I think exchange-traded funds (ETFs) offer one of the best ways to invest. You can buy a basket of stocks (or bonds) in one fell swoop. Many ETFs are quite cost-effective, too. Vanguard's family of funds especially stands out for its low costs.
It's easy to be overwhelmed by the number of choices, though. Vanguard alone markets 90 ETFs. What's the best Vanguard ETF to invest $1,000 in right now?
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Several good candidates
Several Vanguard ETFs are good candidates to buy. The Vanguard S&P 500 ETF (NYSEMKT:VOO) is a perennially smart pick for long-term investors. Probably the only major knock against this fund is that it's historically expensive right now with a price-to-earnings (P/E) ratio of 27.5.
Over the long run, small-cap value stocks have outperformed all other equities, and Vanguard provides an easy way to invest in these stocks with its Vanguard Small-Cap Value ETF (NYSEMKT:VBR). This ETF owns 838 stocks with relatively small market caps and attractive valuations. However, the Vanguard Small-Cap Value ETF could be highly volatile with significant uncertainty in the market.
If you had asked me a few weeks ago to pick the best Vanguard ETF to buy, I would have probably gone with the Vanguard Financials ETF (NYSEMKT:VFH), which invests in the financial sector. Despite a strong performance over the last 12 months, its valuation remains attractive with a P/E ratio of 17.3.
I still think this Vanguard ETF will likely deliver solid gains in 2025 as financial stocks benefit from deregulation in the second Trump administration. But the aforementioned market uncertainty keeps it from ranking at the top of my list, at least right now.
Arguably the best choice right now
So which member of the Vanguard family is the best choice to invest $1,000 in right now? I'd go with the Vanguard Utilities ETF (NYSEMKT:VPU).
The potential negative impact of tariffs combined with the Federal Reserve's hesitancy to cut interest rates further has muddied the waters for investors. This could be a time when exercising caution is the best course of action. Buying utility stocks is a tried-and-true defensive move.
The Vanguard Utilities ETF owns 69 utility stocks. Its top holdings include NextEra Energy, Constellation Energy, Southern Company, Duke Energy, and Vistra Energy.
Sure, this Vanguard ETF is more expensive than some with its P/E ratio of 20.3. However, this multiple reflects the fund's impressive performance with its price soaring 29% over the last 12 months. I think the valuation is justifiable because of the safety associated with utility stocks and the ongoing energy demand fueled largely by data centers.
You'll receive a pretty good income from the Vanguard Utilities ETF with its dividend yield of roughly 3%. Like most Vanguard ETFs, it's cost-effective with an annual expense ratio of only 0.09%.
A few things to keep in mind
Although the Vanguard Utilities ETF is a good defensive play, it's not immune to market downturns. For example, during the sell-off in the early days of the COVID-19 pandemic in 2020, the ETF briefly plunged as much as 37%.
Also, other Vanguard ETFs have delivered much stronger returns over the long term. The Vanguard Utilities ETF's average annual return since its inception in January 2004 is 9.53%. That's not bad. However, it's well below the 14.73% average annual return of the Vanguard S&P 500 ETF since its introduction in September 2010 and the 11.76% average annual return of the Vanguard Growth ETF, which launched at the same time as the Vanguard Utilities ETF.
Still, for a time such as this, I don't think investors will go wrong parking their money in the Vanguard Utilities ETF.
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Keith Speights has positions in Vanguard S&P 500 ETF and Vanguard Small-Cap Value ETF. The Motley Fool has positions in and recommends Vanguard Index Funds-Vanguard Small-Cap ETF and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
