The Least Favorable Vanguard ETF for Long-Term Investors to Consider Purchasing at the Moment

The Least Favorable Vanguard ETF for Long-Term Investors to Consider Purchasing at the Moment

Warren Buffett likes Vanguard. He wrote to Berkshire Hathaway shareholders in 2014, he suggested that much of the money his family would receive upon his death be invested in a low-cost Vanguard S&P500 index fund. Part of Berkshire’s cash is currently invested in such a project.

I also like Vanguard. A significant portion of my portfolio is invested in two of the company’s ETFs. However, I’m not a fan of all Vanguard funds. I think one Vanguard ETF, in particular, is the worst to buy right now for long-term investors.

The Least Favorable Vanguard ETF for Long-Term Investors to Consider Purchasing at the Moment

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Bottom of the package

Vanguard offers 86 ETFs to investors. In my opinion, many, if not most, are wise choices. But one of them is at the bottom of the pack, in my opinion: the Vanguard Ultra-Short Bond ETF (NYSEMKT:VUSB).

The name of this ETF might lead some investors to misunderstand its purpose. When you see “ultra-short” in a fund’s name, it often means it uses leverage sell a type of asset short. For example, the ProShares UltraShort QQQ The ETF bets against the Nasdaq-100 hint. In this case, however, the Vanguard Ultra-Short Bond ETF does not use leverage to short sell bonds.

Instead, the ETF primarily holds bonds with “ultra-short” maturities of no more than two years. It currently holds 669 bonds with an average maturity of one year. The fund’s holdings include both governments and corporate bonds.

Why It’s the Worst Vanguard ETF for Long-Term Investors

There are some positive attributes to like about VUSB. Vanguard considers it one of the least risky ETFs in the company’s lineup. VUSB also offers a 30-day SEC yield of 5.07%, which isn’t too bad.

So why do I say this is the worst Vanguard ETF for long-term investors? On the one hand, now is not an ideal time to invest in short-term bonds. The Federal Reserve recently announced three interest rate cuts this year. Bond prices move inversely to interest rates.

However, if you’re looking to profit from rising bond prices, other Vanguard ETFs holding longer duration bonds will be a better choice. Prices of short-term bonds rise less when rates fall than do longer-duration bonds.

VUSB has only been around for three years. During this period, its average annual return is a paltry 2.01%. Long-term investors can earn much higher returns with many other Vanguard ETFs. Additionally, even though VUSB’s yield currently looks great, falling interest rates will cause the yield to decline.

What about using VUSB to temporarily park money? I think there are better Vanguard ETFs for this purpose as well. For example, the Vanguard Short Term Corporate Bond ETF (NASDAQ:VCSH) offers a higher yield of 5.14% And a lower annual expense ratio of 0.04% (compared to 0.10% for VUSB). If you’re looking for an ultra-safe bond ETF, you can’t beat the Vanguard Short-Term Inflation-Protected Securities ETF (NASDAQ:VTIP).

Better Vanguard Picks

If VUSB is the worst Vanguard ETF for long-term investors, which ETFs are the best choices? I think Buffett’s favorite — the Vanguard S&P 500 ETF (NYSEMKT: VOL) — is an excellent choice. You can own stocks of America’s 500 largest companies and pay a low expense ratio of 0.03%.

THE Vanguard Small Cap Value ETF (NYSEMKT:VBR) could offer even greater returns. Small-cap value stocks have lagged large-cap growth stocks in recent years, but have historically outperformed all other stocks over the long term.

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Keith Speights holds positions in Berkshire Hathaway, Vanguard S&P 500 ETF and Vanguard Small-Cap Value ETF. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Here’s the Worst Vanguard ETF to Buy Right Now for Long-Term Investors was originally published by The Motley Fool

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