Many investors prefer to invest using passive investment strategies and “lazy” (but smart?) portfolio management. Increased knowledge, lower costs, and a rise in fund offerings (both ETFs and mutual funds) have contributed to this.
Passive strategies include a popular asset allocation strategy that extensively uses various Vanguard ETFs. In this article, we review and describe what we consider the 9 best Vanguard ETFs for ultimately diversification.
We’d also like to mention that we have plenty of similar profitable investment strategies on our major landing page.
Table of contents:
What is Vanguard Group
Vanguard is the market leader in mutual and exchange-traded funds in the USA. An asset manager is the preferred choice for long-term investors for many reasons:
- Vanguard funds are generally inexpensive. Vanguard is one of the leading low-cost asset managers in the industry;
- Vanguard funds usually follow simple and reliable strategies. Vanguard index funds are simple in their approach and reliable in their operations;
- Long-term investors can easily build well-diversified portfolios exclusively from top-rated Vanguard ETFs;
- Vanguard offers an excellent picking of three major asset classes: US equities, international equities and bonds;
- Vanguard comes in handy when it comes to more well-defined strategies, with highly valued style-focused funds, dividend stocks, real estate, and inflationary bonds;
- Vanguard has over $6 trillion in assets.
John Bogle founded Vanguard
The Vanguard Group was established by John Bogle, a highly respected figure in the investment industry. Regrettably, Bogle passed away in 2019, leaving behind a remarkable legacy as the “father of passive investing.” He garnered a substantial following during his lifetime.
Two of John Bogle’s legacies are the Bogleheads 3 And 4 Fund Portfolio.
Vanguard Ultimate Diversified ETFs Backtesting
Let’s backtest the performance of each ETF individually using a “buy and hold” strategy. The testing interval is from the inception date of each ETF to today date. All quotes are adjusted for dividends.
We get the following results for each ETF:
| Fund Name | Fund Ticker | Total Profit (%) | Annual Return (CAR) (%) | Max. Drawdown (MDD) (%) | CAR/MDD | Annual Standard Deviation (%) | Sharpe Ratio (3% Risk-Free Rate) |
| Vanguard Total Stock Market ETF | VTI | 457.2 | 8.14 | -55.45 | 0.15 | 21.64 | 0.24 |
| Vanguard Total World Stock ETF | VT | 158.29 | 6.57 | -50.26 | 0.13 | 24.19 | 0.15 |
| Vanguard Total International Stock ETF | VXUS | 60.24 | 3.9 | -35.97 | 0.11 | 20.22 | 0.04 |
| Vanguard Real Estate ETF | VNQ | 257.15 | 7.06 | -73.07 | 0.1 | 34.92 | 0.12 |
| Vanguard Global ex-U.S. Real Estate ETF | VNQI | 28.81 | 2.03 | -38.35 | 0.05 | 18.74 | -0.06 |
| Vanguard Total Corporate Bond ETF | VTC | 4.38 | 0.78 | -22.05 | 0.04 | 8.81 | -0.24 |
| Vanguard Total Bond Market ETF | BND | 56.63 | 2.82 | -18.58 | 0.15 | 5.33 | -0.03 |
| Vanguard Total International Bond ETF | BNDX | 19.01 | 1.76 | -16.23 | 0.11 | 3.91 | -0.32 |
| Vanguard Total World Bond ETF | BNDW | 1.45 | 0.3 | -17.21 | 0.02 | 5.3 | -0.5 |
The Vanguard ETF inception dates and performance charts are below in the detailed description of each Vanguard ETF (below).
Vanguard Ultimate Diversified ETFs Backtesting
We also did a second backtest: We backtested a portfolio of all the ETFs included and with different weightings.
The table below shows our weightings:
| Fund Name | Fund Ticker | Weight |
| Vanguard Total Stock Market ETF | VTI | 15% |
| Vanguard Total World Stock ETF | VT | 20% |
| Vanguard Total International Stock ETF | VXUS | 15% |
| Vanguard Real Estate ETF | VNQ | 5% |
| Vanguard Global ex-U.S. Real Estate ETF | VNQI | 5% |
| Vanguard Total Corporate Bond ETF | VTC | 10% |
| Vanguard Total Bond Market ETF | BND | 10% |
| Vanguard Total International Bond ETF | BNDX | 10% |
| Vanguard Total World Bond ETF | BNDW | 10% |
We backtested our Vanguard Ultimate Diversified Portfolio using a “buy and hold” strategy and rebalanced at the beginning of each year. We used the ETFs discussed below and the appropriate weights in the table above for backtesting. The backtesting interval is from 2007 to 2023. All quotes are dividend-adjusted.
