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Vanguard ETFs: Top Picks & One to Avoid for 2026

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  Published in Stocks and Investing on Saturday, January 10th 2026 at 11:13 GMT by The Motley Fool
      Locales: Pennsylvania, California, UNITED STATES

Saturday, January 10th, 2026 - As the new year unfolds, investors are actively seeking strategies to maximize returns and secure their financial futures. Exchange-Traded Funds (ETFs) remain a cornerstone of many investment plans, offering diversification and cost-efficiency. Among the leaders in the ETF space is Vanguard, renowned for its low-cost index funds. This analysis explores two Vanguard ETFs poised for potential success in 2026, while also outlining one to potentially avoid, based on risk considerations.

The Vanguard Advantage: Low Costs and Broad Exposure

Vanguard's enduring appeal lies in its commitment to passive investing and low expense ratios. Their ETFs primarily track well-established market indexes, providing investors with instant exposure to a vast array of companies. This approach minimizes the need for active management, translating to significant cost savings for investors - a key differentiator in a competitive market. The company's philosophy emphasizes long-term growth and accessibility for a wide range of investors.

Top Picks for a Robust 2026 Portfolio

Here's a closer look at two Vanguard ETFs that warrant consideration for 2026, followed by a discussion of a fund that deserves a more cautious approach.

1. VOO (Vanguard S&P 500 ETF): The Core Holding

VOO provides access to the S&P 500, arguably the most recognized benchmark for U.S. stock market performance. This index represents the 500 largest publicly traded companies in the United States, spanning various sectors. Holding VOO essentially allows investors to participate in the overall growth of the U.S. economy. The expense ratio of just 0.04% is incredibly competitive, further enhancing the fund's attractiveness. While historical performance is no guarantee of future results, the S&P 500's track record demonstrates its potential for long-term capital appreciation. The stability of established large-cap companies, a key characteristic of the S&P 500, tends to provide a degree of resilience even during market volatility.

2. VXUS (Vanguard Total International Stock ETF): Diversification Beyond Borders

Diversification is a foundational principle of sound investing. VXUS addresses this principle by offering exposure to a broad range of international companies, excluding those already represented in the U.S. market. By investing in VXUS, investors can potentially capitalize on growth opportunities in emerging economies and benefit from currency fluctuations. The expense ratio of 0.07% is also remarkably low, considering the breadth of global markets it covers. International markets often perform differently than the U.S. market, and VXUS provides a mechanism to reduce portfolio risk and potentially enhance overall returns by diversifying investments geographically.

A Word of Caution: VGSH (Vanguard Health Shares ETF) - Concentration Risk

While the healthcare sector continues to demonstrate promising growth potential, the VGSH ETF presents a higher level of risk. This fund is concentrated in healthcare-related companies, leading to a lack of diversification. Over 25% of the fund's assets are held in a small number of companies, amplifying the impact of any sector-specific downturns or negative news. The healthcare industry is also subject to significant regulatory scrutiny and potential policy changes, which can heavily influence performance. While VGSH has historically delivered strong returns, the increased concentration risk makes it a less appealing option for risk-averse investors. Exposure to the healthcare sector can be achieved more broadly through the inclusion of VOO and VXUS within a diversified portfolio, mitigating the concentrated risk associated with VGSH.

Looking Ahead: Informed Investment Decisions

As we navigate the investment landscape of 2026, a thoughtful and diversified approach remains paramount. VOO and VXUS provide a solid foundation for long-term growth, while VGSH highlights the importance of understanding and managing risk. It's crucial to remember that this analysis provides general guidance and does not constitute financial advice. All investors are encouraged to conduct their own thorough research, consider their individual financial circumstances, and consult with a qualified financial advisor before making any investment decisions.