Wouldn't it be nice to have the "easy button" featured in Staples' TV commercials years ago to help you invest? Unfortunately, such a button doesn't exist. However, Vanguard makes investing easier -- and cheaper -- than you might think.
Vanguard currently offers 90 exchange-traded funds (ETFs). These funds allow you to conveniently buy a basket of stocks or bonds without requiring a huge amount of money upfront.
I wouldn't go so far as to say there's one member of the Vanguard family that's better than all the others. However, here's one no-brainer Vanguard ETF to buy right now for less than $500.
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A fund that's on the money
It's not hard to guess what sector the Vanguard Financials ETF (VFH 1.58%) focuses on. This ETF attempts to track the performance of the MSCI US IMI Financials 25/50 Index, which consists of U.S. financial stocks. The "IMI" in the index's name stands for Investable Market Index. The "25/50" in the name indicates that no single company can make up more than 25% of the index's weight, and the combined weight of all holdings of over 5% can't exceed 50% of the index's total weight.
You can buy one share of the Vanguard Financials ETF for around $126 as of this writing. For that amount, you'll be indirectly invested in 409 financial stocks. The fund's top holdings include JPMorgan Chase, Berkshire Hathaway Class B, Mastercard, Visa, and Bank of America.
Much of the Vanguard Financials ETF's portfolio is invested in large-cap stocks. The median market cap of the stocks it owns is $133.1 billion. However, there are plenty of small-cap and mid-cap stocks among the fund's holdings.
Why is this Vanguard ETF a no-brainer pick?
The Vanguard Financials ETF has been a big winner over the last 12 months, soaring more than 30%. However, this impressive momentum isn't why I think the fund is a no-brainer pick.
The ETF's recent gains are higher than it had delivered historically. Since inception, the fund's average annual return is a much lower (albeit respectable) 6.7%. Over the last 10 years, the Vanguard Financials ETF has risen by an average of 12.72% annually.
I think the important question for investors to ask is: Why is this Vanguard ETF performing so much better now? There are two main answers to this question, in my opinion.
First, expectations are high that the Trump administration will reduce regulations on the financial sector. I predict that's exactly what will happen. Many financial stocks in the Vanguard Financials ETF's portfolio could rise because of the White House's deregulation efforts.
Second, the ETF is valued attractively in light of its growth prospects. The average price-to-earnings ratio of stocks owned by the Vanguard Financials ETF is 17.4. That's well below the average earnings multiple of 27.7 for stocks in the Vanguard S&P 500 ETF (VOO 1.81%).
Investors won't have their profits eaten up by expenses with any Vanguard ETF. The Vanguard Financials ETF is no exception, with a low annual expense ratio of 0.09%.
What could go wrong
While I think the Vanguard Financials ETF is a no-brainer pick right now, it isn't a slam-dunk winner over the near term. I think two main things could go wrong.
One key risk is that a trade war could erupt, with the Trump administration imposing tariffs on products imported from other countries. This could create economic uncertainty and potentially lead to reduced consumer spending, both of which would likely negatively affect financial stocks.
It's also possible that any regulatory changes implemented by the new government wouldn't be enough to move the needle much for companies in the financial sector. Since anticipation of these changes has been a major factor behind financial stocks' gains in recent months, any disappointment on this front could cause the Vanguard Financials ETF to fall.
