Can These 4 ETFs Build a Retirement Portfolio on Their Own?

Vanguard’s founder John Bogle believed most actively managed funds and individual stocks couldn’t beat the S&P 500 (^GSPC +0.30%) over the long run, so it was smarter to invest in the entire index. That’s why Bogle launched the first S&P 500 index fund 50 years ago, and why he told investors to “just buy the haystack” instead of looking for individual needles.

Since then, Vanguard has grown into the world’s second-largest asset manager after BlackRock. It also offers a broader range of exchange-traded funds (ETFs) for domestic stocks, international stocks, bonds, and real estate investments. Should investors consider building a retirement portfolio with Vanguard’s top ETFs in these four categories?

The stock market plays: VTI and VXUS

Vanguard’s Morningstar Total Stock Market ETF (VTI +0.35%) and Total International Stock ETF (VXUS +0.83%) are two of the world’s most popular core index funds for building low-cost retirement portfolios. VTI tracks more than 3,500 stocks in the U.S., while VXUS holds more than 8,900 overseas stocks without any exposure to the U.S. market.

Together, these two ETFs enable an investor to own virtually the entire investable global equity market. VTI’s top holdings include Nvidia, Apple, and Microsoft, while VTUS’ top holdings include TSMC, Tencent, and ASML.

VTI and VXUS are both passively managed, so they charge much lower fees than actively managed funds. VTI charges a 0.03% expense ratio, while VXUS charges 0.05%. VTI pays a yield of around 1%, while VXUS pays a higher yield of roughly 3%.

Over the past ten years, VTI generated a total return of 634% with reinvested dividends. VXUS delivered a lower total return of 165%. It might be tempting to go all-in on U.S. stocks via VTI and shun VXUS, but VTI might lose its momentum as the AI-driven rally in big tech stocks fades — while VXUS’ overseas stocks could experience faster growth in the coming years.

The bond and real estate market plays: BND and VNQ

For more stable income and non-stock exposure, investors can buy the Vanguard Total Bond Market ETF (BND +0.17%) and Vanguard Real Estate ETF (VNQ +0.89%).

BND holds over 10,000 U.S. investment-grade bonds. About two-thirds of its portfolio is locked up in U.S. Treasuries and agency mortgage bonds. It charges a low expense ratio of 0.03%, and it currently pays a 30-day SEC yield of 5.1%. That makes the ETF a simple, low-cost way for retirees to increase their bond exposure relative to stocks and generate more passive income without having to navigate the Byzantine bond market.

VNQ invests in the U.S. real estate market through over 160 real estate investment trusts (REITs) and real estate companies. It’s heavily exposed to the telecom tower, industrial and logistics, data center, and retail markets. Compared to other Vanguard ETFs, VNQ charges a higher expense ratio of 0.13%, but it also usually pays a higher yield of 4%-5%. The real estate market can be volatile, but it’s generally insulated from inflation over the long term.

Over the past ten years, BND and VNQ delivered total returns of 15% and 75%, respectively. That didn’t come anywhere close to outperforming stocks, but they were designed to generate steady income rather than outpace the broader stock market.

Can you build a retirement portfolio with these four ETFs?

Investors can easily build a retirement portfolio with these four ETFs. If you have a few decades until you retire, you should allocate more of your portfolio to VTI and VXUS — but if you only have a few years left, you should shift more of that cash to BND and VNQ.