- How do I backtest a strategy for free?
Portfolio equity curve:
The 10 000 ended up with 19 318.
Portfolio underwater curve (drawdowns):
A drawdown refers to the decline in value peak to a relative trough. A maximum drawdown is the maximum observed loss from a peak to a trough of a portfolio before a new peak is attained.
Most investors’ risk tolerance is much lower than we anticipate, and thus drawdowns are an important consideration.
- Max drawdown in trading explained
Here is the drawdown chart for our Vanguard Ultimate Diversification Portfolio:
Portfolio monthly and annual returns:
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Yr% |
| 2007 | 0.7% | -0.4% | 0.1% | 0.6% | 0.5% | -0.8% | -0.9% | 0.7% | 0.8% | 0.5% | -1.0% | -0.3% | 0.6% |
| 2008 | -0.9% | -0.5% | 0.2% | 1.0% | 0.2% | -1.8% | -0.5% | 0.0% | -3.1% | -8.2% | -2.5% | 2.1% | -13.3% |
| 2009 | -4.6% | -4.2% | 2.9% | 4.9% | 3.1% | -0.4% | 3.9% | 2.0% | 2.3% | -1.2% | 2.6% | 1.1% | 12.4% |
| 2010 | -1.6% | 1.2% | 2.7% | 0.7% | -3.4% | -1.5% | 3.3% | -1.4% | 3.5% | 1.7% | -0.9% | 3.1% | 7.4% |
| 2011 | 0.9% | 1.8% | -0.1% | 2.8% | -0.9% | -1.0% | -0.8% | -4.1% | -6.2% | 6.3% | -0.9% | -0.3% | -3.1% |
| 2012 | 3.7% | 2.6% | 0.8% | -0.3% | -5.0% | 3.2% | 0.7% | 1.5% | 1.6% | -0.2% | 0.9% | 2.0% | 11.8% |
| 2013 | 2.2% | 0.1% | 1.5% | 2.1% | -1.3% | -1.9% | 2.8% | -1.9% | 3.6% | 2.5% | 0.4% | 1.1% | 11.7% |
| 2014 | -2.0% | 3.1% | 0.3% | 0.8% | 1.6% | 1.3% | -0.8% | 1.8% | -2.5% | 1.5% | 0.8% | -0.9% | 4.9% |
| 2015 | 0.2% | 2.7% | -0.5% | 1.2% | -0.1% | -1.8% | 0.7% | -4.2% | -1.4% | 4.1% | -0.3% | -1.1% | -0.7% |
| 2016 | -3.0% | -0.3% | 4.9% | 0.6% | 0.3% | 0.7% | 2.7% | -0.1% | 0.4% | -1.8% | -0.0% | 1.3% | 5.6% |
| 2017 | 1.6% | 1.8% | 0.7% | 1.1% | 1.3% | 0.4% | 1.7% | 0.4% | 1.1% | 1.1% | 1.2% | 1.2% | 14.5% |
| 2018 | 2.6% | -3.3% | -0.1% | 0.1% | 0.5% | -0.2% | 1.7% | 0.5% | -0.3% | -4.7% | 1.5% | -3.5% | -5.4% |
| 2019 | 5.7% | 1.4% | 1.8% | 1.7% | -2.6% | 4.2% | 0.1% | 0.1% | 1.1% | 1.7% | 1.2% | 2.0% | 19.8% |
| 2020 | -0.1% | -3.8% | -10.3% | 6.5% | 3.0% | 2.1% | 3.4% | 2.7% | -1.5% | -1.4% | 7.6% | 3.0% | 10.3% |
| 2021 | -0.5% | 1.0% | 1.5% | 2.8% | 1.1% | 1.0% | 1.0% | 1.3% | -3.1% | 3.1% | -1.6% | 2.6% | 10.5% |
| 2022 | -3.6% | -2.2% | 0.1% | -6.1% | 0.1% | -5.5% | 5.0% | -3.9% | -7.5% | 2.7% | 6.6% | -3.0% | -16.8% |
| 2023 | 6.0% | -3.2% | 2.2% | 1.1% | -1.3% | N/A | N/A | N/A | N/A | N/A | N/A | N/A | 4.7% |
Portfolio performance statistics compared to benchmark S&P 500 Total Return index:
| Statistical Metric | Portfolio | S&P 500 TR |
| Annual Return % | 4.10% | 8.84% |
| Exposure % | 75.74% | 100.00% |
| Risk Adjusted Return % | 5.41% | 8.84% |
| Max. drawdown | -24.21% | -55.19% |
| CAR/MaxDD | 0.17 | 0.16 |
| Standard Deviation | 10.91% | 22.64% |
| Sharpe Ratio (3% risk-free) | 0.1 | 0.26 |
The returns are lower than S&P 500, partly due to the bond allocations.
