In recent quarters, indexes have experienced significant growth, primarily driven by stocks in the technology sector, as investors focus on themes such as artificial intelligence and quantum computing. Optimism about an improving economic outlook, characterized by anticipated lower interest rates, has also contributed to these gains. Strong economies generally benefit growth stocks, as these companies have more opportunities to expand in such environments.
However, the surge in stock prices has led to some becoming quite expensive. The S&P 500 Shiller CAPE ratio, a valuation measure that evaluates a company’s price and earnings over time, has reached a historically high level only seen twice in the index’s 60-year history. This presents an opportunity to seek out value in the market by adding reasonably priced stocks to investment portfolios. For those lacking the time to individually research stocks, an efficient strategy involves investing in a no-brainer exchange-traded fund (ETF) from Vanguard, available for under $200.
ETFs provide investors with exposure to multiple stocks based on a specific theme, such as value or industries like biotech or consumer goods. They allow tracking of indices, such as the S&P 500, and are purchased similarly to stocks, trading daily on the exchange. Investors should be cautious of management fees, represented by an expense ratio, ensuring it remains below 1% to maximize gains over time.
The article highlights the Vanguard S&P 500 Value ETF (VOOV), which tracks approximately 400 value stocks from the S&P 500 Value Index, mirroring its composition and performance. Over the past decade, this ETF has achieved a 110% increase, providing steady returns to investors. Although this might not match the rapid gains seen in certain tech stocks, like Nvidia, the ETF offers stability and security over time. The Vanguard S&P 500 Value ETF’s expense ratio of 0.07% aligns well with prudent investment criteria.
Currently, technology stocks are the most significant sector within the Vanguard S&P 500 Value ETF. Despite their strong performance recently, many still hold reasonable valuations, fitting well within the value index. The fund’s most substantial holdings include major companies like Apple, Microsoft, and Amazon. The top ten holdings also cover diverse industries, from healthcare to financials and oil, providing investors with immediate diversification. This diversification minimizes exposure to any single sector, potentially mitigating losses if one area underperforms.
The ETF also adapts over time to represent the leading value stocks, thus maintaining investor exposure to top-performing stocks without requiring active management. For those seeking to incorporate value stocks into their portfolios, purchasing shares of the Vanguard S&P 500 Value ETF offers a straightforward approach, promising potential long-term rewards.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino holds positions in Amazon. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends certain options related to Microsoft and maintains a comprehensive disclosure policy.
