4 Vanguard ETFs That Can Serve as a Complete Capital Appreciation and Passive Income Portfolio

Many investors turn to dividend stocks as their primary wealth-building strategy. This approach can be problematic when investors focus solely on high yields while overlooking the importance of total returns. The challenges become even more apparent when investors avoid reinvesting their dividends, missing out on the powerful effect of compounding where dividend payments generate additional shares that produce even more dividends over time.

Traditional income investing often leads people toward individual high-yield stocks or income-focused exchange-traded funds (ETFs). Some investors even venture into complex options strategies to enhance their income. These approaches frequently result in disappointing returns and unnecessary risk exposure.

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The following analysis reveals four Vanguard ETFs that have outperformed many traditional dividend stocks while offering both growth and income. Investors looking to build a retirement portfolio that generates steady passive income without sacrificing growth potential will want to take a closer look at these funds' proven track record.

Core market exposure delivers steady returns

The Vanguard 500 Index Fund (VOO 1.29%) follows the S&P 500 index and comes with an industry-leading expense ratio of just 0.03%. Currently yielding 1.22%, this fund provides essential exposure to America's largest companies while keeping costs minimal for long-term investors.

VOO data by YCharts.

The fund's efficient structure and broad market exposure make it an excellent foundation for any income portfolio. Its blend of growth and tier 1 dividend-paying companies helps maintain steady returns over time.

High-yield domestic stocks add income potential

The Vanguard High Dividend Yield Index Fund (VYM 0.69%) targets U.S. companies paying above-average dividends. With a current yield of 2.70% and a low 0.06% expense ratio, this fund delivers meaningful income while keeping costs in check.

The fund's methodology identifies companies with sustainable high yields rather than chasing the highest payouts. This approach helps avoid dividend traps while maintaining the potential for both income and growth.

International diversification enhances yield

The Vanguard International High Dividend Yield Fund (VYMI 0.49%) provides global diversification and the highest yield in the group, at 4.53%. The fund's expense ratio of 0.22% ranks among the lowest for international dividend ETFs, where ratios often exceed 0.97%.

The fund's global reach boosts overall portfolio yield and provides valuable geographic diversification. International dividend strategies can help capture different economic cycles and reduce country-specific risks.

Quality growth supports long-term returns

The Vanguard Dividend Appreciation Index Fund (VIG 0.66%) focuses on companies with strong dividend-growth track records. Offering a 1.67% yield and 0.06% expense ratio, this fund emphasizes quality over current income.

VIG data by YCharts.

The fund's focus on dividend growth rather than current yield has proven to be a wise strategy. Companies that consistently raise their dividends often demonstrate strong financial health and disciplined management, a potent combo that has historically produced above-average returns.

Fund metrics and characteristics

Here's how these funds compare across key metrics that matter to investors:

*Alpha and beta measurements reflect fund performance relative to appropriate benchmarks over the past 36 months. Fund metrics courtesy of Vanguard.

Performance comparison highlights ETF advantages

The power of this ETF combination becomes clear when comparing their performance to individual dividend stocks. A $250,000 investment in each fund over the prior 10 years would have grown substantially:

In contrast, the same investment spread across traditional blue chip dividend stocks would have yielded significantly lower returns:

Investing takeaway

These four Vanguard ETFs demonstrate the power of a diversified, low-cost approach to generating investment income. Over the prior 10-year period, this ETF strategy outperformed a portfolio of four widely held blue chip dividend stocks -- ExxonMobil, Verizon, PepsiCo, and Altria -- by nearly $900,000. Even with dividend reinvestment, these popular dividend payers collectively fell short of the ETF combination's results. So, for investors who want a simple, straightforward path to income and wealth generation, these four Vanguard funds provide a powerful solution.