The Vanguard ETFs are considered among the cheapest exchange-traded funds in the market. With a wide range of funds to choose from, investors can build a complete investment portfolio exclusively from Vanguard’s selection of exchange-traded funds. In this article, we will show you how to piece together the best collection of funds to stay diversified.
How to Build a Portfolio of ETFs
When building an investment portfolio, the general strategy that suits most investors is to buy multiple investments from different asset classes and categories. For example, an investor might want to include a mix of asset types such as stocks and bonds in the portfolio. Within each asset class, there are different categories such as large-cap and small-cap stocks or long-term and short-term bonds. This is the foundation of diversification.
The best portfolio for each investor will vary based on their risk tolerance and time horizons. For example, higher-risk tolerance investors may allocate a larger percentage of their portfolio to stocks, while lower-risk tolerance investors may choose to allocate a higher percentage to bonds. In either case, long-term investors, especially those with horizons of more than 10 years, generally can allocate a higher percentage to stocks than to bonds.
When building a portfolio of ETFs, an investor can easily allocate investment assets across a wide range of investment categories. Most investors can build a diversified portfolio with two or three ETFs, but it may be appropriate for some investors to allocate a mix ranging from five to ten ETFs.
The Top Seven Vanguard ETFs to Build Your Portfolio
There is a good portfolio structure called the “core and satellites,” which means you will allocate the largest portion of your portfolio to one or two core funds, such as an S&P 500 index fund or a total bond market fund, and smaller percentages to satellite investments, such as international equity funds and sector funds.
Here are seven Vanguard ETFs to build a complete portfolio:
Vanguard S&P 500 ETF (VOO):
To lay the foundation for your Vanguard ETF portfolio, an ETF like VOO that tracks the S&P 500 is a smart choice. When owning a fund like VOO, you gain exposure to about 500 stocks from the largest American companies like Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT). The expense ratio for VOO is 0.03%.
Vanguard Extended Market ETF (VXF):
To complete your exposure to the U.S. stock market, the VXF fund includes all U.S. stocks that are not in the S&P 500 index. Instead of purchasing both VOO and VXF, some investors prefer to buy a total stock market fund. However, the combination of VOO and VXF can provide more exposure to mid-cap and small-cap stocks than a total stock market index fund. This allows for greater diversification and more control over allocation for the investor. The expense ratio for VXF is 0.06%.
Vanguard Total International Stock ETF (VXUS):
To broaden your exposure to stocks outside of the United States, the VXUS fund tracks an index that contains over 6,000 foreign stocks, mostly from large-cap companies in Europe. Shareholders also get exposure to emerging markets. The expense ratio for VXUS is 0.08%.
Vanguard Total Bond ETF (BND):
For broad exposure to the U.S. bond market, BND is sufficient. By tracking the Bloomberg US Aggregate Bond Index, BND provides exposure to over 9,000 bonds with varying maturities. You will also receive various types of bonds, including corporate, municipal, and U.S. Treasury bonds. The expense ratio for BND is 0.035%.
Vanguard…
Vanguard Health Care ETF (VHT):
As part of your sector exposure, VHT is an excellent way to gain low-cost exposure to the healthcare sector. When investing in sectors, long-term investors should look for those with long-term growth potential. It can be argued that health stocks could be market leaders for decades to come, considering advancements in medicine and the aging American population. VHT’s expenses are 0.10%.
Vanguard Information Technology ETF (VGT):
Another sector likely to lead capital in the coming decades is technology. To capitalize on historical trends and future growth potential, VGT tracks a basket of over 300 technology stocks. Its expenses are 0.10%.
Vanguard Energy ETF (VDE):
The energy sector can be a leading sector in the long run, especially if the world continues to rely on oil and fossil fuels. The largest companies held by VDE include major oil companies like Exxon Mobil (XOM). Even if energy isn’t the best performer, the sector can add diversity to the portfolio. VDE’s expenses are 0.10%.
