Vanguard exchange-traded funds (ETFs) are among the most popular funds out there, and for good reason. This asset manager’s wide variety of investment strategies are already useful to investors of all stripes—the simple ETF “wrapper” makes them all the more simple, accessible, and cost-effective.
The best Vanguard ETFs are big and “liquid,” meaning they are easy to buy and sell. They’re also commonly found in low-cost portfolios; that’s because most Vanguard ETFs are inexpensive index funds that are frequently the cheapest alternatives in the marketplace.
That’s all to say that if you’re trying to build a portfolio without getting drained by fees and other costs, check out our recently expanded list of the best Vanguard ETFs for 2026.
This list has something for everyone—whether you care about emerging markets or developed markets, small-cap stocks for growth or solid blue-chip stocks for the dividends, there’s a Vanguard ETF out there for you. We’ll start with a little ETF education, then move on to the picks.
Disclaimer: This article does not constitute individualized investment advice. Individual securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
Featured Financial Products
What Is an ETF?
Let’s start at the top. An investment fund is an umbrella term for a vehicle where a manager uses money to purchase investments (stocks, bonds, and so forth) on behalf of other investors.
An exchange-traded fund (ETF) is one type of investment fund, and it’s usually defined by its contrasts to its older brother, the mutual fund.
ETFs vs. mutual funds
Mutual funds only exchange hands once per trading day, after the close of regular trading at 4 p.m. Eastern Time. ETFs, however, are listed on an exchange, much like individual stocks, and are available to buy and sell across the trading day.
The nature of mutual funds’ trading makes them ideal for long-term buy-and-hold investing, but poor trading instruments. However, while ETFs are much more conducive to trading than mutual funds … they’re also perfectly suitable for the buy-and-hold crowd.
ETFs are also structured differently than mutual funds and their other cousins, closed-end funds (CEFs), which tends to make them a little more tax-efficient. Also, unlike mutual funds, ETFs don’t have minimum investment thresholds—the minimum cost is just one share (or less if your broker offers fractional shares).
Lastly, ETFs tend to have cheaper fees than mutual funds, on average, but that’s because most ETFs are passively managed index funds, whereas most mutual funds are run by one or more human managers. But there are more expensive actively managed ETFs and cheap index mutual funds.
Related: The 10 Best Vanguard Index Funds You Can Buy
Why Vanguard?
Vanguard is the No. 2 asset manager in the world with more than $12 trillion in assets under management, only trailing peer BlackRock (with north of $14 trillion). With that size comes a massive breadth of investment options, as well as efficiencies of scale that are difficult for smaller investment companies to match.
Consider this: The average asset-weighted expense ratio for U.S. mutual funds and ETFs is currently 0.44%, or $4.40 annually for every $1,000 invested.
Vanguard already offered a low 0.08% average expense ratio across all its funds. Then in 2025, that number dropped to 0.07% after Vanguard cut expenses on 168 share classes across 87 funds. This year, it slimmed that figure to 0.06% when it slashed fees on another 84 share classes across 53 funds. All told, Vanguard estimates that’s $600 million in savings for investors, which the firm claims is its “largest-ever two-year combined cost reduction.”
It’s also worth noting that the best Vanguard ETFs are often passive index funds. That means they are not aggressive vehicles that depend on overpaid managers to outperform the market, but rather “set it and forget it” funds tied to a fixed index of assets. This less flashy but more consistent approach has generally been shown to provide better long-term results.
The Best Vanguard ETFs
There is a massive universe of exchange-traded funds out there. So what makes the best Vanguard ETFs stand out over other exchange-traded funds?
A few factors include:
- Relatively low fees, not just nominally low fees. After all, just because a fund only costs you a couple dollars per year doesn’t mean there aren’t a bunch of cheaper alternative out there.
- Long-term potential. For the purpose of this article, we’re not talking about tactical or short-term bets, but rather foundational investments for the long haul.
