ETFs
2 Vanguard ETFs Perfect for the Lazy Investor
The lazy wallet is a popular concept that emphasizes low fees, simplicity, and diversification.
If managing your investment portfolio is not your top priority, Vanguard’s suite exchange traded funds (ETF) might be just what you need. Vanguard has built its reputation on a shareholder-focused approach, resulting in a diversified offering of stock, bond and fixed-income ETFs with exceptionally low expense ratios. This investor-friendly pricing structure is a significant factor in the company’s impressive performance in the rapidly expanding ETF market.
Vanguard ETFs are tailor-made for the set-it-and-forget-it investor. This term describes people who prefer a hands-off investment strategy but still expect excellent returns. If this sounds like you, here’s a quick look at two Vanguard ETFs that have been favorites of hands-off investors since they hit the market.
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Vanguard Total Stock Index Fund ETF Shares
THE Vanguard Total Stock Index Fund ETF Shares (VTI 0.21%), or VTI, is a comprehensive representation of the investable U.S. stock market, including large, mid, small and micro-cap stocks from the New York Stock Exchange and Nasdaq. It is designed for the investor who seeks broad market exposure, a low expense ratio and a strong performance track record.
Here are the main characteristics of the fund and the suggested portfolio weighting:
- Spending rate: The VTI sports a spending rate by just 0.03%, significantly lower than the category average of 0.79%.
- Yield: It yields 1.35%, providing a stable and reliable income stream.
- Average return over 10 years: The fund has generated exceptional long-term capital returns, with an average annual return over 10 years of 11.7%.
- Number of securities held: The VTI holds a diversified collection of securities consisting of 3,719 stocks, approximating the full index in terms of key characteristics such as value, growth, income and market capitalization.
- Long-term outlook: With a history of robust performance and broad market representation, VTI’s long-term outlook remains positive.
- 90% allocation: For investors under 60, a 90% allocation to VTI is appropriate due to its growth potential, diversification benefits and moderate yield. However, investors over age 60 may benefit from starting to look at more dividend-focused funds – particularly dividend growth stocks – to create a reliable passive income stream before retirement.
Vanguard Total Bond Market Index Fund
THE Vanguard Total Bond Market Index Fund (BND 0.21%), or BND for short, provides broad exposure to investment-grade U.S. bonds, including U.S. Treasuries and mortgage-backed securities of all maturities. This is a great choice for investors looking for a core bond portfolio.
Here are the main characteristics of the fund and the suggested portfolio weighting:
- Spending rate: The fund’s expense ratio stands at 0.03%, which is significantly lower than the 0.57% average for similar funds.
- Yield: With a 30-day SEC yield of 4.72%, BND offers an attractive income opportunity.
- Average return over 10 years: The fund has a 10-year average annual return of 1.19%, which is not great, especially in a high inflation environment. However, this bond fund is designed more to provide stable income, capital preservation, and asset diversification in a well-balanced portfolio. As such, its 10-year average rate of return should not be the primary reason to buy or sell this bond fund.
- Number of bond securities: BND invests in a total of 11,107 bonds, ensuring broad market coverage.
- Long-term outlook: The fund’s investment strategy across multiple segments and maturities positions it well for the future.
- 10% allocation: For investors aged 60 and under, allocating 10% to BND can provide stability and income, complementing the growth potential of equity investments like VTI.
Final Thoughts
Vanguard’s VTI and BND ETFs stand out as ideal choices for the investor who values ease of management without compromising returns. Their low expense ratios, strong performance, and broad market coverage make them suitable for an important portion of the investment portfolio, particularly for those who prefer a hands-off approach to investing.
George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Bond Index Funds-Vanguard Total Bond Market ETF and Vanguard Index Funds-Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.