Two Vanguard ETFs that can expedite your journey towards retirement.
Did you know that many Americans staggeringly retire before they turn 65 years old? What's intriguing is that it's not due to their financial stability allowing for such an early retirement.
The median retirement age is 62, and the primary reason for early retirement is the necessity as opposed to preference. According to a recent survey by the Employee Benefit Research Institute, health issues, disabilities, and uncontrollable factors, such as job loss, are the leading causes of premature retirements in America.
Ideally, one should be retiring early due to financial freedom, yet tragedies beyond personal control often force individuals into harsh retirement years. Improving your financial stability and retiring early at your discretion can be achieved by investing your savings. Two exchange-traded funds (ETFs) that could aid you in this process are: the Vanguard S&P 500 ETF (VOO -0.01%) and the Vanguard Total Stock Market Index Fund ETF (VTI -0.05%).
1. Vanguard S&P 500 ETF
Investing in a fund that mirrors the S&P 500 (^GSPC -0.00%) can provide excellent returns, as it grants exposure to top-performing stocks such as Apple and Microsoft. Furthermore, the Vanguard S&P 500 ETF boasts a minimal expense ratio of 0.03%, ensuring fees do not significantly impair your profits. With a median market cap exceeding $260 billion, you aren't inadvertently taking on high risk by investing in volatile stocks within this ETF, making it suitable for long-term investors keen on investing periodically.
Over the last decade, the fund has delivered total returns, including dividends, of approximately 250%. This averages out to an annual compounded growth rate (CAGR) of 13.4%, outperforming the S&P 500's long-term average annual growth rate of approximately 10%. However, with many growth stocks boasting elevated prices at present, this exponential growth rate may diminish. Nonetheless, the fund's strong diversification and potential for generating substantial long-term returns make it a sound investment opportunity for those hoping to retire early.
2. Vanguard Total Stock Market Index Fund ETF
A more diversified fund to invest in is the Vanguard Total Stock Market Index. It houses over 3,600 stocks and maintains a low expense ratio of 0.03%. By providing investors with exposure to large-, mid-, and small-cap stocks, the inherent risk associated with individual stocks is significantly reduced when compared to a fund that mirrors the S&P 500.
If you harbor doubts about the S&P 500's valuation, you may find this ETF to be a more appealing option. Although you'll still gain access to prominent stocks, they'll account for less of the fund's overall weight.
The broader diversification may result in lower returns in buoyant market years, but it offers additional protection. Regardless, the Total Stock Market ETF has been a profitable fund to own, with a total return of 234% over the last decade and a CAGR of 12.8%.
Investing in the fund may provide a straightforward strategy in the long term, as a passively managed ETF exposes you to more than just big-name stocks. With its broader composition, the fund may be less susceptible to market fluctuations, especially those affecting tech and highly valued growth stocks.
Both of these ETFs can serve as excellent long-term investments to help you significantly grow your savings and potentially aid in retiring early. Consider investing in both funds to maximize returns.
Despite the early retirements often being necessitated by health issues, disabilities, and job loss, investing in funds like the Vanguard S&P 500 ETF and Vanguard Total Stock Market Index Fund ETF can help individuals build financial stability and retreat from the workforce earlier due to preference, not necessity. These ETFs, with their low expense ratios and excellent returns, can contribute substantially to your retirement savings and potentially allow you to retire early with financial freedom.
