Investing in the Most Intellectual Vanguard ETF with a $500 Budget at Present
In my opinion, Vanguard continues to rule the exchange-traded fund (ETF) domain. The company provides a plethora of excellent funds covering a vast array of categories, with the majority having extremely low fees -- keeping more cash in your wallet. With so many ETFs to pick from, how do you determine which one is ideal for you? Regardless of your investing strategy, there's a single Vanguard ETF that everyone will appreciate.
This is still my top-rated Vanguard ETF
When it comes to ETFs, few can compare to the power of the Vanguard Utilities ETF (VPU 1.40%). This remains my favorite Vanguard ETF of all time due to its suitability for almost any type of investor. Looking for long-term growth? This ETF has you covered. Searching for a means to lessen your losses during a bear market? Once more, this ETF is your best bet.
As its name implies, the Vanguard Utilities ETF primarily invests in utility businesses. These are the companies responsible for delivering electricity, natural gas, water, and other essential resources to communities. Chances are, you're a customer of one or more of these utilities yourself. Perhaps you pay several of them each month to power your home, heat it, and ensure you have access to clean drinking water.
If that's the case, it will be easy to see how these businesses can help stabilize your portfolio's volatility. Few people see a significant reduction in their electricity or heating needs due to an economic recession.
Additionally, many of these utilities enjoy near-monopolies in their service areas. Regulators often regulate their profits, capping margins but offering price floors as compensation. This means even in a market downturn, they can continue charging customers similar prices. As volumes typically don't drop much during a recession, overall profits remain relatively unaffected despite other industries suffering severely.
Take, for instance, 2018. Despite the S&P 500 index dropping by 6% of its value, the Vanguard Utilities ETF managed to gain approximately 4%. In 2020, the S&P 500 decreased by 19%. The Vanguard Utilities ETF, however, outperformed the market once again, recording losses of less than 1%.
Don't assume the Vanguard Utilities ETF is only for bear markets. This year alone, its value has increased by nearly 40%, with a long-term annual average return of around 9.7%. But before you invest, there are two things investors should be aware of.
Two things to consider before investing in the Vanguard Utilities ETF
Before purchasing any ETF, it's crucial to examine its fees. Fees are among the primary factors determining if an ETF will generate long-term value for your portfolio. Each increase in fees reduces the amount of money available to compound in value over time. Even a small variation can have a significant impact over the long term.
Fortunately, as with most Vanguard ETFs, the Vanguard Utilities ETF charges a fee of only 0.1% -- far below the industry average of around 1% for funds focusing on the utility sector.
The second point to consider is that while this ETF has delivered strong long-term returns, they still trail the S&P 500 over extended periods. So unless you need the minimized volatility - say, if you are retired or investing cash that you'll need access to in a few years - opt for an ETF covering a broader market spectrum. These funds will often have even lower fees as well.
The Vanguard Utilities ETF's low fees of only 0.1% make it an attractive investment option, as fees significantly impact an ETF's ability to generate long-term value for your portfolio. Despite trailing the S&P 500 over extended periods in terms of returns, the Vanguard Utilities ETF remains a popular choice for investors seeking minimized portfolio volatility, particularly for those in retirement or needing short-term access to their investments.
