The more choices you have, the harder it can be to make a selection. That's true with picking where to go out to eat. And it's definitely the case with choosing an exchange-traded fund (ETF) to buy.
There are more than 12,000 ETFs, according to J.P. Morgan. Even if you limit yourself to one fund manager, you'll still be overwhelmed with options. For example, Vanguard offers 94 ETFs.
What is the best Vanguard ETF to invest $500 in right now? The decision isn't an easy one.
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Crossing off the contenders
Ordinarily, my default choice for the best Vanguard ETF to buy would be the Vanguard S&P 500 ETF (VOO 0.21%). This fund has performed well over the long term. It offers investors an opportunity to buy shares of 500 of the largest and most successful U.S. companies.
However, I'm leery of this ETF's valuation. The Vanguard S&P 500 ETF's price-to-earnings ratio is a sky-high 26. The S&P 500 Shiller CAPE ratio, a widely followed valuation metric for the S&P 500 (^GSPC 0.14%) index, is near its third-highest level ever. This valuation worry crosses several growth-oriented Vanguard funds off the list, too, including the Vanguard Russell 1000 Growth ETF (VONG 0.23%).
Some might be tempted to go with the best-performing Vanguard ETF this year -- the Vanguard FTSE Europe ETF (VGK -0.05%). This European stock fund has soared around 24% year to date. My concern, though, is that the Trump administration's tariffs could negatively affect European stocks and weigh on this Vanguard ETF.
If I were confident that rate cuts were on the way that could send bond prices higher, I'd probably rank a Vanguard fund such as the Vanguard Total Bond Market ETF (BND -0.01%) high on the list. However, tariffs could present a problem on this front as well if they cause inflation to rise.
My pick for the best Vanguard ETF to buy now
Is there any Vanguard ETF that doesn't cause jitters for me? Actually, yes. My pick for the best Vanguard ETF to invest $500 in right now is the Vanguard Utilities ETF (VPU 0.48%).
This Vanguard fund owns 69 utility stocks. Over 61% of its portfolio is invested in electric utilities. Nearly 25% is invested in multi-utilities (companies that provide multiple types of utility services). The remainder of the Vanguard Utilities ETF's portfolio is spread across gas utilities, independent power producers, renewable power companies, and water utilities.
While this Vanguard ETF isn't exactly cheap, its valuation doesn't concern me too much. The fund trades at roughly 20.8 times earnings. Tariffs aren't a major worry with utilities, either. Neither is inflation, since utilities can usually secure regulatory approval to pass higher costs along to their customers.
For investors who want to shift into a defensive posture because of the significant uncertainties in the air right now, the Vanguard Utilities ETF is a good option. Utility stocks are widely viewed as safe havens because their cash flows are stable. It doesn't hurt that many of them pay solid dividends. The Vanguard Utilities ETF's dividend yield currently stands at 2.83%.
To add icing on top, many of the stocks owned by this Vanguard ETF should have pretty good growth prospects thanks to artificial intelligence (AI). The data centers that host AI models require tremendous amounts of electricity.
The answer could change in the future
Will the Vanguard Utilities ETF be the best Vanguard ETF to invest $500 in a few years from now? Maybe, but maybe not.
This fund isn't anywhere close to being the best-performing Vanguard ETF over the long term. That honor belongs to the Vanguard Russell 1000 Growth ETF. The Vanguard S&P 500 ETF comes in a respectable third place.
But different funds are better picks at different times. With the current market dynamics, I can't think of a better Vanguard ETF to buy than the Vanguard Utilities ETF.