- Different approaches for different investors. Also for the purpose of this article, we’re not looking for a single one-size-fits-all Vanguard ETF. Instead, the list is intended to be a menu of differentiated options that you can pick and choose from, based on your personal goals.
One final word of caution: Every investment carries risk, and even the best funds can lose you money if Wall Street suffers widespread declines.
With that disclaimer out of the way, let’s jump into the first Vanguard ETF on our list:
Best Vanguard ETF #1: Vanguard S&P 500 ETF
- Style: U.S. large-cap stock
- Assets under management: $862.0 billion*
- Dividend yield: 1.1%
- Expense ratio: $0.03%, or 30¢ per year for every $1,000 invested
I have a tendency to start every broad “best ETFs” list with the same type of product: an S&P 500 index fund.
It’d be easy to chalk it up to laziness. But consider this: The S&P 500 is the performance benchmark for many actively managed funds that invest in large-cap stocks.** Said differently, these investment professionals are tasked with exceeding the S&P 500’s performance. Unfortunately, according to S&P Dow Jones Indices, the majority of active large-cap U.S. equity funds have failed to beat the S&P 500 in 22 of the past 25 years on a total-return basis (price plus dividends).
But even if you compare the Vanguard S&P 500 ETF (VOO) and other low-cost S&P 500 index funds to all large-cap funds—active and index—they routinely land in the top quartile by performance across most meaningful time periods. So even among other indexes, the S&P 500 is great.
And as long as that remains the case, I’m going to keep leading with it.
The S&P 500 Index is made up of 500 of America’s largest companies. It’s considered something of a gauge of the U.S. economy just because its components collectively represent the diversity of American industry.
But it’s hardly “balanced.” The index, like many others, is market capitalization-weighted, which means the greater the company size by market cap (stock price x outstanding shares), the greater the “weight” it’s given in the index, the greater the assets an index fund will invest in that company, and the more impact those shares have on the performance of the fund. Currently, trillion-dollar-plus technology companies Nvidia (NVDA), Apple (AAPL), and Microsoft (MSFT) are the largest constituents in the S&P 500, and thus the largest components of VOO. Indeed, technology is a huge part of the economy, so it makes up a huge part of VOO’s assets—35% currently. On the flip side, real estate, materials, and utilities merit less than 3% apiece.
This can be problematic. A hit to the technology sector would cause more short-term harm to the VOO than weakness in any other sector. You might need to buy other complementary funds if you want more balanced sector exposure. But over the years, the S&P 500’s sectors and holdings have shifted significantly several times, and that hasn’t kept the index from delivering growth to people who have invested in S&P 500 funds.
In short: The Vanguard S&P 500 ETF is one of the cheapest ways to buy a wide and fairly diversified set of American blue chips that has historically delivered excellent performance. That’s why this strategy has accumulated $1.5 trillion in assets across all of its share classes, and that’s what makes VOO one of Vanguard’s best ETFs.
* Vanguard fund assets are spread across multiple share classes, including mutual funds and ETFs alike. Assets listed for each fund in this story are for the ETF share class only.
** There are different ways to define “cap” levels. We’re adhering to Morningstar’s definition, which says the largest 70% of companies by market capitalization within a fund’s “style” are large caps, the next 20% by market cap are mid-caps, and the smallest 10% by market cap are small caps.
Want to learn more about VOO? Check out the Vanguard provider site.
Related: 10 Monthly Dividend Stocks for Frequent, Regular Income
Best Vanguard ETF #2: Vanguard Total Stock Market ETF
- Style: U.S. total stock market
- Assets under management: $585.3 billion
- Dividend yield: 1.1%
- Expense ratio: $0.03%, or 30¢ per year for every $1,000 invested
If you want a little more exposure to stocks of all sizes, a “total stock market” fund might be more up your alley.
The Vanguard Total Stock Market ETF (VTI) is a one-stop shop for investors who want exposure to the totality of the U.S. stock market in a single investment. It currently holds a whopping 3,510 stocks, representing companies from all sectors and of all sizes.