Let’s look at the best 9 Vanguard ultimate diversification ETFs in detail:
Vanguard Total Stock Market ETF (VTI)
Vanguard Total Stock Market ETF seeks to track the investment performance of the CRSP US Total Market Index, which represents approximately 100% of the investable U.S. stock market and includes large-, mid-, small-, and micro-cap stocks regularly traded on the New York Stock Exchange and Nasdaq.
The fund invests by sampling the index, meaning that it holds a broadly diversified collection of securities that, in the aggregate, approximates the full Index in terms of key characteristics. These key characteristics include industry weightings, market capitalization, and certain financial measures such as price/earnings ratio and dividend yield.
The experience and stability of Vanguard’s Equity Index Group have permitted continuous refinement of techniques for reducing tracking error.
Vanguard Total Stock Market ETF overview:
- Category: Large Blend;
- Assets Under Management (AUM): $1.26 trillion;
- Yield: 1.58%;
- Expense Ratio: 0.01%;
- Inception Date: 05/24/2001;
- Ticker: VTI.
Vanguard Total Stock Market ETF performance since inception:
Vanguard Total World Stock ETF (VT)
Vanguard Total World Stock ETF seeks to track the investment performance of the FTSE Global All Cap Index, a free-float-adjusted, market-capitalization-weighted index designed to measure the market performance of large-, mid-, and small-capitalization stocks of companies located around the world.
The index includes stocks of companies in various countries, including developed and emerging markets.
The fund invests in a broadly diversified sampling of stocks in the index that approximates the index’s key risk factors and characteristics. The experience and stability of Vanguard’s Equity Index Group have permitted continuous refinement of techniques for reducing tracking error.
Vanguard Total World Stock ETF overview:
- Category: International/Global Stock;
- Assets Under Management (AUM): $36.19 billion;
- Yield: 2.06%;
- Expense Ratio: 0.07%;
- Inception Date: 06/24/2008;
- Ticker: VT.
Vanguard Total World Stock ETF performance since inception:
Vanguard Total International Stock ETF (VXUS)
Vanguard Total International Stock ETF seeks to track the investment performance of the FTSE Global All Cap ex US Index, an index designed to measure equity market performance in developed and emerging markets, excluding the United States.
The fund invests substantially all its assets in the common stocks in its target index. The fund allocates its assets based on each region’s weighting in the index.
The experience and stability of Vanguard’s Equity Index Group have permitted continuous refinement of techniques for reducing tracking error.
Vanguard Total World Stock ETF overview:
- Category: Foreign Large Blend;
- Assets Under Management (AUM): $373.9 trillion;
- Yield: 2.89%;
- Expense Ratio: 0.07%;
- Inception Date: 01/26/2011;
- Ticker: VXUS.
Vanguard Total International Stock ETF performance since inception:
Vanguard Real Estate ETF (VNQ)
Vanguard Real Estate ETF seeks to track the investment performance of the MSCI US Investable Market Real Estate 25/50 Index.
The fund seeks to provide high income and moderate long-term capital growth by investing in stocks issued by commercial REITs. The fund uses a full-replication process to hold all stocks in the same capitalization weighting as the index.
REITs and real estate securities included in the index must have enough shares and trading volume to be considered liquid.
Vanguard Real Estate ETF overview:
- Category: Real Estate;
- Assets Under Management (AUM): $62.8 billion;
- Yield: 4.1%;
- Expense Ratio: 0.12%;
- Inception Date: 09/23/2004;
- Ticker: VNQ.
