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.
Image Source: Getty Images.
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 (VOO 0.15%), 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:
- 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.
- 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.
- 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.
- 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 (VB 0.09%), 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:
- Low expense ratio: The VB sports an expense ratio of 0.05%, which is 95% lower than its category average.
- 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 (VBR 0.06%), 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.