Like the aforementioned VOO, Vanguard Total Stock Market ETF does not treat every component equally. It’s weighted most heavily toward the largest stocks. Nvidia accounts for nearly 7% in assets, Apple’s around 6%, and Microsoft is just under 5%. That’s about 18% of assets wrapped up in just three stocks. The same top-heaviness applies to its market-cap split; large caps are king at more than 70% of assets, while mid-caps account for less than 20% and the rest goes to small companies.
None of this construction is uncommon among “total stock market” funds.
Vanguard Total Stock Market, while imperfect, is still an excellent solution for investors who just want to buy … well, virtually the whole U.S. stock market! It’s also a popular solution. VTI is one of the top five exchange-traded funds in the U.S. by assets, and the strategy has amassed a whopping $2.1 trillion across all share classes. So while VTI isn’t particularly sophisticated, it’s still a favorite of investors who think long-term, buy-and-hold strategies are preferable to more complex options.
Want to learn more about VTI? Check out the Vanguard provider site.
Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested’s free retirement planning newsletter.
Related: VTI vs. SPY: Which is the Better ETF to Buy?
Best Vanguard ETF #3: Vanguard Russell 1000 Growth ETF
- Style: U.S. large-cap growth stock
- Assets under management: $37.8 billion
- Dividend yield: 0.5%
- Expense ratio: 0.06%, or 60¢ per year for every $1,000 invested
Funds like VOO And VTI are commonly called “blend” funds, which refers to the fact that their holdings are a blend of two types of stocks:
- Growth stocks: Companies with above-average past and/or expected rates of growth in operational metrics such as revenue and profits. They sometimes, but not always, trade at relatively expensive valuations.
- Value stocks: Companies that trade for what is perceived by some to be less than their intrinsic value. They sometimes, but not always, feature slower past and/or expected rates of growth in operational metrics.
Investors concerned with locking in higher rates of portfolio return frequently look to the former, as high rates of operational growth can result in high levels of stock performance. Naturally, the inherent risk is high expectations: If a company expected to expand by leaps and bounds only does so modestly, its stock could suffer a drastic pullback.
But you can reduce the risk of any one growth stock imploding by holding a large group of them, which you get by purchasing funds such as the Vanguard Russell 1000 Growth ETF (VONG).
VONG holds stocks within the Russell 1000 (the 1,000 largest U.S. companies by market capitalization) that boast relatively higher forecast two-year earnings growth, higher five-year historical sales growth … and higher price-to-book (P/B) ratios. It might seem odd to intentionally target relatively expensive stocks, but even though growth and value aren’t inherently at odds (you certainly can find growth stocks that trade at relative bargains), they’re often treated that way.
The resulting portfolio is a group of 390 growth stocks predominantly clustered in growth-oriented sectors. Technology accounts for a hair less than half of assets right now, followed by consumer discretionary (14%) and communication services (12%). Top holdings are a who’s who of blue-chip growth; the aforementioned NVDA, AAPL, and MSFT are heavily concentrated at weights of 9%-13% each; other big components include Amazon (AMZN) and Broadcom (AVGO).
VONG, which was already inexpensive, was one of the ETFs subject to Vanguard’s 2026 price cuts. Its 0.07% annual fee was trimmed to 0.06%.
Want to learn more about VONG? Check out the Vanguard provider site.
Make Young and the Invested your preferred news source on Google
Simply go to your preferences page and select the ✓ box for Young and the Invested. Once you’ve made this update, you’ll see Young and the Invested show up more often in Google’s “Top Stories” feed, as well as in a dedicated “From Your Sources” section on Google’s search results page.
Related: 14 Best Investing Research & Stock Analysis Websites
Best Vanguard ETF #4: Vanguard Russell 2000 ETF
- Style: U.S. small-cap stock
- Assets under management: $13.9 billion
- Dividend yield: 1.2%
- Expense ratio: 0.06%, or 60¢ per year on every $1,000 invested
Another way to put growth in your portfolio is to own the shares of smaller companies. They benefit from investing’s rule of large numbers (effectively, doubling your revenues from $1 million to $2 million is a lot easier than doing so from $1 billion to $2 billion). And when institutional investors become interested in these stocks, large influxes of new investment money can send their stocks skyward.
