My Five Favorite Vanguard ETFs to Put in Your Portfolio!
In this video, I’ll show you five of the best exchange traded funds for a complete portfolio that covers stocks, bonds and real estate, that provides a high dividend yield and takes the stress out of investing!
Nation, all you Bow-Tie citizens out there know how much I LOVE the core-satellite strategy of investing. That strategy of putting half or more of your money in a group of exchange traded funds that are going to give you diversified exposure to a few themes and asset classes, then using the rest of your money to find those runaway stocks! It not only takes the stress out of investing but makes it so much easier as well!
But then the question becomes, which are the best ETFs to buy for my portfolio?
So to answer that question, I’m teaming up with Griffin Milks to create a list of ETFs perfect for your portfolio! In his video, Griffin highlighted his top five ETFs for 2021, and I love the list because he’s got a mix of those core index ETFs, the funds covering a broad section of the market, but he also includes some specialty ETFs in clean energy, medical devices and even sports betting.
Why You Should Go for Vanguard ETFs
In this video, I’m going to add five of my favorite Vanguard ETFs to the mix to give you that base of picks. I’ll show you why I picked the Vanguard exchange traded funds, why I like each and why it should be a part of your portfolio.
These five are going to be a great fit for Griffin’s ETF picks so make sure you look for the link to his video and check that out.
I’m highlighting Vanguard funds because it’s really a one-stop for ETFs with 75 funds in all the core themes and assets. You can find funds for bonds, both government and corporates, stocks and different segments. For example by different company sizes and international stocks. You can get emerging market ETFs as well as those covering the sectors and specialty funds.
Vanguard funds are commission-free on most platforms and there’s no initial minimum or account balance if you invest directly through Vanguard.
What really attracted me to Vanguard though was the rock-bottom expense ratio on their funds. Vanguard funds charge an average 0.06% annual expense ratio, that’s just $0.60 for every thousand invested, compared to the industry average of 0.25% expense ratio on other ETFs. And it might not seem like much of a difference but you see how it adds up with Vanguard expenses here in red versus the average ETF fee, potentially saving you over thirty-grand in three decades of investing!
Now before we get to that list of the five best Vanguard ETFs to buy, I want to talk about exchange traded funds versus mutual funds because I still see a lot of investors out there in those older investments.
What You Need to Know About ETFs and Mutual Funds
ETFs and mutual funds are the exact same concept, a group of stocks or other assets you can buy with just one fund…the difference is in how these are managed and the fees you’re going to pay.
Mutual funds are usually sold through an advisor because they get kickbacks for selling them, called load fees. You could pay upwards of 5% whenever you buy or sell a mutual fund, money that goes straight to the salesperson.
Mutual funds are also as much as four-times more expensive to hold versus ETFs. The average annual expense ratio on mutuals is 1%…and we saw what kind of a difference paying 0.06% rather than the 0.25% average ETF fee…can you imagine how much money you’ll lose paying four-times that amount to invest in mutual funds!
So unless you’re investing through a 401K at work where your only choice is mutual funds…go with these five Vanguard ETFs!
My 5 Favorite Vanguard ETFs
Our first fund, the Vanguard Dividend Appreciation ETF, ticker VIG, holds shares of over 200 U.S. stocks, all within the Dividend Achievers group, companies growing their dividends for at least ten consecutive years.
Looking at Griffin’s portfolio, there’s a lot of growth with the small cap ETF and that sports betting play but I wanted to add some income because…who doesn’t like getting paid while they invest!
The dividend appreciation fund pays just under a 2% dividend yield and has produced a 12.7% annual return over the last decade! That’s enough to more than triple your investment in ten years.
More than just the returns though, the fund is diversified across sectors of the economy and holds a lot in those safer areas like consumer staples, telecom and utilities. That means it’s going to do well whether the economy is booming or not and really smooth out your returns.
The expense ratio for this one is that low 0.06% we’ll see in most of these funds, so basically nothing to get a broad fund of dividend payers and not have to worry about buying or selling your own stocks.
