The exchange-traded fund (ETF) is an innovative investment vehicle that allows individuals to easily buy shares of a fund that holds a group of related stocks. Vanguard, founded by Jack Bogle, is known for creating one of the first index funds, leading to popular funds such as the Vanguard 500 Fund. Today, Vanguard remains a popular choice for ETF investors, offering a variety of options to choose from.
One Vanguard ETF worth investing in right now is the Vanguard Financials ETF (VFH), which tracks large, mid-, and small-cap stocks in the financial sector. The fund is attractively priced, with a lower price-to-earnings ratio compared to other funds like the Vanguard 500 ETF. Financial sector stocks are known for their value potential, especially in a growing economy. Lower interest rates can initially be challenging for banks, but overall they can stimulate borrowing and economic growth.
The Vanguard Financials ETF holds not only bank stocks but also top holdings like Berkshire Hathaway, Visa, Mastercard, and American Express. With the Federal Reserve aiming for a steady economic growth, financial stocks are expected to benefit from potential demand for various consumer financial products. This creates a favorable environment for the Vanguard Financials ETF, making it a good investment choice.
On the other hand, the Vanguard Consumer Staples ETF (VDC) is an ETF to avoid currently. The Consumer Staples sector is attractive during difficult economic times as these companies provide recession-proof products. However, in a growing economy, the upside potential for Consumer Staples companies is limited. The ETF trades at a high price-to-earnings ratio, indicating an expensive valuation for companies like Procter & Gamble, Costco, and Walmart.
Investors are advised to wait for lower entry points for Consumer Staples companies, given their stretched valuations. It may be beneficial to opt for the Vanguard Financials ETF instead, which is priced attractively and positioned to benefit from economic tailwinds. By making informed investment decisions and carefully analyzing market conditions, investors can increase their chances of success.
