Everyone hopes to be a millionaire by the time they retire. But a lot of people think that you have to find crazy bargains on growth stocks to make that happen.
That’s not the case. A well-invested portfolio that is given enough time to really benefit from compound growth will do the trick. You can set up a retirement account and gain diversified access to the stock market through just a few managed funds. Vanguard has some of the best of them in terms of low expense ratios.
These five would be excellent choices for your retirement portfolio.
America the beautiful
As Warren Buffett has often said, the United States is still the best place to invest. With $658 billion in assets under management, the Vanguard 500 Index Fund Admiral Shares (NASDAQMUTFUND:VFIA.X) is a simple way for you to do just that. Set to track the S&P 500, this fund follows the large-cap segment of the U.S. stock market pretty closely. It performs almost in complete sync with its benchmark, trailing it by less than 0.05% annually over the last few years. If you want exposure to most of the big names in the stock market, this is the play.
Another option is the Vanguard Total Stock Market Index Fund (NASDAQMUTFUND:VTSMX). This fund follows the CRSP US Total Market Index, so it provides diversification across essentially every company on the NYSE and the NASDAQ. Since its inception in 1992, this fund has delivered average annual gains of 10.29%, in line with the broader market.
Get those dividends
In times when Wall Street is in the midst of a major bull run, you’re not going to beat the market with the Vanguard High Dividend Yield Index Fund ETF (NYSEMKT:VYM). What you will do is enjoy annual distribution yields of 3.05%, a low expense ratio of 0.08%, and an annual gain that has averaged 7.87% since the fund’s inception in 2006. Some of its top holdings are Johnson & Johnson, Procter & Gamble, Intel, Walmart, and Verizon.
The Vanguard U.S. Growth Fund Admiral Shares (NASDAQMUTFUND:VWUAX) is a mutual fund based on investing in large-cap domestic growth companies. Think Amazon, Microsoft, Apple, and Netflix. This is the “swing for the fences” fund, with 10-year annual returns of 18.08%, beating the S&P 500, and outpacing large growth counterparts. You get all of this while paying a management fee of 0.28%.
Admittedly, investor interest has recently begun to shift toward value stocks, but many of the companies in this Vanguard fund still have upside potential.
Growth investing has been the favored strategy over the last decade, but value investing has been the most successful strategy over time. The bulk of Warren Buffett’s success is tied into it. So one would be remiss to exclude value stocks from one’s portfolio. The Vanguard S&P 500 Value ETF (NYSEMKT:VOOV) is a great option for getting some exposure to them.
Focused on tracking the performance of the S&P 500 Value Index, this ETF has averaged returns of 11.79% annually since inception, carries a dividend of 2.26%, and includes such components as Berkshire Hathaway, JPMorgan, and Disney. You’re sticking with the reliability of the S&P 500, but focusing on those tried-and-true businesses that have demonstrated an ability to deliver value for shareholders through time.
A bonus for those on the adventurous side
I personally favor investing in U.S.-based companies. If, however, one is inclined to look beyond our borders, the Vanguard International Growth Fund (NASDAQMUTFUND:VWIGX) has done well. Delivering 11.65% annual gains since inception in 1981, this mutual fund looks to invest in foreign growth companies across the large-, mid-, and small-cap categories. Its expense ratio of 0.44% is a bit higher than the other funds mentioned here, but it has been a historically competitive fund for international growth. And it outpaced the S&P 500 by roughly 40% over the last 14 months.
Vanguard funds simplify things
If you’re not a seasoned investor, or simply don’t want to put in the time to research a full portfolio of hand-picked securities, Vanguards’ vast array of funds offer simple ways to diversify a portfolio with only a few investments. For many investors, investing in ETFs and mutual funds can produce comparable returns to buying individual stocks — if not better — and help them build their wealth. They might not make you into a millionaire overnight, but these funds’ steady gains and dividends can work to make you a millionaire by retirement, with much less hassle and stress.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.