The Russell 2000 Index is to small caps what the S&P 500 is to large caps. And the Vanguard Russell 2000 ETF (VTWO) tracks the small-cap benchmark for a svelte 6 basis points in annual expenses, which was lowered from 7 earlier this year. (A basis point is one one-hundredths of a percentage point.)
The Russell 2000 holds stocks tied to—you guessed it—2,000 of the smallest securities in the U.S. equity market. It too is cap-weighted. However, unlike some large-cap benchmarks where a few individual stocks can make up uncomfortably (or even dangerously) sizable parts of the portfolio, only one Russell 2000 component—fuel-cell firm Bloom Energy (BE)—accounts for more than 1% of assets.
If you’re looking for small-cap exposure, VTWO isn’t just one of the best Vanguard ETFs you can buy … it’s among the best ETFs you can buy period.
Want to learn more about VTWO? Check out the Vanguard provider site.
Best Vanguard ETF #5: Vanguard Dividend Appreciation ETF
- Style: U.S. dividend-growth stock
- Assets under management: $103.1 billion
- Dividend yield: 1.6%
- Expense ratio: 0.04%, or 40¢ per year for every $1,000 invested
One of the most popular ways for investors to reduce their risk profile in the stock market is to lean on dividend stocks. These are the stocks of companies that pay a portion of their profits back to shareholders in the form of cash distributions (“dividends”).
Stocks that pay dividends regularly tend to produce significant, reliable profits, which is how they’re able to afford those dividends. That implies a certain level of quality. And just as important: These dividends can provide another source of income aside from price returns.
The Vanguard Dividend Appreciation ETF (VIG) is composed of dividend payers that boast track records of improving those distributions over time. This Vanguard dividend fund holds 340 payout growers, with mega-bank JPMorgan Chase (JPM), Big Pharma drugmaker Eli Lilly (LLY), and credit card processing giant Visa (V) among its current top positions.
Dividend growth is an important indication of good financial health, as well as an important factor in compound returns over time. As your cash payments grow larger and larger over time, that’s more money you can reinvest back into the stock, which in turn will keep paying you increasing dividends. Even once you call it a career, and you’re using those dividends as retirement income, the steady growth in those paydays can help you fend off the dollar-eroding effects of inflation.
VIG also enjoyed an expense-ratio haircut, with its annual fee lowered from 0.05% to 0.04% in 2026. So if you want to focus on rock-solid dividend growers in 2026 and beyond, this Vanguard ETF is worth a look.
Want to learn more about VIG? Check out the Vanguard provider site.
Featured Financial Products
Related: 8 Best Stock Portfolio Tracking Apps [Portfolio Trackers]
Best Vanguard ETF #6: Vanguard Real Estate ETF
- Style: Sector (Real estate)
- Assets under management: $34.9 billion
- Dividend yield: 3.8%
- Expense ratio: 0.13%, or $1.30 per year for every $1,000 invested
While VIG’s holdings might offer lower risk and growing payouts, the current dividend yield isn’t particularly impressive. That’s OK to some investors, but other investors prefer more yield at the onset.
If you’re in the latter group, you might consider the Vanguard Real Estate ETF (VNQ)—the best Vanguard ETF for investing in real estate and one of the sector’s most popular funds period.
Related: 11 Best Stock Trading Apps [Free + Paid]
VNQ holds real estate investment trusts, or REITs—a special class of company specifically designed to own and sometimes even operate real estate. These companies enjoy a generous operational tax break, but in exchange, REITs must deliver 90% of taxable income back to their shareholders. This typically results in greater-than-average dividends. And the best REITs, which are able to produce the most regular and growing cash flows from their properties, are as consistent an investment as you’ll find on Wall Street.
