The last five years have been volatile for the stock market. In that span, the market finished the year down twice, in 2018 and 2022. And within that time frame we had a pandemic, two bear markets, and a technology bubble. We also saw the longest bull market in history come to an end.
Given that there were so many ups and downs in this five-year period, it might be interesting to know which Vanguard exchange-traded funds (ETFs) were the best performers on an annualized basis during this stretch. It may give you broader insight into which areas of the market have been the most resilient and guide you on which funds could help you meet long-term goals like retiring a millionaire.
1. Vanguard Information Technology ETF
The Vanguard Information Technology ETF (VGT -1.56%) has not been the best-performing Vanguard ETF over the long term, but it has had the highest return in the past five years.
This ETF, as the name suggests, includes stocks in the IT sector, but it's broader than most technology ETFs. It tracks the MSCI US IMI 25/50 Information Technology Index, which includes about 365 stocks across the broad universe of technology stocks, from large-caps to small-caps. It is market cap-weighted, so the bigger companies are more represented, but there are screens and caps that seek to add diversification.
Also, it focuses on hardware, software, technology equipment, and consulting firms in the IT space while excluding communication services companies like Meta Platforms or Alphabet. The top three holdings are Apple, Microsoft, and Nvidia.
Over the past five years, the Vanguard Information Technology ETF has posted an annualized return of 17.2% through Nov. 30, which is the best in the fund family. Its 10-year average return is even better at 18.9%, while it has returned 11.7% per year since its inception in 2004.
2. Vanguard Russell 1000 Growth ETF
The second-best performer over the past five years among broader index funds is the Vanguard Russell 1000 Growth ETF (VONG -1.47%). This one might be a bit more of a surprise than the first entry, as it is not strictly a large-cap growth ETF, which typically dominated in the latest bull market.
The fund tracks the Russell 1000 Growth Index, so it contains both large- and mid-cap growth stocks with about 512 holdings. The three largest holdings are Apple, Microsoft, and Amazon.
This ETF has posted a five-year annualized return of 12.8% through Nov. 20. Also, it had an average annual return of 14.9% over the past 10 years, and a 14.7% annual return since its inception in 2010. For both the five- and 10-year periods, it has outperformed the Vanguard S&P 500 Growth ETF as the chart below shows. It contains a more diversified group of growth names, which has helped during this bear market that hit large-caps hard.
Data by YCharts.
3. Vanguard Dividend Appreciation ETF
The Vanguard Dividend Appreciation ETF (VIG -0.71%) may also be a surprise to some as the next-best-performing Vanguard broader market ETF over the past five years. It is not the typical ETF you see leading the markets, but these are not typical times. Dividend stocks have been among the best performers over the past year, and this is a uniquely constructed ETF that seeks out not just good dividend stocks but also stable companies with a track record of growth.
The ETF tracks the S&P U.S. Dividend Growers Index, which includes stocks that have increased their dividend payouts for at least 10 consecutive years, minus the top 25% of stocks that have the highest yields. This latter part might seem counterintuitive: Why would you take out the top-yielding stocks? The idea is to eliminate the potential for stocks that are dividend traps and pay out higher yields than they can sustain. This helps ensure that the portfolio includes steady, stable growers.
The portfolio includes 289 stocks with UnitedHealth Group, Johnson & Johnson, and Microsoft as the three largest holdings.
The ETF has posted an average annual return of 12.5% over the past five years, which beats the S&P 500. Its annualized return over the past 10 years is 12.5% and it has returned 9.4% since its inception in 2006.
Can they make you a millionaire?
These three funds have all beaten the market over the volatile past five years, and two of them have beaten the broader market over the past 10 years. The Dividend Appreciation ETF slightly lagged the S&P 500 over the past decade, but it provides some ballast during down markets, as it is basically flat over the past year through Nov. 30 and offers good dividend income.
While none of these funds have 20-year track records yet, the Vanguard Information Technology ETF is the closest, as it has posted an average annual return of 11.7% since its inception in 2004.
So, for the sake of this hypothetical, if you invested $30,000 in that ETF 18 years ago, contributing $100 per month, you would have about $322,000 today. That wouldn't make you a millionaire, but when you add in your retirement savings from your 401(k) plan and other sources, you might be pretty close.
