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The 2 Best Vanguard Index Funds to Buy Now With $700 and Hold Forever | The Motley Fool

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  Published in Stocks and Investing on Saturday, September 13th 2025 at 5:46 GMT by The Motley Fool
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Two Vanguard Index Funds Worth Every Dollar: Why a $700 Allocation Can Keep You Ahead of the Market

The idea that you can “buy low‑cost, diversified index funds and let them grow for the long haul” is no longer a fringe investment principle—it’s a cornerstone of modern portfolio theory and a favorite among seasoned investors, including Warren Buffett. In a recent The Motley Fool article (September 13, 2025), the writers zeroed in on the two Vanguard index funds that, according to the analysis, represent the best value for a modest $700 allocation, if you’re ready to adopt a “buy, hold, and let the compounding do its work” mindset.

Why Vanguard? The Low‑Cost, Big‑Pool Advantage

Vanguard’s reputation hinges on three pillars: ultra‑low expense ratios, enormous asset bases, and a disciplined index‑fund philosophy. As of the latest data, Vanguard’s flagship equity funds—VTSAX (Total Stock Market) and VTIAX (Total International Stock)—have expense ratios of 0.04 % and 0.07 % respectively. To put that into perspective, the median U.S. equity fund’s expense ratio sits around 0.65 %, meaning Vanguard keeps a large slice of the pie that would otherwise be siphoned off by fees.

Large asset bases also matter. Vanguard’s top equity funds hold trillions of dollars and span almost every ticker in the market. This scale translates into liquidity, tight spreads, and a robust, diversified underlying portfolio that mirrors the markets it tracks. Vanguard’s focus on low cost and diversification is the direct result of its unique ownership structure—its funds are owned by investors, not shareholders—so profit maximization is replaced by fee minimization.

Fund 1: Vanguard Total Stock Market Index Fund (VTSAX)

What It Tracks: The CRSP US Total Market Index, which includes roughly 4,000 U.S. equities ranging from small‑cap growth to large‑cap value.

Expense Ratio: 0.04 %
Year‑to‑Date Return (2025): 5.8 % (as of mid‑September)
10‑Year Annualized Return (2005‑2025): 10.3 %

The article notes that VTSAX offers complete domestic exposure without the need to juggle multiple sector‑oriented ETFs. Because it tracks the entire U.S. equity universe, you’re effectively covered for every growth and value play in the market. The fund’s portfolio is weighted by market cap, giving you significant holdings in blue‑chip names like Apple, Microsoft, and Amazon, but also a sizable stake in smaller, high‑growth stocks that can propel long‑term returns.

For a $700 investment, a typical allocation is $350 into VTSAX. If you prefer a dollar‑cost‑averaging approach, you could spread the purchase over a few months, but the article stresses that the “buy‑and‑hold” philosophy eliminates the need to time the market.

Fund 2: Vanguard Total International Stock Index Fund (VTIAX)

What It Tracks: The MSCI ACWI ex USA Index, which encompasses approximately 5,800 global equities outside the United States.

Expense Ratio: 0.07 %
Year‑to‑Date Return (2025): 3.6 %
10‑Year Annualized Return (2005‑2025): 8.5 %

VTIAX is the international counterpart that grants you instant exposure to markets across the world—North America (Canada, Mexico), Europe, Asia‑Pacific, and emerging economies. The article highlights that the fund has a “balanced mix” of developed and emerging market stocks, with a current allocation of roughly 30 % to large‑cap developed markets, 45 % to mid‑cap and small‑cap developed markets, and 25 % to emerging markets. This blend mitigates the risk that comes with over‑concentration in any single economy.

A $350 allocation in VTIAX complements VTSAX’s U.S. focus, ensuring a truly global diversification. The article points out that by pairing these two funds, investors can enjoy the full spectrum of equity opportunities while keeping management fees at a minimum.

How to Buy and What to Do with Your $700

1. Open an account: Use a commission‑free brokerage (many Vanguard accounts can be opened through Vanguard itself or via platforms such as Fidelity or Charles Schwab).
2. Transfer $700: Either as a single lump sum or via a few smaller installments.
3. Split equally: Allocate $350 into VTSAX and $350 into VTIAX.
4. Set a rebalancing schedule: The article suggests a simple 12‑month rebalancing to maintain a 50/50 U.S./International split, but it also stresses that “rebalancing is optional” and that the long‑term compounding effect often outweighs the need for frequent adjustment.

Why Hold Forever? The Power of Compounding and Simplicity

The article’s central thesis is that a “buy‑and‑hold” strategy eliminates behavioral pitfalls. Investors often chase short‑term market noise, buying at peaks and selling at troughs. By investing in low‑cost index funds and staying the course, you reap the benefit of compounding returns without the mental burden of market timing.

Additionally, Vanguard’s funds are highly tax‑efficient. With index tracking, there’s minimal turnover, resulting in fewer capital‑gain distributions that would otherwise be taxed in a taxable brokerage account. For retirees or high‑income investors, the article recommends placing the funds in a tax‑advantaged vehicle (IRA or Roth IRA) to further shelter gains.

What the Broader Market Says

The piece also contextualizes Vanguard’s dominance in the broader index‑fund landscape. While other providers—BlackRock’s iShares, State Street’s SPDR, and Fidelity’s ZERO fees—offer competitive products, Vanguard’s low expense ratios and high liquidity keep it in the upper echelons. The article cites a 2025 Fact Set analysis indicating Vanguard’s equity funds outperformed the industry average by 0.4 % in absolute terms over the past year, largely due to lower fees.

Bottom Line

• Vanguard Total Stock Market (VTSAX): 50 % of your $700, capturing the U.S. equity universe at a 0.04 % fee.
• Vanguard Total International Stock (VTIAX): 50 % of your $700, covering the rest of the world at a 0.07 % fee.
• Total Expense Ratio: 0.05 % (average of both), an industry‑classic low.
• Hold Strategy: Buy now, let the market do its work, and revisit once a year for a simple rebalancing check.

The article concludes that these two funds “are the best of the best for anyone who wants a simple, diversified, low‑cost, and tax‑efficient investment.” For a $700 contribution, you’re investing in a portfolio that mirrors the world’s equity markets, managed with the same philosophy that has kept Vanguard’s assets under management soaring. If you’re looking to add a “set‑it‑and‑forget‑it” component to your investment strategy, these two Vanguard index funds are the logical starting point.