Low-cost index investing has witnessed a surge in popularity since the 2008 financial crisis. The primary driver behind this trend is the exceptionally low fees and tax-friendly nature of these funds.
The lower ownership costs of these funds enable investors to retain a larger share of their capital gains, often resulting in superior returns compared to actively managed funds. Actively managed funds generally charge hefty fees and can generate considerable tax liabilities.
Vanguard, a renowned fund family, has been a standout performer. The fund family’s unwavering commitment to industry-low expense ratios and investor-friendly products have been the keys to its success.
With this brief background in mind, here are three no-brainer Vanguard ETFs worth considering this month.
1. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (NYSEMKT: VOO), or VOO for short, aims to track the performance of the S&P 500 index, which represents a wide swath of the largest publicly traded companies in the United States.
Why is the VOO a no-brainer pick? Four reasons:
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Low expense ratio: The VOO charges an ultra-low expense ratio of 0.03%, a figure 96.2% lower than the average among similar funds.
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Broad market exposure: By investing in this S&P 500 mimic, you can gain exposure to a diverse range of high-quality companies operating in every sector of the economy.
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Historical performance: Over the long term, the S&P 500 has proven extremely difficult to outperform, even for professional fund managers. The VOO often serves as the backbone for many passively managed portfolios for this very reason.
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Liquidity: The VOO is one of the more liquid S&P 500 tracking vehicles, allowing you to buy or sell shares easily.
2. Vanguard Small-Cap ETF
The Vanguard Small-Cap ETF (NYSEMKT: VB), or VB, tracks the performance of the CRSP US Small Cap Index.
The VB stands out as a no-brainer buy this month for two reasons:
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Low expense ratio: The VB sports an expense ratio of 0.05%, which is 95% lower than its category average.
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Small-cap exposure: Small-cap stocks have historically outperformed large-cap stocks over extended periods.
Although this trend hasn’t rang true since the 2008 financial crisis, the Federal Reserve’s eventual pivot on interest rates could spark a trend reversal in the coming months. The VB, with its favorable expense ratio and strong historical performance, ought to prove an ideal vehicle to capture a resurgence in small caps.
3. Vanguard Small-Cap Value ETF
The Vanguard Small-Cap Value ETF (NYSEMKT: VBR), also known as the VBR, mirrors the CRSP US Small Cap Value Index, targeting a portfolio of smaller companies with value-oriented growth prospects. However, the VBR’s median market cap of $6.9 billion suggests it leans more toward mid-cap territory, making it an appealing option for those seeking mid-cap value exposure.
The case for investing in VBR lies in its balanced offering of value and growth at a minimal cost. The fund’s expense ratio of 0.07% is over 93% lower than its category average.
Moreover, the VBR sports a robust average earnings growth rate of 13.1% and a favorable price-to-earnings (P/E) ratio of 14.5. For context, the VOO has a P/E ratio exceeding 26, highlighting VBR’s relative affordability.
Final thoughts
Investing in Vanguard ETFs can be a no-brainer for long-term investors who value simplicity, cost-effectiveness, and strong performance. Whether you’re interested in large-cap exposure (VOO), small-cap growth (VB), or small-cap value (VBR), Vanguard offers cost-effective options.
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George Budwell has positions in Vanguard S&P 500 ETF and Vanguard Small-Cap Value ETF. The Motley Fool has positions in and recommends Vanguard Index Funds-Vanguard Small-Cap ETF and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
3 No-Brainer Vanguard ETFs to Buy in May was originally published by The Motley Fool
