2 Brilliant Vanguard Index Funds to Buy With $1,000 in August and Hold Forever

Investors do not have to choose between stocks and index funds. Blending the strategies can let you build a diversified portfolio — meaning one with exposure to a variety of sectors and industries — without being an expert in every area of the market.

The Vanguard S&P 500 (VOO -0.17%) and the Vanguard Total International Stock ETF (VXUS 0.72%) are excellent foundations for virtually any portfolio. They are index funds patient investors can buy and hold forever, and a single share of each currently costs less than $1,000.

Here are the important details.

1. Vanguard S&P 500 ETF

The Vanguard S&P 500 ETF tracks the performance of the S&P 500 (^GSPC -0.08%), an index that includes 500 large U.S. companies that account for more than 80% of domestic equities and nearly 50% of global equities by market value. The Vanguard S&P 500 ETF lets investors spread money across many of the most influential businesses in the world.

The 10 largest holdings in the index fund are listed by weight below:

1. Nvidia: 7.3%
2. Microsoft: 7%
3. Apple: 5.8%
4. Amazon: 3.9%
5. Alphabet: 3.5%
6. Meta Platforms: 3%
7. Broadcom: 2.4%
8. Berkshire Hathaway: 1.6%
9. Tesla: 1.6%
10. JPMorgan Chase: 1.5%

The S&P 500 achieved a total return of 663% in the last two decades, which is equivalent to an annual return of 10.7%. That period encompasses such a broad range of economic and market environments — two recessions, three bear markets, and eight corrections — that investors can be reasonably confident in similar returns over the next few decades.

Importantly, history says patient investors are virtually guaranteed to turn a profit provided their holding period is long enough. The S&P 500 has never declined over any 15-year period since 1990. Moreover, the index has outperformed virtually every other asset class over the last 20 years, including international equities, fixed income, precious metals, and real estate, according to Morgan Stanley.

Finally, the Vanguard S&P 500 ETF has an expense ratio of 0.03%, meaning shareholders will pay $3 annually on every $10,000 invested in the fund. Comparatively, the average expense ratio on U.S. mutual funds and ETFs was 0.34% in 2024.

2. Vanguard Total International Stock ETF

The Vanguard Total International Stock ETF measures the performance of large companies from developed and emerging markets, excluding the United States. Included in the fund are more than 8,500 stocks that cover 98% of non-U.S. markets. It is most heavily weighted toward companies in Australia, Canada, France, Japan, and the United Kingdom.

The 10 largest holdings in the index fund are listed by weight below:

1. Taiwan Semiconductor: 2.4%
2. Tencent: 1.1%
3. ASML: 0.8%
4. SAP: 0.8%
5. Alibaba: 0.7%
6. Nestle: 0.6%
7. Roche: 0.6%
8. Novartis: 0.6%
9. Novo Nordisk: 0.6%
10. HSBC: 0.5%

The Vanguard Total International Stock ETF has returned 118% since its inception in 2011, which is equivalent to 5.5% annually. That is considerably less than the S&P 500 index fund discussed in the previous section, and this particular ETF is also a little more expensive. It has an expense ratio of 0.05%, meaning shareholders will pay $5 per year on every $10,000 invested in the fund.

As a final thought, because the Vanguard S&P 500 ETF has regularly yielded better returns, investors should keep a greater percentage of their portfolios in that fund as compared to the Vanguard Total International Stock ETF. Personally, I would allocate 5% of my invested assets to the Vanguard Total International Stock ETF, 25% to the Vanguard S&P 500 ETF, and 70% to individual stocks.