Frequently Asked Questions (FAQs)
What is the difference between VOO and VFIAX?
The Vanguard S&P 500 ETF (VOO) is the ETF version of the Vanguard 500 Index Fund (VFIAX). In terms of investment goals and market exposure, VOO and VFIAX are the same. However, there are differences between ETFs and mutual funds, including how they are taxed and traded. These are the differences between VOO and VFIAX.
How can you hedge your portfolio using ETFs?
Diversification is a hedging strategy in itself, so you will do some hedging simply by using the ETFs outlined here to build a core and satellite portfolio. If that’s not enough, and you have an aggressively bearish outlook, you can hedge your portfolio using inverse ETFs. For example, if you want to hedge your long-term investments in VOO, you could use an inverse ETF for the S&P 500 like SPXS.
The Balance does not provide tax, investment, or financial services and does not offer advice. The information is provided without regard to the investment goals, risk tolerance, or financial circumstances of any specific investor and may not be suitable for all investors. Past performance is not indicative of future results. Investing involves risks, including the risk of losing your principal capital.
Was this page helpful?
Thank you for your feedback! Let us know why! More
Sources:
Vanguard. “Vanguard 500 Index Fund Investor Shares (VFINX).” Vanguard. “Vanguard Brings Unrivaled Access to ETFs With Launch of Industry’s Largest Commission-Free Platform.” Vanguard. “Vanguard S&P 500 ETF (VOO).” Vanguard. “Vanguard Extended Market ETF (VXF).” Vanguard. “Vanguard Total International Stock ETF (VXUS).” Vanguard. “Vanguard Total Bond Market ETF (BND).” Vanguard. “Vanguard Health Care ETF (VHT).” Vanguard. “Vanguard Information Technology ETF (VGT).” Vanguard. “Vanguard Energy ETF (VDE).”
Source: https://www.thebalancemoney.com/best-vanguard-etfs-to-build-a-portfolio-4177941
“`css
}
.lwrp .lwrp-list-container{
}
.lwrp .lwrp-list-multi-container{
display: flex;
}
.lwrp .lwrp-list-double{
width: 48%;
}
.lwrp .lwrp-list-triple{
width: 32%;
}
.lwrp .lwrp-list-row-container{
display: flex;
justify-content: space-between;
}
.lwrp .lwrp-list-row-container .lwrp-list-item{
width: calc(12% – 20px);
}
.lwrp .lwrp-list-item:not(.lwrp-no-posts-message-item){
}
.lwrp .lwrp-list-item img{
max-width: 100%;
height: auto;
object-fit: cover;
aspect-ratio: 1 / 1;
}
.lwrp .lwrp-list-item.lwrp-empty-list-item{
background: initial !important;
}
.lwrp .lwrp-list-item .lwrp-list-link .lwrp-list-link-title-text,
.lwrp .lwrp-list-item .lwrp-list-no-posts-message{
}@media screen and (max-width: 480px) {
.lwrp.link-whisper-related-posts{
}
.lwrp .lwrp-title{
“`
“`css
}.lwrp .lwrp-description{
}
.lwrp .lwrp-list-multi-container{
flex-direction: column;
}
.lwrp .lwrp-list-multi-container ul.lwrp-list{
margin-top: 0px;
margin-bottom: 0px;
padding-top: 0px;
padding-bottom: 0px;
}
.lwrp .lwrp-list-double,
.lwrp .lwrp-list-triple{
width: 100%;
}
.lwrp .lwrp-list-row-container{
justify-content: initial;
flex-direction: column;
}
.lwrp .lwrp-list-row-container .lwrp-list-item{
width: 100%;
}
.lwrp .lwrp-list-item:not(.lwrp-no-posts-message-item){
}
.lwrp .lwrp-list-item .lwrp-list-link .lwrp-list-link-title-text,
.lwrp .lwrp-list-item .lwrp-list-no-posts-message{
}
“`
};
}
Leave a Reply