Building Lasting Wealth with Dollar-Cost Averaging
If you’re looking to build long-term wealth, one of the best ways to accomplish this is through dollar-cost averaging into a group of index exchange-traded fund (ETF) holdings over the long term. With dollar-cost averaging, you remove emotion from your investment decisions, and instead of focusing on market timing, the emphasis shifts to time in the market.
ETFs serve as a great basis to employ this strategy, since they give investors an instant portfolio of stocks. Market-cap-weighted index ETFs are even better, since a survival-of-the-fittest dynamic drives their performance. The majority of stocks actually underperform, with the major market indexes generally powered by a handful of megawinners. In fact, a J.P. Morgan study found that between 1980 and 2020, 40% of stocks in the Russell 3000 had absolute negative returns, and two-thirds underperformed.
Why Vanguard ETFs Stand Out
With less than 15% of actively managed large-cap funds beating the S&P 500 over the past decade, dollar-cost averaging into a group of core index ETFs is a smart decision. And as the low-cost leader, Vanguard’s ETFs are a great place to start. Invest $1,000 across four of its ETFs, or $250 each, over a long period of time, and you’re well on your way to a multimillion-dollar portfolio.
The Four Vanguard ETFs to Consider
1. Vanguard S&P 500 ETF (VOO)
The Vanguard S&P 500 ETF is the world’s largest ETF by assets, and for good reason. It tracks the performance of the S&P 500 benchmark index and has a minuscule expense ratio of just 0.03%. Meanwhile, an investment in the fund gives investors an instant portfolio of 500 of the largest U.S. companies.
The ETF has been a strong performer over the year, with an average annual return of 15.5% over the past decade and 20.6% over the past three years.
2. Vanguard Growth ETF (VUG)
Growth stocks have nicely outperformed value stocks over the past decade, and with the technology curve continuing to accelerate, this could well continue over the next decade. One great Vanguard ETF to invest in to capture this trend is the Vanguard Growth ETF.
The ETF essentially tracks the growth side of the S&P 500 and has been a stellar performer over the years. It is more heavily weighted to tech stocks, with nearly 70% of its portfolio in the sector. The fund has generated an 18% yearly return over the past decade.
3. Vanguard Information Technology ETF (VGT)
Tech stocks continue to lead the market higher, powered by artificial intelligence (AI) stocks. With AI still in its early innings and other breakthrough technologies, like quantum computing, potentially around the corner, investing in an ETF dedicated to the sector could be a smart long-term move.
The Vanguard Information Technology ETF, which tracks the MSCI U.S. Investable Market Information Technology 25/50 index, has been Vanguard’s best performer over the past decade, with an average annual return of 25.6%. Its 0.09% expense ratio, meanwhile, is low for a sector-specific fund.
4. Vanguard Dividend Appreciation ETF (VIG)
Another solid option among Vanguard’s fund offerings is the Vanguard Dividend Appreciation ETF. It focuses on stocks with growing dividends and mimics the S&P U.S. Dividend Growers index. This is not your typical stodgy dividend fund, as top holdings include Broadcom, Apple, Microsoft, and Eli Lilly.
The fund has generated a solid 13.1% average annual return over the past decade and gives investors a nice mix of value and growth stocks.
By investing in these four Vanguard ETFs, you can create a diversified portfolio that’s well-positioned for long-term growth and wealth creation. With a consistent investment of $250 per month, you can turn a modest initial investment into a multimillion-dollar portfolio over time.
