albeit with lower passive income generation potential.
4. Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)
- Expense ratio: 0.04%
- 1-year performance: -0.15%
- Performance since inception: 1.45%
- Dividend yield: 5.76%
The Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) is a lesser-known ETF offering a hedge against inflation. The index tracks U.S. Treasury bonds backed by the federal government. Bonds included in the index have a remaining maturity of fewer than five years and are adjusted regularly for inflation.
Depending on an investor’s risk tolerance, VTIP can be a good counterbalance to more high-risk ETFs like VUG. While the overall stock market is down double digits in the last year, VTIP is only down less than three percent. Like regular stock-based ETFs, VTIP has a low expense ratio and pays out quarterly dividends. This makes it a good choice for consistent passive income generation.
5. Vanguard Total Bond Market Index Fund ETF (BND)
- Expense ratio: 0.05%
- 1-year performance: -0.22%
- Performance since inception: 2.92%
- Dividend yield: 2.69%
The Vanguard Total Bond Market Index ETF (BND) is a less aggressive ETF option than VTI or VOO. BND tracks U.S.-government bonds. Bonds tend to carry less risk than stocks because they are backed by full faith and confidence in the government. This ETF can be a useful counterbalance to hedge against volatility in the stock market.
Related: How to invest in bonds: Diversify your portfolio
One of the attractive features of BND is that it has a higher and more frequent dividend payout schedule. Instead of receiving payouts every quarter, BND investors are paid monthly. While the cumulative return on BND is not as high as a stock index like VTI, the opportunity for consistent cash flow is appealing to many investors seeking a passive income stream.
6. Vanguard Real Estate ETF (VNQ)
- Expense ratio: 0.12%
- 1-year performance: -0.071%
- Performance since inception: 7.14%
- Dividend yield: 4.27%
The Vanguard Real Estate ETF (VNQ) is an index of real estate investment trusts (REITs). It tracks the MSCI US Investable Market Real Estate 25/50 Index. VNQ includes a variety of REIT investments ranging from healthcare facilities to commercial ventures.
REITs are a good way for investors to get exposure to real estate without investing in property or becoming a landlord. A REIT ETF diversifies risk across different types of real estate assets as well. While the expense ratio is slightly higher than Vanguard’s other ETFs, the high quarterly dividend yield makes up for it.
7. Vanguard Total International Stock ETF (VXUS)
- Expense ratio: 0.07%
- 1-year performance: -0.24%
- Performance since inception: 3.62%
- Dividend yield: 2.99%
The Vanguard Total International Stock ETF (VXUS) is similar to VTI except it tracks international companies, not just U.S.-based ones. VXUS tracks the FTSE Global All Cap ex US Index which gives investors exposure to companies in emerging markets.
Some of the top holdings in VXUS include Taiwan Semiconductor Manufacturing, Nestle, and Tencent Holdings Ltd., the gigantic multimedia conglomerate based in China. International investments help investors diversify risk away from being concentrated exclusively in U.S. markets.
8. Vanguard ESG U.S. Stock ETF (ESGV)
- Expense ratio: 0.09%
- 1-year performance: -0.44%
- Performance since inception: 9.91%
- Dividend yield: 1.29%
The Vanguard ESG U.S. Stock ETF (ESGV) is a newer ETF founded in 2018. It tracks the FTSE US All Cap Choice Index. This fund screens companies for specific environmental, social, and governance criteria. The goal is to avoid investments in companies that violate human rights, do not adhere to certain environmental benchmarks, or are companies that contribute to things like the proliferation of weapons or fossil fuels.
ESG funds are becoming increasingly popular, especially with younger investors. But one thing to take into consideration when considering investing in an ESG-screened fund is that many are biased towards environmental efforts and sustainability rather than social issues, like human rights. Investors looking for a well-rounded ESG-focused ETF will want to do their own due diligence and check under the hood to make sure these funds align with their values before investing.
Read more: How to know if a company or fund is really ESG
The takeaway: should you invest in Vanguard ETFs?
Cumulatively, all Vanguard ETFs have posted positive returns since their inception with varying degrees of success depending on the risk tolerance of each ETF. And Vanguard is renowned for its industry-leading low fees.
ETFs are a great way to benefit from growth in the economy without trying to bet on a handful of companies to outperform the market. And, remember, Vanguard’s ETFs (or any ETFs for that matter) can be combined to increase diversification by giving investors exposure to different types of companies, asset classes, and markets.