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Diversify Your Investments with ETFs

  //stocks-investing.news-articles.net/content/2026/01/28/diversify-your-investments-with-etfs.html
  Published in Stocks and Investing on Wednesday, January 28th 2026 at 16:23 GMT by The Motley Fool
      Locales: Colorado, California, New York, Massachusetts, UNITED STATES

The Power of Diversification

The core principle behind this strategy is diversification. Rather than placing all your eggs in one basket - i.e., investing in a single stock - diversification spreads your investment across a wide range of assets. This reduces the risk of significant losses if any single investment performs poorly. ETFs are ideally suited for diversification because they hold a basket of underlying securities, representing various sectors and geographies.

Three Vanguard ETFs to Consider

The proposed strategy centers on three Vanguard ETFs, each designed to provide exposure to different segments of the market:

1. Vanguard Total Stock Market ETF (VTI): The Foundation

With an expense ratio of just 0.03%, VTI is a cornerstone for any long-term investor. This ETF tracks the performance of the entire U.S. stock market, encompassing everything from large-cap giants like Apple and Microsoft to smaller, emerging companies. By investing in VTI, you gain exposure to the overall health and growth of the American economy. The broad scope minimizes the impact of any single company's performance, creating a stable base for your portfolio. As of January 28th, 2026, VTI remains a dominant player in the ETF space, consistently delivering returns closely mirroring the broader market.

2. Vanguard Total International Stock ETF (VXUS): Expanding Horizons

While the U.S. market is a significant driver of global growth, limiting your investments solely to domestic stocks can be a missed opportunity. VXUS, with its 0.07% expense ratio, provides exposure to companies outside of the United States. This includes both developed and emerging markets, offering a potentially higher growth trajectory, but also introducing currency and political risks. Diversifying internationally isn't simply about chasing higher returns; it's about reducing overall portfolio risk by lessening dependence on a single economy. Recent analysis suggests a continued need for international diversification, even with U.S. market strength, as different regions experience varying economic cycles.

3. Vanguard Small-Cap Value ETF (VB): The Growth Potential

VB, with an expense ratio of 0.09%, adds another layer of diversification by focusing on smaller companies considered undervalued by the market. Small-cap stocks generally have more room to grow than larger, more established companies. Value investing--identifying stocks trading below their intrinsic worth--has historically outperformed growth investing over the long run, although it can experience periods of underperformance. While small-cap value stocks carry more risk than their larger counterparts, the potential for higher returns makes VB a valuable addition to a long-term portfolio. Investing in VB is based on the belief that the market often overlooks these smaller, potentially promising companies.

Implementing the Strategy

Allocating $1,000 across these three ETFs is relatively straightforward. A simple approach is to divide the investment equally, allocating approximately $333 to each ETF. However, investors may adjust these allocations based on their risk tolerance and investment goals. A more aggressive investor might allocate a larger percentage to VB, while a more conservative investor might favor VTI. Rebalancing the portfolio periodically - perhaps annually - ensures that the desired asset allocation is maintained.

Long-Term Perspective

It's crucial to remember that investing in the stock market involves risk, and past performance is not indicative of future results. Market fluctuations are inevitable. This strategy is designed for long-term wealth building, requiring patience and discipline. Avoid the temptation to react emotionally to short-term market swings. The low expense ratios associated with these Vanguard ETFs are a significant advantage, as they minimize the cost of investing and maximize your potential returns over time. By embracing a buy-and-hold approach, investors can benefit from the power of compounding and the long-term growth of the global economy.