One of my favorite ways to invest is through exchange-traded funds (ETFs) because they offer you to exposure to many companies with a single investment. That can take much of the guesswork out of investing, benefiting both newer and seasoned investors.
With everything going on in the stock market right now (tariff reactions, high volatility, recession fears), ETFs can be especially useful because they're less risky than individual stocks and provide built-in diversification. That's a win-win.
If you have an emergency fund saved and high-interest debt paid down (like credit cards), these two Vanguard ETFs are worth considering. They serve two different purposes, but can complement each other nicely in a stock portfolio. A $500 investment into each exposes you to a broad range of dividend-focused and growth-focused stocks.
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1. Vanguard High Dividend Yield ETF
You can never go wrong with investing in dividend stocks, but it's especially the case when the market is extra volatile, like it is currently. That's why the Vanguard High Dividend Yield ETF (VYM 1.14%) is a good go-to investment now.
It's a two-for-one: You get an above-average dividend yield and exposure to large-cap companies that are typically more stable than smaller growth stocks. Its top holdings include blue chip dividend stocks like Coca-Cola, Johnson & Johnson, Procter & Gamble, JPMorgan Chase, and many others.
The ETF isn't immune to market declines or down periods, but it's typically more resilient because it holds established companies that generate a lot of income and can withstand tough market conditions.
Its dividend payout fluctuates because it pays out from over 580 stocks, but it has averaged a 3% dividend yield over the past five years. That's more than double the S&P 500 average over that span, and in line with some of the higher-paying dividend stocks in the S&P 500.
VYM Dividend Yield data by YCharts
With a 3% dividend yield, a $500 investment in this ETF could pay $15 annually. That's not life-changing money by any means, but if you're using a dividend reinvestment plan (DRIP), it can pay off in the long run by increasing your shares, which increases payout amounts.
Investing in a dividend ETF can help take your mind off stock price movements because you're getting paid regardless. That makes it easier to have a long-term investing mindset.
2. Vanguard S&P 500 ETF
The S&P 500 is an investment I always recommend, regardless of market conditions. The Vanguard S&P 500 ETF (VOO 0.31%) is my largest holding, and I plan to keep it that way until I near retirement. I like it for three reasons: its ties to the U.S. economy, proven long-term track record, and low cost.
Admittedly, the first point probably doesn't spark extreme confidence because of the uncertainty going on right now, but this isn't the U.S. economy's first rodeo, nor will it be its last. The S&P 500 and the economy aren't directly linked, but they're closely connected because the S&P 500 tracks the largest 500 U.S. companies.
Despite experiencing down periods and sharp drops, the S&P 500 has rebounded to produce good long-term results each time.
For illustration's sake, if the ETF were to continue with the same average annual returns, a $500 investment could turn into close to $4,400 in 20 years (over $6,300 when including dividends). And that's taking into account its ultra-low 0.03% expense ratio -- one of the smallest you'll find on the stock market.
Of course, there's no way to predict the ETF's performance in the near term, but you can be fairly certain that its projections will be up long term. If you're concerned about current volatility in the market, consider dollar-cost averaging. You can break down your investments into 10 $50 investments, five $100 investments, four $125 investments, or whatever you're most comfortable with.
When in doubt, stay focused on the long term -- because that's what matters most.