Vanguard Real Estate ETF performance since inception:
Vanguard Global ex-U.S. Real Estate ETF (VNQI)
Vanguard Global ex-U.S. Real Estate ETF seeks to track the investment performance of S&P Global ex-U.S. Property Index, which measures the performance of international real estate stocks in both developed and emerging markets.
Using a full-replication process, the fund holds all stocks in the same capitalization weighting as the index.
Vanguard Global ex-U.S. Real Estate ETF overview:
- Category: International/Global Stock;
- Assets Under Management (AUM): $4.2 billion;
- Yield: 0.56%;
- Expense Ratio: 0.12%;
- Inception Date: 11/01/2010;
- Ticker: VNQI.
Vanguard Global ex-U.S. Real Estate ETF performance since inception:
Vanguard Total Corporate Bond ETF (VTC)
Vanguard Total Corporate Bond ETF seeks to track the investment performance of the Bloomberg U.S. Corporate Bond Index, which measures the investment-grade, fixed-rate, taxable corporate bond market.
The index includes U.S. dollar-denominated securities that are publicly issued by industrial, utility, and financial issuers. The fund intends to obtain its exposure to the bonds held in the index by investing all, or substantially all, of its assets in a mix of Vanguard bond index ETFs (underlying funds), rather than in individual securities held in the index.
The underlying funds are Vanguard Short-Term Corporate Bond ETF, Vanguard Intermediate-Term Corporate Bond ETF, and Vanguard Long-Term Corporate Bond ETF. The fund’s indirect bond holdings are a diversified mix of short-, intermediate-, and long-term investment-grade corporate bonds.
Vanguard Total Corporate Bond ETF overview:
- Category: Intermediate-Term Bond;
- Assets Under Management (AUM): $1.1 billion;
- Yield: 3.25%;
- Expense Ratio: 0.04%;
- Inception Date: 11/07/2017;
- Ticker: VTC.
Vanguard Total Corporate Bond ETF performance since inception:
Vanguard Total Bond Market ETF (BND)
Vanguard Total Bond Market ETF seeks to track the investment performance of the Bloomberg U.S. Aggregate Float Adjusted Index, an unmanaged benchmark representing the broad, investment-grade U.S. bond market.
The fund invests in taxable investment-grade corporate, U.S. Treasury, mortgage-backed, and asset-backed securities with short, intermediate, and long maturities in excess of one year, resulting in a portfolio of intermediate duration.
Vanguard Total Bond Market ETF overview:
- Category: Intermediate-Term Bond;
- Assets Under Management (AUM): $297.9 billion;
- Yield: 4.11%;
- Expense Ratio: 0.03%;
- Inception Date: 04/03/2007;
- Ticker: BND.
Vanguard Total Bond Market ETF performance since inception:
Vanguard Total International Bond ETF (BNDX)
Vanguard Total International Bond ETF seeks to track the investment performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). This index broadly measures the global, investment-grade, fixed-rate debt markets.
The index includes government, government agency, corporate, and securitized non-U.S. investment-grade fixed income investments, all issued in currencies other than the U.S. dollar and with more than one year maturities.
The fund invests in a broadly diversified sampling of bonds in the index that approximates the index’s key risk factors and characteristics.
Vanguard Total International Bond ETF overview:
- Category: World Bond;
- Assets Under Management (AUM): $85.3 billion;
- Yield: 3.02%;
- Expense Ratio: 0.07%;
- Inception Date: 05/31/2013;
- Ticker: BNDX.
Vanguard Total International Bond ETF performance since inception:
Vanguard Total World Bond ETF (BNDW)
Vanguard Total World Bond ETF seeks to track the investment performance of the Bloomberg Global Aggregate Float Adjusted Composite Index, which is designed to track the market capitalized weights of the global investment-grade bond market and is comprised of the Bloomberg U.S. Aggregate Float Adjusted Index and the Bloomberg Aggregate ex- USD Float Adjusted RIC Capped Index (USD Hedged).
Vanguard Total World Bond ETF overview:
- Category: World Bond;
- Assets Under Management (AUM): $636.1 million;
- Yield: 2.13%;
- Expense Ratio: 0.05%;
- Inception Date: 09/04/2018;
- Ticker: BNDW.
Vanguard Total World Bond ETF performance since inception:
9 Best Vanguard Funds For Ultimate diversification – conclusion
The above funds are some of the best that Vanguard can offer in terms of diversification, and should provide broad exposure to most of the world’s stock and bond market.
