Many investors are scanning the investment horizon right now, trying to decipher what’s coming down the road. President Donald Trump’s tariffs are causing panic among many and have spurred economists to revise their recession predictions upward.
In times of uncertainty, it can be smart to spread out your investments among many companies through an exchange-traded fund (ETF). Vanguard has many great fund options — and with very low expenses. But which is the best given the current economic climate?
Here are two you should strongly consider and one that’s probably worth avoiding right now.
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If you just want exposure to the stock market in the broadest sense but don’t want to think much about which sector your money is in and in which stocks, then the Vanguard S&P 500 ETF(NYSEMKT: VOO) is a great option.
I have the vast majority of my investments in this fund for several reasons:
You can literally invest in this ETF with just $1 if your brokerage allows you to buy fractional shares
. This makes it very easy to continue adding to the fund on a regular basis even if you only have a little extra money to put into it. If you don’t have access to fractional investing, the current share price of the ETF is just under $500.
Second, because you’re buying an S&P 500 ETF, you’ll have exposure to 500 of the largest publicly traded companies in the U.S. This ensures you’re money is well diversified, helping you benefit from the market’s gains without having to sift through company-specific data or the following sector.
And finally, it’s cheap to own. The Vanguard S&P 500 ETF has an expense ratio of just 0.03%, which means that if you have $10,000 invested in the fund, you’ll pay just $3 in annual fees. That’s far lower than you’ll pay with actively managed funds, making this passive fund a great option for investors.
One of the most consistently beneficial sectors to be invested in has been technology. Whether it’s cloud computing, smartphones, software, artificial intelligence (AI), or quantum computing, the sector is in constant motion, and some of the risks are often offset by substantial gains.
That’s why the Vanguard Information Technology ETF (NYSEMKT: VGT) could be a great place to put your money. The fund comprises 300 of the largest publicly traded technology companies. This means no stock accounts for more than 25% of the fund, and the sum of the stocks with weights above 5% can’t exceed 50% of the fund. In short, it doesn’t lean too heavily on small companies or too many large ones.
I know some investors will question whether buying a tech ETF is a good decision right now as the tech sector has suffered as of late. While that’s true, the fund is down 7% over the past six months, focusing too much on current volatility would cause you to miss out on some huge trends.
For example, PwC research shows that artificial intelligence will add $15.7 trillion to global GDP in 2030, and Goldman Sachs estimates that AI cloud-computing revenue will reach $2 trillion in the same year.
While there’s no guarantee of future returns, betting on tech innovations has, in general, been a very wise move. For example, this tech ETF has more than doubled the returns of the S&P 500 over the past decade.
If you’re more inclined to invest in a fast-growing sector, and you’re OK with a little more volatility, then the Vanguard Information Technology ETF is a great place to put some money.
While many of Vanguard’s ETFs are a good place to put your money, owning the Vanguard Global ex-U.S. Real Estate ETF (NASDAQ: VNQI) is not the best option right now. The fund consists of real estate investment trusts (REITs) and real estate development companies that are outside of the U.S.
That could be a fine investment strategy at some point, but the problem is that two countries where it has significant exposure right now are China and Japan. China is dealing with a glut of housing after years of overbuilding, and demand is sparse.
As of late last year, China had tens of millions of empty housing units, and current economic pressures, along with a potential trade war with the U.S., have dampened any hope the country will be able to get out of its housing slump any time soon.
Similarly, Japan has millions of empty houses, many of which are being sold at bargain prices just to get them off the market. Japan is in the midst of a population crisis, as the country’s birth rates aren’t outpacing its aging population. While some property prices have increased lately, the country’s persistent population problem means it’s probably best to avoid this ETF.
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Chris Neiger has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Goldman Sachs Group and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