Next here, I’m adding the Vanguard Long-Term Corporate Bond ETF, ticker VCLT, for that element of safety and cash flow in case the stock market falls apart.
Now bonds are a tough asset class right now because interest rates are creeping higher which means bond returns are pretty much flat. But double-digit returns aren’t the reason you buy bonds. You buy bonds for that what-if scenario…what if the stock market crashes, what if interest rates do drop. When stocks fell 35% in March of last year, the bond ETF was down 25% at one point but rebounded a lot more quickly and was even by July. It took stocks another three months to reach their prior levels.
So bonds are not only going to give you a consistent payout, this fund pays a 3.2% dividend yield, but if the market does crash again, you can shift some of that investment in bonds to take advantage of cheaper stock prices.
The Vanguard bond fund is invested exclusively in investment-grade companies, those with the very best credit ratings and financials, and holds over 2,400 separate bonds.
And even though that safety and stability is what we’re focused on here, the returns haven’t been bad either. The long-term bond fund has produced an 8.25% annual return over the last ten years and charges an even lower 0.05% expense ratio.
We’ve still got three more Vanguard funds to highlight and stick around because the last two are in my favorite sectors for this year, two groups of stocks that pay higher dividends and are primed for growth.
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Rounding out the three major asset classes, I want to add the Vanguard Real Estate Index, ticker VNQ, for that property exposure to the list.
The fund invests in 180 real estate companies with a good diversification across property types and some of my favorite REITs like American Tower, Prologis and Digital Realty.
Those of you in the Nation know I’m a big believer in real estate. It’s where I got my professional start as a commercial property analyst and I love the cash flow from rentals. And while it hasn’t been the best sector over the last year, the fund has still produced a solid 8.6% annual return over the last decade and pays a 4% dividend yield…the highest in our list of Vanguard funds.
So real estate is a little like bonds in the idea that you need that diversification outside of stocks just in case the market dumps. You’ll collect that higher dividend yield and smooth out your returns over time. Along with the fund here, I’d consider adding a few individual real estate investment trusts, those REIT companies, to the portfolio for extra growth.
These last two funds are in my favorite stock sectors right now, first here, the Vanguard Financials ETF, ticker VFH, and its 2.2% dividend yield.
Stocks in the financials sector are booming and the fund is already up 23% in the last three months. As rates increase, the banks and insurance companies will make more money on rate spreads and investing excess cash. And besides the return, it’s a great way to hedge market risk because rising rates are what’s hitting the market lately…so with this fund, you can actually benefit from one of the market’s major weak points.
The ETF holds shares of over 400 companies across the sector including banks, asset managers and insurance with some of the best names like JP Morgan, Warren Buffett’s Berkshire Hathaway and Bank of America.
Vanguard’s sector ETFs charge a little higher expense ratios at 0.10% but that’s still less than half the average fee on exchange traded funds and this one has produced a 10.5% annual return over the last decade!
I also want to add the Vanguard Health Care ETF, ticker VHT, for its 1.2% dividend and what could be the best return of all five funds.
Healthcare is my other favorite sector for the year and the fund is already up 16% in the last three months to beat the market. And while Griffin did include a medical devices ETF in his list, I also want exposure to the hospital services, biotech and pharma side of the sector. The Vanguard fund gives me all that with 20% in biotech, 5% in services and 25% in pharmaceuticals across over 450 companies in the healthcare space.
The fund has produced an eye-popping 16.4% annual yield for more than a decade, enough for a five-fold return on your investment over that period. And healthcare could be a standout sector this year and next. Besides one of the cheapest among the 11 stock sectors, all those services and elective procedures that were postponed during the pandemic are going to be coming back and could mean double-digit sales growth for these companies.
Once again, Vanguard ETFs are easy to buy and charge some of the lowest expense ratios in the industry. Additionally, there are no fees required to invest in it. So with that much valuable knowledge, why not give it a try?
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.