If your goal is to achieve financial freedom, you should invest in Vanguard index funds.
Investing in index funds allows for diversification, which is why they are one of the smartest investment decisions that you can make.
When you buy shares of a Vanguard index fund, your money is invested in a diversified portfolio of assets that track an underlying market index.
Inside this blog, I share the 7 best Vanguard index funds that I invest in and hold myself. If you're ready to start growing your money, keep reading!
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Index funds offer a low–risk way to invest your money.
For this reason alone, if you're a beginner investor, the best way to get started is through investing in index funds. Keep in mind that there is a time and place for buying individual companies.
Picking stocks requires a more advanced skillset. You have to be able to evaluate companies, look at balance sheets and assess where a specific company will be 5-to-20 years down the road. Not a lot of people can do that correctly or consistently. Index fund ETFs are a passive way of investing your money.
An ETF is an exchange-traded fund. It gives you the ability to buy one stock on the stock exchange and gives you exposure to many different companies. An index is like the S&P 500, which are the top 500 companies in the world. Investing in the S&P 500 gives you diversification across many different sectors.
The historical return of the S&P 500 is about 9-10% per year. That's a great investment. The difference between an ETF or an index fund like the S&P 500 is that it's just tracking an index.
On the other hand, a mutual fund will have an active mutual fund manager. Thus, there will be more expenses involved because a manager is trying to beat an S&P 500. Unfortunately, 96% of mutual fund managers fail at doing so.
This is why you're better off investing in an index fund ETF.
Because there is no active management involved with an ETF, there aren't any fees associated with it. That's why I love Vanguard products. They have the lowest fees.
Even though you may be tempted to invest in individual companies, I would encourage you to build a foundation of ETFs and index funds first. Over time, you can decide what percentage of your money you want to invest in individual stocks.
*** Disclaimer *** I'm not a financial planner or an advisor. I've just been investing for a long time.
Please do your due diligence before you make any investment decision. On top of that, make sure that you understand the risks associated with the investments that you make. All of those factors will determine what you invest in and how much money you invest. I do my index funds research on Yahoo Finance.
Watch the video above where I share my computer screen and show you the 7 Vanguard ETFs that I invest in!
Of the 7 Vanguard index funds that I talk about below, keep in mind that you don't have to own all of them. Many of them are redundant, meaning that you will end up owning a lot of the same companies.
7 Best Vanguard Index Funds
1. Vanguard S&P 500 Index (VOO)
The S&P 500 has been performing well, especially since the market crashed back in March 2020. When you invest in this ETF you're getting exposure to fantastic companies like Apple, Microsoft, Tesla, Amazon, Google, Berkshire Hathaway Inc., and Johnson & Johnson to name a few.
There is rarely a dip in this ETF. However, whenever there is, I tend to buy more. That being said, I still do dollar-cost averaging, meaning that every month I put a certain amount of money into this ETF.
2. Vanguard Total Stock Market Index (VTI)
This ETF gives you exposure to the total U.S. stock market, not just large-cap stocks. It has over $1 trillion in net assets. The yield is 1.43% and the expense ratio is 0.03%. The holdings are redundant to VOO.
However, you're also getting exposure to a variety of other great companies that you wouldn't normally get exposure to. For this reason alone, I like to hold this fund. The Canadian version of this ETF is VFV.TO.
3. Vanguard Total World Market Index (VT)
With this ETF you're getting exposure to the entire world's economy. The yield is 1.66%, the expense ratio is o.o8%, and the net assets are $24 billion.
Sometimes when there are fewer net assets, there is less trading volume. Thus, it may be harder to liquidate this index fund at a certain price. However, keep in mind that you're buying these products for the long-term.
4. Vanguard High Dividend Yield Index ETF (VYM)
This ETF invests in companies that pay high dividend yields. Thus, they won't invest in high-growth companies, like Amazon or Tesla, that don't pay any dividends. The reason why high-growth companies do this is that they want to reinvest their profits back into their business to grow it.
Even though you may not be receiving dividends from those companies, you will make your money in capital appreciation over the long-term. I like to receive some dividends as well. By owning this ETF, I can get a higher yield and make more profit from it.
Keep in mind that the performance of dividend stocks isn't going to grow as much as the previous index funds will. They are paying out profits in the form of dividends.
This ETF has $40 billion in net assets. The expense ratio is o.o6% and the yield is 3.19%. That's a lot higher than the other two ETFs. Thus, you are going to get a higher dividend yield.
5. Vanguard Real Estate Index Fund ETF (VNQ)
This ETF owns REITs, which is a real estate investment trust, allowing you to get broad exposure to different types of real estate (commercial, shopping centers, office buildings, residential, etc.). This is a great long-term investment.
One thing that I don't like about real estate is the time it takes to buy and close on a property, on top of all the legal fees that are involved. Conversely, investing in REITs gives you the ability to buy and sell real estate on the same day.
I don't have to have a large sum of my money tied into one property. I love the flexibility that this ETF provides. It has $61 billion in net assets, the yield is 3.92%, and the expense ratio is 0.12%.
6. Vanguard Information Technology Index Fund ETF (VGT)
This is a great ETF for those of you who want to bet on tech, long-term. Tech has been performing incredibly well. Since the onset of the pandemic, big tech companies have been fueling a lot of growth.
This ETF is currently trading at $368 per share. That's something to keep in mind if you're thinking of investing in it. It has $46 billion in net assets, the yield is 0.83%, and the exposure ratio is 0.10%.
7. Vanguard Dividend Appreciation Index Fund ETF (VIG)
This ETF invests in companies that pay dividends, but also have a record of increasing their dividends over time. A lot of the companies are dividend aristocrats, which are the top 65 companies on the S&P 500. These companies have increased their dividends every single year for 25 consecutive years.
I love companies like this. Keep in mind that the growth of this ETF is not as high as the other ETFs, but you have to factor in the dividends that you will receive. The net assets of this ETF are $62 billion dollars, the yield is 1.67% and the expense ratio is 0.06%.
Some other ETFs that I suggest you research and buy into are Vanguard Energy Index Fund ETF (VDE), Vanguard Consumer Staples Index Fund ETF (VDC), and Vanguard Consumer Discretionary Index Fund ETF (VCR).
These are the 7 best Vanguard index funds.
If you're a beginner investor and your goal is to achieve financial freedom, investing in index funds is the way to go. These 7 index funds are a staple in my investment portfolio. I will never sell them.
Like I said above, you don't have to buy all of them. The ETFs that are best for you will depend on what you can afford. Happy investing!
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