Two Vanguard ETFs that could serve as reliable investment options in 2025.
Engaging in the stock market now can be thrilling and stressful due to its impressive performance. You might be inclined to join the rally, but at the same time, you might feel anxious that it could be overheated and in need of a potential correction in the near future.
Certain stocks are definitely selling at high prices and could be risky purchases at the moment, but there are segments of the market where various types of stocks can still skyrocket in value and offer you a high degree of security.
Vanguard exchange-traded funds (ETFs) can provide a nice balance between low fees and diverse investment opportunities, as they invest in prominent blue-chip stocks across multiple market sectors. Two Vanguard funds that could be beneficial additions to your portfolio for 2025 are the Vanguard Utilities Index Fund ETF (VPU -2.48%) and the Vanguard High Dividend Yield Index Fund ETF (VYM -2.81%). Although these funds have lagged behind the S&P 500 in recent years, let me explain why they could be worth investing in now.
Vanguard Utilities Index
Investing in utility stocks may be a good area to focus on in 2025 due to their typically stable businesses, dividend payouts, and potential cost savings as interest rates decrease. Furthermore, advancements in artificial intelligence have led to increased energy demand, making utility stocks intriguing long-term investments.
The Vanguard Utilities Index delivers exposure to top utility stocks, such as NextEra Energy and Southern Company, which collectively make up about 19.7% of the fund's total holdings. The fund contains 66 stocks, offering investors a decent degree of diversification while maintaining decent-sized positions in these stocks.
When overly diversified, you often find stocks making up small fractions of the portfolio, even if they perform exceptionally well and generate significant gains. That's not the case with this Vanguard fund – it's not overly diversified, which can be advantageous for growth investors.
Another appealing aspect of the ETF is its low expense ratio of 0.10% and a 2.8% yield, more than double the average S&P 500 yield of 1.2%. If you anticipate a slowdown in the stock market, the dividend income generated by the Vanguard Utilities ETF can help offset any losses in value.
In 2022, for example, when the S&P 500 decreased by over 18%, this ETF yielded total returns (including dividends) of 1%. It successfully protected investors' value during a tumultuous market period.
The Vanguard Utilities Index isn't just a good fund to invest in for 2025, but also to hold onto for the long term.
Vanguard High Dividend Yield Index
Dividend income can be incredibly valuable if you're concerned about a downturn. And even if you're optimistic about the stock market, that steadying income can still add to your overall returns.
As long as you're investing in secure dividend stocks and are content with the potential that these types of investments may not deliver the same returns as growth stocks, particularly during a bull market, they can make excellent investment options to keep hold of.
The Vanguard High Dividend Yield Index pays a 2.7% dividend and has an expense ratio of only 0.06%. This is a more diverse fund than the Vanguard fund focused on just utilities; it holds 536 stocks. It can be an ideal option for risk-averse investors who may be feeling hesitant about the market right now.
The top three holdings in the ETF are Broadcom, JPMorgan Chase, and ExxonMobil, and collectively, they account for just 11% of its total weight. The fund invests broadly in the stock market, with financial stocks leading the way, accounting for 22% of its total weight, followed by 13% for industrials, 12% for healthcare, and other sectors contributing to its overall diversification.
In 2022, amid the market chaos, this ETF declined only 0.5% after accounting for its dividend income. It could be a suitable option for investors looking to keep their risk low heading into the new year.
Despite the uncertainty in the stock market, investing in low-cost Vanguard ETFs like the Vanguard Utilities Index Fund ETF (VPU) and the Vanguard High Dividend Yield Index Fund ETF (VYM) can provide stability and potential returns. The Vanguard Utilities Index Fund, with its focus on utility stocks and stable businesses, can offer growth opportunities and protection during market downturns, while the Vanguard High Dividend Yield Index Fund can provide steady income, especially appealing for risk-averse investors concerned about market volatility.
