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When investing for a goal that's two decades away, short-term risk doesn't need to be a huge consideration. That's because over that length of time, you can ride out bear markets, recessions, and other events knowing that there's a good chance you'll fully recover and capture solid long-term returns.
Funds like the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the Vanguard Total Stock Market ETF (NYSEMKT: VTI) are clear candidates for this kind of goal. But they're also the obvious answer.
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Investors with 20-year time horizons can target many corners of the market in the pursuit of above-average performance. Artificial intelligence (AI) and tech stocks have dominated the past few years, but the winners of the next two decades might look different.
The Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) won't be the most exciting ETF in your portfolio, but it does have a couple of things going for it. Its combination of long-term dividend growth and a weighting strategy that emphasizes several megacap tech names makes it one of the better "growth plus income" ETFs out there.
The Vanguard Dividend Appreciation ETF's 1.5% yield means it's not going to be a place you go for high income. But dividend growers have, over the long term, generated strong risk-adjusted returns. When the market eventually rotates away from the AI trade, dividend stocks are well-positioned to take leadership due to their quality and durability.
The Vanguard Small Cap Value ETF (NYSEMKT: VBR) targets a corner of the market that's been unloved for some time and for good reason. Value stocks have been mostly ignored throughout this AI boom, and the small-cap value category is notoriously filled with "cheap for a reason" stocks. But good relative value and a small-cap earnings acceleration make it a better time to go shopping here.
After years of stagnation, small-cap earnings growth rates are expected to hit 20% in 2026. Since the Vanguard Small Cap Value ETF only trades at roughly 14 times next 12 months' earnings, the growth/value profile of this group is as attractive as it's been in a long time.
The Vanguard Total International Stock ETF (NASDAQ: VXUS) has had its moments relative to U.S. stocks over the past decade, but not many. Investors have viewed the U.S. as the better place to find growth opportunities, and that's largely played out in the relative performance of these two groups. But international stocks have been out of favor long enough that they might finally be due for their own run.
History shows that global equity leadership tends to rotate in multiyear cycles. International led throughout the entire decade of the 2000s, while U.S. stocks have outperformed pretty much ever since. When foreign stocks finally come back in favor again relative to the S&P 500, they could stay there for a while.
The Vanguard Total Bond Market ETF (NASDAQ: BND) is probably off the radar for a lot of folks based on the miserable recent returns for long-term Treasuries. But with long-term bonds now offering yields of 5% to 6%, this is no longer an asset class that can be dismissed.
There's no question that yields could keep going higher in the short term. Inflation is consistently running well above 3%, and the Fed could hike rates multiple times over the next 12 months. But there's also a case to be made that when the Iran war reaches a resolution or economic growth slows down, rates will move much lower. A 10-year Treasury yield that's at its highest level in nearly a quarter-century is a solid starting point that could lead to both high income and capital appreciation in the years to come.
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David Dierking has positions in Vanguard Dividend Appreciation ETF, Vanguard Morningstar Total Stock Market ETF, and Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Vanguard Dividend Appreciation ETF, Vanguard S&P 500 ETF, and Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.
4 Vanguard Funds Worth Buying and Holding for the Next 20 Years was originally published by The Motley Fool
