The adage of "Don't put all your eggs in one basket" applies to many aspects of life, and investing is certainly one of them. Having diversification is one of the more important things an investor can do. It can reduce risk and increase long-term return potential.
Thankfully, diversification doesn't have to involve picking dozens or hundreds of individual stocks on your own. It can be accomplished easily by buying stakes in a few exchange-traded funds (ETFs), which give investors exposure to a wide range of companies in a single investment.
For those looking to add a few ETFs to their portfolios in June, the following three could be great options. Each has a different focus, so together, they allow investors to cover a lot of ground.
1. Vanguard Information Technology ETF
The Vanguard Information Technology ETF (VGT -1.10%) invests in a wide range of tech companies, from well-established household names to up-and-coming lesser-known ones helping to build out the tech ecosystem as we know it.
For the past couple of decades, tech stocks have been the stock market's darlings, and today, they dominate the list of the world's most valuable companies. In the last decade, many top tech companies have exploded in valuation.
This has done wonders for the Vanguard Information Technology ETF. It has averaged an annual total return of more than 20% in the past decade -- almost 8% more than the S&P 500, the stock market's primary benchmark.
VGT Total Return Price data by YCharts.
Here's how the holdings of Vanguard Information Technology ETF currently break down by industry:
- Application software: 14.4%
- Communications equipment: 3.2%
- Electronic components: 1.3%
- Electronic equipment and instruments: 1.6%
- Electronic manufacturing services: 1.1%
- Industrials: 0.1%
- Internet services and infrastructure: 1.8%
- IT Consulting and other services: 3.6%
- Semiconductor materials and equipment: 4.4%
- Semiconductors: 27.6%
- Systems software: 22.9%
- Technology distributors: 0.8%
- Technology hardware, storage, and peripherals: 17.3%
With its diverse exposure to the tech sector's innovations, the Vanguard Information Technology ETF can still provide investors with significant growth opportunities from here.
2. Vanguard High Dividend Yield ETF
The Vanguard High Dividend Yield ETF (VYM -0.07%) builds its portfolio from large-cap companies that pay above-average dividends, making it a great choice for income-focused investors. While stock prices fluctuate, a dividend-focused ETF can ensure reasonably steady cash flows and provide a buffer against market volatility.
The Vanguard High Dividend Yield ETF contains over 550 companies covering various sectors and industries.
While some market cap-weighted ETFs can become concentrated because of the dominance of mega-cap stocks, the Vanguard High Dividend Yield ETF does a good job of maintaining a balance. Its top 10 holdings make up just over 23% of the fund. For perspective, Microsoft and Apple make up over 32% of the Vanguard Information Technology ETF.
The Vanguard High Dividend Yield ETF's trailing-12-month dividend yield is around 2.8%. That's not an ultra-high yield -- some individual stocks' payouts are much higher -- but it is more than double the S&P 500's average yield over that span, and not too shabby for an ETF with 550-plus stocks.
VYM Dividend Yield data by YCharts.
3. Vanguard S&P 500 ETF
Few investments are such an effective one-stop-shop as an S&P 500 ETF. The S&P 500 index tracks 500 of the largest public companies in the U.S., so its behavior is often viewed as a broad proxy for the nation's economy.
Among the most popular S&P 500 ETFs on the market, I prefer the Vanguard S&P 500 ETF (VOO -0.57%) because of its low cost. Its expense ratio is just 0.03%, so investors' annual fees will amount to just $0.30 per $1,000 invested.
I view the Vanguard S&P 500 ETF as a fund that investors should dollar-cost average their way into no matter what the market is doing at any particular time. History has shown that regardless of any down periods it may experience, the S&P 500 has consistently performed well over the long term, making funds that track it reliable cornerstones for virtually any investor's stock portfolio.
It also helps that this ETF has every blue chip stock on the U.S. market leading the way. While these well-established, financially stable companies aren't exempt from market volatility or economic down periods, they do provide a portfolio with an added level of stability and reliability. Consistent investments into an S&P 500 ETF over time have produced great results for patient investors.