The Vanguard Real Estate ETF currently holds about 150 REITs, chief among them health care property owner Welltower (WELL), industrial warehouse giant Prologis (PLD), and telecommunications infrastructure play American Tower (AMT). Best of all? This portfolio collectively delivers a yield of almost 4%. That’s well more than three times what the broader market pays.
Most of us can’t afford to buy a second home or an office building to rent out to tenants directly. Fortunately, we can still tap into the real estate market’s big income potential through ETFs like VNQ.
Want to learn more about VNQ? Check out the Vanguard provider site.
Make sure you sign up for The Weekend Tea, Young and the Invested’s free weekly newsletter that over 10k monthly readers use to level up their money know-how.
Best Vanguard ETF #7: Vanguard Information Technology ETF
- Style: Sector (Technology)
- Assets under management: $112.5 billion
- Dividend yield: 0.4%
- Expense ratio: 0.09%, or 90¢ per year for every $1,000 invested
The flip side of low-risk dividend stocks and REITs are high-growth companies that pump most if not all of their profits back into the business in hopes of rapid expansion.
That’s what the Vanguard Information Technology ETF (VGT) has to offer.
VGT holds technology stocks, to no one’s surprise. Its 320 holdings include many of the big names you already know (like Apple and Microsoft), as well as smaller software developers, chipmakers, and other growth-oriented technology firms that are trying to make a name for themselves.
The tech sector thrived in 2023 and 2024, and VGT was among the best Vanguard ETFs as a result. But keep in mind the sector doesn’t always come out on top. In 2022, even the biggest and most established names in Silicon Valley faced serious headwinds. And tech spent a good part of 2025’s first half getting knocked around before getting back on their feet.
Still, if you’re taking a long view, it’s difficult to imagine a future where high-tech stocks are not among the biggest winners—and this Vanguard ETF plays into this trend.
Want to learn more about VGT? Check out the Vanguard provider site.
Related: 9 Best Fidelity Retirement Funds [Low-Cost + Long-Term]
Best Vanguard ETF #8: Vanguard U.S. Multifactor ETF
- Style: U.S. multifactor
- Assets under management: $564.0 million
- Dividend yield: 1.5%
- Expense ratio: 0.18%, or $1.80 per year for every $1,000 invested
Most investment funds are designed to give you exposure to a certain part of the market, however wide or narrow that part of the market might be. The whole stock market. A sector. A country. Certain types of bonds. You get the picture. To find more ideal holdings within that slice of the market, index funds might have certain inclusion criteria, and actively managed funds will rely on managers’ discretion. But the purpose of these funds largely remains “access to such and such part of the market.”
However, if you just wanted, say, a great collection of stocks no matter what they might look like, you might want to seek out “multifactor” funds.
Index provider MSCI defines factors well: “A factor is any characteristic that helps explain the long-term risk and return performance of an asset.” If you’ve invested for any amount of time, you’re already well-aware of the two most prominent factors: value and growth. But there are others, including volatility, dividend yield, price momentum, and more. A multifactor fund, then, invests in securities that meet criteria across several factors in hopes of building a more optimal portfolio.
The Vanguard U.S. Multifactor ETF (VFMF) is an actively managed multifactor fund, though it sticks tightly to a rules-based quantitative model to ensure its holdings meet several factor gates. After an initial universe of U.S. stocks is screened to remove the 20% most volatile stocks across each market cap grouping, the remaining stocks are chosen based on three more factors:
- Value: Book value-to-price and forward earnings-to-price (also operating cash flows-to-price for non-financial-sector companies)
- Quality: Financial sector: Return on equity, share issuance; Non-financials: Return on equity, gross profitability, change in net operating assets, leverage
- Momentum: Total returns (price plus dividends) from 12 months ago to one month ago, total returns from 7 months ago to one month ago, and the intercept from a one-year regression of stock returns on their regional benchmark.
