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Key Points
Index concentration, both in the allocations to tech and the top 10 positions, has become a real issue for the S&P 500.
Now that earnings growth is accelerating again, small-caps present an attractive risk/reward trade-off.
International stocks act as a solid diversifier to the S&P 500.
It's easy to nitpick problems with the stock market, but there's little question that equities remain one of the best long-term wealth creation tools available to everyday investors.
There are some warning signs to consider. The Shiller CAPE ratio, which measures the S&P 500 (SNPINDEX: ^GSPC) against 10-year inflation-adjusted earnings, suggests that stocks are historically expensive. Tech currently accounts for 38% of the Vanguard S&P 500 ETF (NYSEMKT: VOO). Nearly 40% of the index is just in the top 10 holdings, making it a very concentrated and top-heavy index.
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But as is usually the case in the ETF marketplace, there's always an alternative. If you're interested in long-term equities for your portfolio but you want to pivot away from the S&P 500 a bit, here are four ETFs to consider.
1. Vanguard Total Stock Market ETF
To be fair, the Vanguard Total Stock Market ETF (NYSEMKT: VTI) doesn't behave much differently from the Vanguard S&P 500 ETF. While it includes the entire investable U.S. stock market, more than 3,500 stocks in all, it's also market cap-weighted. That means there's an 88% overlap with the S&P 500 and a high correlation.
But that mid-cap and small-cap exposure matters. As we've seen so far in 2026, smaller companies can have extended stretches during which they're outperforming large caps. With small-cap earnings growth accelerating for the first time in a few years, there's a very realistic scenario in which small caps continue to do well. That gives the Vanguard Total Stock Market ETF the edge with its broader diversification.
2. Vanguard Growth ETF
Long-term investors have the capacity to take on a little more risk in their portfolios. Growth stocks can be more volatile in the short term, but they have greater return potential long-term if you're willing to ride it out. The Vanguard Growth ETF (NYSEMKT: VUG) captures that opportunity set from the large-cap U.S. stock market.
But if you don't like concentration, you probably really won't like this fund. It's nearly 70% invested in tech stocks at the moment, including a 24% combined allocation to just Nvidia and Apple. But this is unquestionably where the growth is coming from right now, thanks to the artificial intelligence boom. Over a period of years or decades, investors should get rewarded.
3. Vanguard S&P Small-Cap 600 ETF
Small-cap value stocks are an underappreciated group, because their returns have been disappointing for years. But the environment may finally be changing. If you combine an improved earnings outlook with relatively cheap price-to-earnings (P/E) ratios, there's some real opportunity for the Vanguard S&P Small-Cap 600 ETF (NYSEMKT: VIOO).
While I like the long-term risk/reward trade-off of this category, it's still important not to go overboard. Many cheap value stocks are cheap for a reason -- the business is performing poorly, for example, or its financial health is deteriorating. That's why I like this ETF. It has a built-in profitability screen that eliminates a lot of these bad apples. So you're actually investing in the quality companies within the small-cap universe.
4. Vanguard Total International Stock ETF
The Vanguard Total International Stock ETF (NASDAQ: VXUS) expands your portfolio exposure outside the United States. A lot of investors like to keep their money invested in the U.S., but the composition of the global economy, relative valuations, and geopolitical considerations make having foreign stocks in your portfolio a good idea.
The past year and a half has been especially good for international equities. Growth rates have improved, and a weaker dollar has provided an extra tailwind. The diversification factor and the fact that the global economy moves in different cycles make the Vanguard Total International Stock ETF a solid long-term portfolio addition.
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David Dierking has positions in Apple, Vanguard Total International Stock ETF, and Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends Apple, Nvidia, Vanguard Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
