ETFs
3 ETFs that are crying out for purchases in May
Investing in these ETFs can expose investors to a wide range of companies and sectors.
There are a handful of must-have fundamentals when it comes to stock investing, and the need for diversification is high on the list. Diversification can help protect against company- or sector-specific risks and promote long-term portfolio stability.
Fortunately, to achieve diversification, you don’t have to buy dozens (or even hundreds) of individual stocks. This can be done with a few exchange-traded funds (ETFs) that cover a wide area.
Below are three ETFs that investors should consider adding to their portfolios in May. Each has a different goal that complements the others well.
1. Vanguard S&P 500 ETF
One ETF that I will almost always consider a screaming buy is the Vanguard S&P 500 ETF (VOO 0.12%) because an investment in S&P500 is as close to an investment in the American economy as one could ask for on the stock market.
The Vanguard S&P 500 ETF contains more than 500 companies covering all 11 major sectors, providing exposure to the broader market. Here is how it is distributed by sector (as of March 31):
- Communications Services: 8.9%
- Discretionary consumption: 10.3%
- Consumer Staples: 6%
- Energy: 4%
- Financial datas: 13.1%
- Health care: 12.4%
- Industrial: 8.8%
- Computer science: 29.6%
- Materials: 2.4%
- Real estate: 2.3%
- Utilities: 2.2%
Since the ETF is market capitalizationIn terms of weighting, the technology sector makes up a good portion of it, as the value of large technology companies has exploded in recent years. Even so, the ETF does a good job of covering its bases and ensuring investors have exposure to the best companies across all sectors.
After surging more than 25% over the past 12 months, the Vanguard S&P 500 ETF is flirting with its all-time high, but that shouldn’t deter investors. It can be a fundamental part of most stock portfolios, so investors should focus more on making consistent investments rather than waiting for the “right” time to invest. It’s there that spread of costs in dollars is very practical.
History shows that cost averaging in an S&P 500 ETF is also the right move. There will be ups and downs (as with any stock), but the Vanguard S&P 500 has performed well for investors since its inception.
2. Vanguard Growth ETF
THE Vanguard Growth ETF (VUG -0.06%) is similar to the Vanguard S&P 500 ETF because it only includes large-cap stocks, but what sets it apart is its focus on companies with high growth potential (hence the name ).
For a while now, growth stocks have been favorites among investors due to their potential for market superiority. Typically, this growth potential comes with additional risk because much of the valuations are based on potential. However, investors benefit from more stability with large-cap growth stocks because these well-established companies generally have good financial backing.
The Vanguard Growth ETF, made up of about 200 stocks, also has heavy exposure to the technology sector. Eight of its top 10 holdings are technology companies, accounting for more than 52% of the fund. Elie Lilly And Visa round out the top 10, bringing the total to just under 57%. The high concentration has been beneficial, with the ETF significantly outperforming the S&P 500 over the past decade.
The ETF’s high concentration prevents it from serving as a one-stop-shop for investing, but it can be a great addition to a portfolio.
3. Vanguard High Dividend Yield ETF
THE Vanguard High Dividend Yield ETF (VYM 0.33%) is a good option for investors looking for passive income from dividends. It contains large cap companies with dividend yieldsand its current yield is more than double that of the S&P 500.
The Vanguard High Dividend Yield ETF also contains companies from all 11 major sectors, but it is much more diversified than the two ETFs above. The most represented sector is financerepresenting just over 20% of the ETF, followed by industrials (12.7%) and healthcare (12.4%).
Owning dividend-oriented stocks is beneficial because they reward investors regardless of stock price performance. If a company’s stock price or ETF is doing well, consider that an added bonus. The Vanguard High Dividend Yield ETF’s stock growth has lagged the S&P 500 a bit over the past decade, but a healthy dividend has helped boost its growth. total returns.
It is also important to pay attention to the characteristics of an ETF spending rate, especially if it is dividend-oriented. The Vanguard High Dividend Yield ETF is very inexpensive compared to comparable ETFs. Its expense ratio is 0.06%, or $0.60 per $1,000 invested. A low expense ratio ensures that you can keep more of your returns for yourself instead of paying them in fees.
Earning money is good; keeping more for yourself is better.
Steve Walters holds positions in the Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard Index Funds-Vanguard Growth ETF, Vanguard S&P 500 ETF, Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF, and Visa. The Mad Motley has a disclosure policy.