The resulting portfolio is … well, Morningstar categorizes it as “mid-cap value,” but that’s misleading. In truth, it’s just extremely well-balanced across market caps right now, at a 30%/20%/25%/25% blend of large-, mid-, small-, and micro-cap stocks. (Micro-caps represent the smallest 3% of stocks by market capitalization and are often included as part of a fund’s small-cap allocation.) From a sector perspective, financial stocks are the top weight at 25%, followed by health care (18%), technology (14%), and consumer discretionary (12%).
But Vanguard U.S. Multifactor’s nature suggests that these size and sector weightings could fluctuate, and in fact, they do. What matters is whether you’re getting something better than ordinary, and on that front, VFMF does the job.
VFMF is fairly young, having launched in 2018, so five-year returns are our best gauge. Vanguard’s ETF has edged out the S&P 500 over that time on a total-return basis. That’s encouraging. However, the S&P 500 is predominantly large-cap, which has also beaten the pants off of mid- and small caps over the past five years. A better measure would be pitting VFMF against a portfolio similarly weighted across Vanguard’s large-, mid-, and small-cap funds. Vanguard U.S. Multifactor looks even better through that lens, outperforming by more than 5 percentage points annually.
Want to learn more about VFMF? Check out the Vanguard provider site.
Related: How to Rebalance Your Portfolio: A Quick Guide
Best Vanguard ETF #9: Vanguard FTSE All-World ex-US Index Fund ETF Shares
- Style: International stock
- Assets under management: $58.4 billion
- Dividend yield: 3.9%
- Expense ratio: 0.04%, or 40¢ per year for every $1,000 invested
So far we’ve only covered different ways to slice up the U.S. stock market. However, there’s a great big universe of companies out there beyond our borders.
That’s where Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) comes in.
This Vanguard ETF invests in nearly 3,900 stocks across a few dozen countries, both developed (more established but slower-growing) and emerging (riskier but higher rates of expansion). It holds stocks of all sizes, but it leans heavily into large companies. And like many other Vanguard funds on this list, VEU is cap-weighted, so the stocks with the most impact on performance currently include emerging-market tech giants such as Taiwan Semiconductor (TSM) and Samsung Electronics, as well as European mainstays like AstraZeneca (AZN) and Nestlé (NSRGY).
As a general rule, large, international dividend payers distribute higher rates of income than their American counterparts, resulting in a solid yield of just under 3% that’s nearly thrice what the S&P 500 offers.
You can get a much wider portfolio of international stocks with a little more exposure to smaller companies via the Vanguard Total International Stock ETF (VXUS), which like VEU earns Morningstar’s highest Medalist ranking of Gold. (Medalist rankings are forward-looking views of a fund’s ability to outperform its peers.) VEU is a hair cheaper, however, and has delivered slightly better performance in the past.
In an interconnected global economy, it’s a bit naive to think that multinational companies only rise and fall based on their local economies. That’s true for big U.S. names as well as the international giants that lead this Vanguard ETF. So if you want international diversification to truly play broad economic trends in 2026, consider layering VEU into your portfolio.
Want to learn more about VEU? Check out the Vanguard provider site.
Related: 16 Best Stock Research & Analysis Apps, Tools and Sites
Best Vanguard ETF #10: Vanguard FTSE Emerging Markets ETF
- Style: Emerging-markets stock
- Assets under management: $112.7 billion
- Dividend yield: 2.7%
- Expense ratio: 0.06%, or 60¢ per year for every $1,000 invested
Developed markets make up the lion’s share of VEU’s assets, which is great if you want stability and yield.
But if you want more aggressive price returns, you might instead consider historically higher-growth “emerging markets” like those found in Asia and South America. And you can achieve that through funds like the Vanguard FTSE Emerging Markets ETF (VWO).
This Vanguard ETF is a simple index product that plugs investors into almost 6,300 companies from about two dozen emerging markets. But they’re not spread out evenly—China is king at roughly a third of assets, Taiwan is another quarter, and India is a little under 20%. Other countries, such as Egypt and Iceland, have merely token representation at fractional weights.
