Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Two Vanguard exchange-traded funds (ETFs), the Vanguard S&P 500 ETF (VOO) and the Vanguard High Dividend Yield ETF (VYM), are presented as potential complementary additions to an investment portfolio, offering different approaches to market exposure and income generation. VOO tracks 500 of the largest U.S. public companies, while VYM focuses on dividend-paying companies with established payout histories.
Vanguard S&P 500 ETF (VOO)
The Vanguard S&P 500 ETF provides broad exposure to the U.S. economy by investing in 500 of the largest U.S. public companies. This exposure includes prominent global corporations across various sectors, often referred to as “blue chip stocks.” The ETF has demonstrated strong long-term performance, averaging annualized returns of over 12.7% since its inception in September 2010.
Despite increased concentration in tech companies due to the growth of the artificial intelligence (AI) sector, VOO maintains diversification across major economic sectors. Its holdings include significant positions in financial companies like JPMorgan Chase and Visa, energy giants such as ExxonMobil and Chevron, healthcare firms like Eli Lilly and Johnson & Johnson, consumer discretionary companies including Amazon and Tesla, and consumer staples entities such as Walmart and Coca-Cola. The ETF is known for its low expense ratio of 0.03%.
Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield ETF is designed for investors seeking consistent income, focusing on companies that offer reliable dividend payouts and demonstrate financial stability. Unlike market-cap-weighted funds, VYM’s portfolio is less concentrated in technology stocks. As of the end of the third quarter, financial sector companies constituted 21.6% of the ETF’s weight, followed by technology (13%), industrials (13%), healthcare (12.4%), and consumer discretionary (10.1%).
As of October 21, VYM’s dividend yield was approximately 2.5%, which is more than double the current average yield of the S&P 500, though slightly below its decade-long average of 3%. Over the past decade, the ETF’s price has appreciated by 112%, while its total return, assuming dividend reinvestment, has reached approximately 190%. The ETF has shown a trend of gradually increasing its payouts over time.
Investment Strategy Considerations
These two Vanguard ETFs offer distinct yet complementary investment strategies. The Vanguard S&P 500 ETF provides broad market growth potential tied to the overall U.S. economy, while the Vanguard High Dividend Yield ETF offers a focus on income generation and financial stability. Together, they can contribute to a diversified portfolio by addressing both growth and income objectives.
