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The Smartest Vanguard ETF to Buy With $500 Right Now | The Motley Fool

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  Published in Stocks and Investing on Saturday, October 25th 2025 at 7:40 GMT by The Motley Fool
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The Smartest Vanguard ETF to Buy With $500 Right Now: A Comprehensive Overview

Investors looking to grow a modest $500 can benefit from a carefully selected Vanguard ETF that offers broad diversification, low costs, and solid performance. The Motley Fool article “Smartest Vanguard ETF to Buy With $500 Right Now” outlines why Vanguard’s flagship total‑market ETF (VTI) stands out as the top recommendation and how it stacks up against other Vanguard offerings. Below is a concise summary of the key points, data, and links explored in the original piece.

1. Why Vanguard Matters

Vanguard is renowned for its low expense ratios, index‑tracking focus, and shareholder‑friendly philosophy. The article explains that a Vanguard ETF gives investors the benefits of passive management while keeping fees minimal—critical when the investment amount is only $500. Vanguard’s “shareholder‑first” structure means that fees are returned to investors rather than siphoned off as corporate profit.

2. The Core Recommendation: Vanguard Total Stock Market ETF (VTI)

Expense Ratio & Size
- Expense Ratio: 0.03% (0.30 basis points)
- AUM: $380+ billion (as of October 2025)

Holdings & Diversification
VTI tracks the CRSP U.S. Total Market Index, covering more than 3,900 U.S. stocks across all market caps—from small‑cap micro‑cap firms to large‑cap giants. The article lists the top 10 holdings (Apple, Microsoft, Amazon, Alphabet, and Meta) but emphasizes that the rest of the portfolio is spread thin enough to provide near‑market breadth.

Historical Performance
The article highlights a 5‑year CAGR of roughly 10.5% and a 10‑year CAGR of 9.8% for VTI. In comparison, the S&P 500 has seen a 5‑year CAGR of 9.1% and a 10‑year CAGR of 8.5%, demonstrating that VTI delivers slightly higher returns for a modest fee differential.

Risk & Volatility
VTI’s standard deviation over the last 5 years is 15.3%, slightly higher than the S&P 500’s 14.9% due to its inclusion of small‑cap stocks. However, the article stresses that volatility is offset by diversification across sectors.

Liquidity
The ETF trades in the millions of shares per day, ensuring tight bid‑ask spreads—an important factor when purchasing with a small amount of capital.

3. Other Vanguard ETFs Worth Considering

The article offers a short list of alternatives that might suit specific risk profiles or investment horizons:

The article advises that if an investor wants a pure growth or sector focus, VUG or VHT could be attractive, but VTI remains the most efficient overall.

4. How to Buy VTI with $500

The article walks through the steps for purchasing VTI via Vanguard’s brokerage platform, as well as through popular third‑party brokers (e.g., Fidelity, Schwab, Robinhood). Key points include:

1. Open a Vanguard Brokerage Account – No minimum deposit is required for the account itself.
2. Deposit Funds – Transfer $500 via ACH.
3. Place a Market Order – Since VTI trades in fractional shares, a $500 order will buy approximately 12.5 shares (depending on the price).
4. Set Up Automatic Rebalancing – The article recommends adding a small recurring transfer (e.g., $20/month) to keep the investment growing.

The piece also notes that brokers with zero commission on Vanguard ETFs (e.g., Fidelity, Schwab) are ideal for small investors.

5. Tracking and Monitoring the Investment

• Expense Ratio Check – Keep an eye on VTI’s expense ratio; Vanguard has a history of keeping it stable.
• Quarterly Performance Review – Compare VTI’s return to a benchmark index like the S&P 500.
• Rebalance if Needed – If sector allocations shift significantly, consider a small rebalancing at year‑end.

6. Broader Market Context

The article situates VTI within the macroeconomic backdrop:
- Interest Rate Outlook – Fed policy changes are likely to impact the valuation of large‑cap versus small‑cap stocks.
- Growth vs. Value Tilt – VTI’s blend offers both, but investors should watch for sector rotations.
- Geopolitical Risks – A modest exposure to foreign markets (e.g., via VEU) is suggested for diversification beyond the U.S. market, but the primary recommendation remains VTI.

7. Links Followed for Extra Insight

The Vanguard ETF profile link provides the most recent expense ratio (0.03%) and a full list of holdings, which the article cites when discussing diversification. The Motley Fool ETF educational page clarifies how ETFs offer instant diversification and lower costs compared to mutual funds, reinforcing why a small investor might choose an ETF over a single stock.

8. Bottom Line

For an investor with $500, the Vanguard Total Stock Market ETF (VTI) delivers:

• Broadest U.S. exposure across all market caps.
• Lowest expense ratio among total‑market options.
• Consistent historical performance slightly better than the S&P 500.
• High liquidity and fractional share capability – perfect for small‐scale investing.

While alternative Vanguard ETFs such as VOO, VUG, or sector‑specific funds offer compelling benefits for certain strategies, VTI remains the most balanced and cost‑effective choice for a novice or budget‑conscious investor looking to build wealth over time.