Funds like Vanguard FTSE Emerging Markets help you own a lot of stocks you’d have trouble owning otherwise. While a few of VWO’s holdings—blue chips like Asia e-commerce giant Alibaba Group (BABA), for instance—trade on America’s major exchanges and are accessible to most investors, many smaller components only trade “over the counter” in the U.S., or worse, only on foreign exchanges.
Self-directed investors would suffer quite a few headaches trying to own all these stocks individually. But this Vanguard ETF does the trick easily and even more inexpensively than before, priced at just 6 basis points (down from 7 last year).
Want to learn more about VWO? Check out the Vanguard provider site.
Related: 7 Best Stock Advisor Websites & Services to Seize Alpha
Best Vanguard ETF #11: Vanguard Total Bond Market ETF
- Style: U.S. intermediate-core bond
- Assets under management: $149.9 billion
- SEC yield: 4.2%*
- Expense ratio: 0.03%, or 30¢ per year for every $1,000 invested
Investors typically look to bonds to add income and relative safety to their portfolios.
Bonds come in all shapes and sizes, however—from U.S. government bonds, to high-quality corporate bonds from top blue-chip companies, to riskier “junk” bonds from borrowers who are facing real challenges to operations. So if you’re already confused by the thousands of options in the stock market, looking into bonds on top of that would probably be downright overwhelming.
That’s why many investors just opt to buy a bond fund and call it a day.
Vanguard Total Bond Market ETF (BND) is among the best Vanguard ETFs for diversified exposure to most of these categories. BND has a gigantic portfolio of more than 11,400 debt issues, including U.S. Treasury and agency bonds, corporate bonds, even mortgage-backed securities. The portfolio is entirely investment-grade, however—BND doesn’t hold “junk” debt”—so you’re getting diversification and relatively high credit quality, but not access to greater-yield, higher-potential bonds.
Duration (a measure of interest-rate risk) is 5.7 years, which implies that if market interest rates climbed by 1 percentage point, BND would experience a short-term decline of 5.7%; and if rates dropped by a point, BND would climb by 5.7%.
Bonds don’t deliver the quick gains that stocks can. But they offer steady and reliable income—which for many investors is worth the lower potential reward to provide a lower overall risk profile to their portfolio.
* SEC yield reflects the interest earned across the most recent 30-day period. This is a standard measure for funds holding bonds and preferred stocks.
Want to learn more about BND? Check out the Vanguard provider site.
Related: 13 Best High-Yield Investments [Safe Options Right Now]
Best Vanguard ETF #12: Vanguard Short-Term Treasury ETF
- Style: Short-term U.S. Treasury bond
- Assets under management: $27.1 billion
- SEC yield: 3.5%
- Expense ratio: 0.03%, or 30¢ per year for every $1,000 invested
Just like stocks, bonds have varying levels of risk and potential reward. The Vanguard Short-Term Treasury ETF (VGSH) focuses on a subset of bonds that have very low risk for two reasons: They have short maturities, and they’re issued by the U.S. Treasury.
Maturity helps determine risk. Generally speaking, the longer the bond, the greater the risk that the bond might not be repaid. Interest rates come into play, too. When rates go higher, new bonds pay more, which tempt people to sell their old bonds for the new, higher-paying bonds. But the temptation is much greater when you’re dealing with longer-term bonds with lots of payments remaining—and not so great for short-term bonds with one or just a couple payments left.
Meanwhile, U.S. Treasury bonds, which are backed by the full faith and credit of the U.S. government, are some of the highest-rated bonds on the planet. Is there 100% certainty they’ll be repaid? No. But there is a higher likelihood of repayment than the vast majority of issuers out there.
Vanguard Short-Term Treasury ETF invests in more than 90 Treasury bond issues with maturities of between one and three years. And the lower risk is reflected in the averaged duration, which currently sits at just 1.9 years. So while a 1-percentage-point hike in interest rates would theoretically knock the aforementioned BND 5.8% lower in the short term, VGSH would decline by just 1.9%. Conversely, VGSH might not rise as rapidly if market interest rates declined.
