3 Inexpensive Vanguard ETFs You Can Buy for Lifetime Passive Income

Avangard offers a variety of inexpensive exchange funds (ETFs) for stocks, bonds, asset mixes and more. ETFs can be a simple and straightforward way to achieve diversification and invest in a way that fits your financial planning goals.

That’s why Vanguard Value ETF (VTV -0.70%), Vanguard Mega Cap Value ETF (MGV -0.74%)and Vanguard High Dividend Yield ETF (VIM -0.81%) stand out as the top three funds to buy now for people looking for passive income.

Vanguard Value ETF

The Vanguard Value ETF has $261 billion in net assets and is one of the largest low-cost value ETFs. The fund targets large-cap stocks through 336 holdings, many of which pay dividends.

If you follow Vanguard funds, you may know about Vanguard Growth ETF (NYSEMKT:VUG). Value ETFs and Growth ETFs are two sides of the same coin, with the Growth ETF focusing less on appreciation and dividends and more on earnings growth. Here’s a look at the top 10 holdings in Value ETFs.

Data source: Vanguard.

Right off the bat, you’ll notice that the fund doesn’t hold well-known large-cap growth stocks like Apple, Microsoft, Nvidia, ABC, Amazon, Purpose of the platformor Tesla — all of which are the largest holdings of the Vanguard Growth ETF. The top 10 Value ETF holdings make up just 21.3% of the fund, a stark contrast to the largest Growth ETF, which has a whopping 59% concentration in just 10 stocks. Even Vanguard S&P 500 ETF has only 36% of its holdings in the top ten names.

Even without the help of the biggest growth stocks, the Vanguard Value ETF posted an impressive year-to-date return of 21.1%, just shy of its total return of 24.3% S&P 500. The high numbers show that the companies with the highest value are not just a profit game. In fact, there were many valuable shares reaching all-time highs.

With an expense ratio of just 0.04%, or just $4 for every $10,000 invested, price-profit (P/E) ratio of 19.9 and dividend yield of 2.3%, the Vanguard Value ETF offers a way to invest in industry-leading companies while avoiding high-priced growth stocks with low dividend yields.

Vanguard Mega Cap Value ETF

The Vanguard Mega Cap Value ETF is a concentrated version of the Value ETF with slightly higher fees and an expense ratio of 0.07%. With 136 holdings, the fund mainly takes the largest companies in the Value ETF and leaves out the other 200 holdings. Its top 10 holdings are the same names in the Value ETF, but with a combined weighting of 26.5% instead of 21.3%.

Still, even with this high concentration, the fund is much smaller than Vanguard’s growth-oriented funds. For example, Vanguard Mega Cap Growth ETF has a a staggering 62.7% weighted to just 10 names.

The Mega Cap Value ETF’s holdings are well-diversified across sectors. Compared to the S&P 500, the fund places less emphasis on communications and technology and more on value-oriented sectors such as industrials, consumer staples and energy. For example, 33.2% of the fund goes to health care, consumer goods and utilities. These sectors are generally resistant to recessions and less dependent on economic cycles.

With a 20.8 P/E and a yield of 2.3%, the fund has a valuation and passive income profile similar to the Vanguard Value ETF, making it an excellent choice for investors who want a greater emphasis on industry-leading value companies. than hundreds of names they may not even recognize.

Vanguard High Dividend Yield ETF

The Vanguard High Dividend Yield ETF has 537 holdings, a P/E of 18, a dividend yield of 2.8% and an expense ratio of 0.06%. It’s Vanguard’s third-highest-yielding low-cost equity-focused ETF. The only two high-yielding stock funds are industry ETFs: Vanguard Energy ETF and Vanguard Utilities ETF.

For investors looking for a fund with a yield of nearly 3% that is highly diversified and not concentrated in a single sector, the Vanguard High Dividend Yield ETF is definitely the best choice.

Unlike other income-oriented ETFs, where passive income is the priority, capital gains have historically accounted for a larger portion of the High Dividend Yield ETF’s total income than dividends. This fund does not invest in ultra-high yielding companies with limited growth prospects.

It actually has the same top 10 holdings as the Value ETF and the Mega Cap Value ETF, except that UnitedHealth and Berkshire Hathaway (which don’t pay dividends) trade for Merck and Coca Cola.

Over the past five years, all three of the ETFs above have underperformed the S&P 500, which makes sense since the S&P 500 is heavily influenced by the stocks of leading technology companies. But these funds have still delivered phenomenal returns for patient investors, nearly tripling their money in terms of total returns over the past decade.

^SPX data on YCharts.

As you can see in the chart, the more concentrated Mega Cap Growth ETF outperformed the Value ETF, which outperformed the High Dividend Yield ETF.

When choosing an ETF to buy and hold for the long term, it’s best to choose the fund that best matches your risk tolerance and preferences. All three of the ETFs discussed can be great sources of passive income while allowing you to participate in the best value oriented companies.

Investors looking to bet on the biggest and best companies may prefer the Vanguard Mega Cap ETF, while others seeking greater diversification and higher yields may choose the Vanguard High Dividend Yield ETF.

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