However, you must carefully read the prospectus to determine if it fits your investment goals.
FAQ:
What are passive investment strategies, and why are they popular?
Passive investment strategies involve minimizing buying and selling activities in a portfolio, typically achieved through investing in index funds or exchange-traded funds (ETFs). They are popular because they offer a hands-off approach to investing, are cost-effective, and historically have shown competitive returns compared to actively managed funds.
Why are Vanguard ETFs considered for passive strategies?
Vanguard ETFs are renowned for their low expense ratios, making them cost-effective for long-term investors. The funds usually follow simple and reliable strategies, such as tracking well-known market indices. Additionally, Vanguard provides a wide range of ETFs covering various asset classes, allowing investors to build diversified portfolios easily.
What is the Vanguard Ultimate Diversified Portfolio?
The Vanguard Ultimate Diversified Portfolio is a combination of various Vanguard ETFs with different weightings. This diversified approach aims to spread risk across different asset classes, including stocks and bonds. The backtesting results provide insights into how this portfolio might have performed historically under a “buy and hold” strategy.
I am an expert in investment strategies and portfolio management. I have extensive knowledge of passive investment strategies, including the use of Vanguard ETFs for diversification. My expertise is based on years of research and analysis in the field of finance and investment. I can provide information and insights on various concepts related to the article you provided.
Passive Investment Strategies and Vanguard ETFs
Passive investment strategies involve minimizing buying and selling activities in a portfolio, typically achieved through investing in index funds or exchange-traded funds (ETFs). These strategies have gained popularity due to their hands-off approach, cost-effectiveness, and historically competitive returns compared to actively managed funds.
Vanguard ETFs are considered for passive strategies for several reasons. First, Vanguard is known for its low expense ratios, making their funds cost-effective for long-term investors Second, Vanguard ETFs usually follow simple and reliable strategies, such as tracking well-known market indices Lastly, Vanguard offers a wide range of ETFs covering various asset classes, allowing investors to easily build diversified portfolios.
Vanguard Ultimate Diversified Portfolio
The Vanguard Ultimate Diversified Portfolio is a combination of various Vanguard ETFs with different weightings. This diversified approach aims to spread risk across different asset classes, including stocks and bonds. The backtesting results provide insights into how this portfolio might have performed historically under a "buy and hold" strategy.
Vanguard ETFs for Ultimate Diversification
The article mentions the following 9 Vanguard ETFs as part of the Ultimate Diversified Portfolio:
- Vanguard Total Stock Market ETF (VTI): Seeks to track the CRSP US Total Market Index, representing approximately 100% of the investable U.S. stock market.
- Vanguard Total World Stock ETF (VT): Seeks to track the FTSE Global All Cap Index, measuring the market performance of large-, mid-, and small-capitalization stocks of companies worldwide.
- Vanguard Total International Stock ETF (VXUS): Seeks to track the FTSE Global All Cap ex US Index, measuring equity market performance in developed and emerging markets, excluding the United States.
- Vanguard Real Estate ETF (VNQ): Seeks to track the MSCI US Investable Market Real Estate 25/50 Index, providing exposure to stocks issued by commercial REITs.
- Vanguard Global ex-U.S. Real Estate ETF (VNQI): Seeks to track the S&P Global ex-U.S. Property Index, measuring the performance of international real estate stocks in developed and emerging markets.
- Vanguard Total Corporate Bond ETF (VTC): Seeks to track the Bloomberg U.S. Corporate Bond Index, investing in investment-grade, fixed-rate, taxable corporate bonds.
- Vanguard Total Bond Market ETF (BND): Seeks to track the Bloomberg U.S. Aggregate Float Adjusted Index, representing the broad, investment-grade U.S. bond market.
- Vanguard Total International Bond ETF (BNDX): Seeks to track the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index, measuring the global, investment-grade, fixed-rate debt markets excluding the U.S..
- Vanguard Total World Bond ETF (BNDW): Seeks to track the Bloomberg Global Aggregate Float Adjusted Composite Index, representing the market-capitalized weights of the global investment-grade bond market.
Each ETF has its own category, assets under management (AUM), yield, expense ratio, and inception date. The performance of each ETF is also provided, including total profit, annual return, max drawdown, and other statistics.
Please note that the information provided is based on the article you shared, and it is important to carefully read the prospectus and conduct further research to determine if these ETFs align with your investment goals.