That’s OK, as long as you understand what you’re buying. If all you want is portfolio protection that can still generate some yield (in the upper 3% range currently), VGSH is one of the best Vanguard ETFs to own.
Want to learn more about VGSH? Check out the Vanguard provider site.
Related: The 7 Best Vanguard Index Funds for Beginners
Learn More About These and Other Funds With Morningstar Investor
If you’re buying a fund you plan on holding for years (if not forever), you want to know you’re making the right selection. And Morningstar Investor can help you do that.
Morningstar Investor provides a wealth of information and comparable data points about mutual funds and ETFs—fees, risk, portfolio composition, performance, distributions, and more. Morningstar experts also provide detailed explanations and analysis of many of the funds the site covers.
With Morningstar Investor, you’ll enjoy a wealth of features, including Morningstar Portfolio X-Ray®, stock and fund watchlists, news and commentary, screeners, and more. And you can try it before you buy it. Right now, Morningstar Investor is offering a free seven-day trial and a discount on your first year’s subscription when you use our exclusive link.
- Morningstar Investor offers expert research, investing analysis, and advisor-grade portfolio management tools that are tailor-made for buy-and-hold investors.
- Morningstar is one of the most prized sources of mutual fund and exchange-traded fund (ETF) data in the world.
- How does your portfolio stack up? Put it through Morningstar's Portfolio X-Ray, which will provide insights such as whether you have too many overlapping holdings or whether you're paying too much in fees.
- Special Offer 1: Click our sign-up link to receive $50 off your first year of Morningstar Investor. (Annual plan only.)
- Special Offer 2: Students receive one year of Morningstar Investor access for just $25!
- Special Offer 3: Teachers receive a 60% discount on Morningstar Investor access.
- Top-flight fund research and analysis
- Portfolio management tool
- Powerful screener
- Watchlists
- Tailored news and commentary
- Below-average charting
- High monthly billing rate
Frequently Asked Questions (FAQs)
Are ETFs the same thing as index funds?
Not always. Most ETFs are index funds, meaning they are tied to a fixed “index” or list of securities. However, mutual funds can also be tied to indexes and thus be categorized as index funds, too. Similarly, both ETFs and mutual funds can instead follow a more dynamic or “active” list of investments. It can be confusing sometimes, but the bottom line is you should always read the investment materials an asset manager provides and look for a description. In the case of Vanguard, you’ll find a heading labeled “investment style” at the top of most ETF pages that will clearly identify whether funds are index funds, or active funds.
Related: 9 Best Fidelity Index Funds to Buy
Does Vanguard offer a minimum-volatility ETF?
Yes: The Vanguard U.S. Minimum Volatility ETF (VFMV). But investors should note two things about this ETF:
- This is not an index fund. VFMV is actively managed by the Vanguard Quantitative Equity Group. Despite that, it does charge a fairly low fee of just 0.13%, or $1.30 annually for every $1,000 invested.
- This is a minimum-volatility ETF, which is different than a low-volatility ETF. Min-vol funds typically try to reduce volatility while still maintaining some similarity to an underlying index–in this case, VFMV management will try to pick stocks they expect will have lower volatility than the market, but still hold stocks of varying sizes (large, mid, and small), from different industries and groups. Low-vol ETFs, however, typically invest in stocks based on backward-looking measures of volatility, and often aim for the lowest volatility possible without trying to mimic an index. For instance, a min-vol market ETF might be required to hold at least a 5% weight in all 11 sectors; a low-vol market ETF might hold the lowest-volatility stocks within the market, and as a result, some sectors simply might not be included.
Kyle Woodley was long VOO and VNQ as of this writing.
Want to talk more about your financial goals or concerns? Our services include comprehensive financial planning, investment management, estate planning, taxes, and more! Schedule a call with Riley to discuss what you need, and what we can do for you.
Featured Financial Products
Related:
