Got an extra $1,000 sitting around that you won't be needing anytime soon? Want to invest it in something that won't require ongoing babysitting? If you're a true long-term investor, the Vanguard S&P 500 ETF (VOO -0.34%) -- an exchange-traded fund that tracks the performance of the S&P 500 (^GSPC -0.33%) -- is never a bad choice. And you probably already know that the Vanguard Growth ETF (VUG -0.12%) has been stomping the broader market for a while now.
But we may be at a point where it makes sense to scale back on your exposure to growth stocks and ramp up your value holdings instead with something like the Vanguard Value ETF (VTV -0.64%).
Here's the deal.
Time to shift gears
It's been a while since value stocks as a class outperformed growth stocks. In fact, it has been so long that many investors have forgotten it's possible. Growth stocks have persistently beaten value since the late 1990s, in fact, driven higher by the successive advents of the internet, smartphones, cloud computing, and artificial intelligence.
Abnormally low interest rates across most of that stretch also helped.
As the old adage goes, though, nothing lasts forever. Value stocks will have their day in the sun sooner or later. And perhaps sooner rather than later.
That's the takeaway from Morningstar's (NASDAQ: MORN) recently published Q3 2025 Stock Market Outlook, anyway. As analyst Davod Sekera notes, "Not only are value stocks undervalued on an absolute basis, but they also remain near some of the most undervalued levels relative to the broad market over the past 15 years. In a market that is becoming overvalued, we see value in the relatively higher dividend yields found in the value category."
He's not alone in his bullishness.
Cyril Moullé-Berteaux, head of the Global Multi-Asset team at Morgan Stanley Investment Management, wrote in March that U.S. value stocks were extremely cheap at only 10 times their projected earnings, versus growth stocks' multiple of 30. Based on their historical performance in the periods after they were priced that cheaply, Moullé-Berteaux argued that "value stocks offer the greatest opportunity, given how expensive and over-owned growth and quality stocks are and the likelihood of a reversal."
Not much has changed in the four months between then and now, except for perhaps one thing. That is, the so-called "Magnificent Seven" stocks (and their close peers) that provided much of the market's overall lift over the past few years are no longer leading the way upward... at least not as a group. They've actually been lagging the market since the latter part of last year. It's possible that change foretells a much bigger shift.
The arguments "for" outweigh the "against"
Take this idea with a grain of salt: Plenty of pundits have been arguing that value stocks are ready to take the lead since 2023, after inflation soared and the Federal Reserve ramped up interest rates to combat it. That pivot has yet to pan out, though. Instead, enough growth-centric tech companies managed to do some amazing things during that stretch that they preserved the bullish momentum for the whole growth category.
The always-dangerous "this time is different" argument, however, may actually hold water this time around.
See, with the exception of within the United States (where investors appear to remain enamored with a handful of the most exciting technology stocks), value stocks in markets worldwide are leading growth stocks. And even within the U.S., a number of widely held growth names are not exactly providing commanding leadership. Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), and Tesla (NASDAQ: TSLA), for instance, are all down year to date, while the S&P 500 is up by a respectable 6%.
Investors may also understandably fear that deglobalization efforts and tariff-crimped trade could turn into real trouble. A recent poll of U.S. consumers performed by research outfit Resonate found that their fears that a stock market crash was coming soared to more than a two-year high in May, with 46% of the public reporting serious concerns of an economic slowdown -- despite the rally underway at that time. Such a crash would almost certainly take a harsher toll on overvalued growth stocks than it would on value names like JPMorgan Chase (NYSE: JPM), ExxonMobil (NYSE: XOM), or Procter & Gamble (NYSE: PG), all three of which are among the Vanguard Value ETF's biggest positions.
Let's also not forget that the Fed has kept interest rates near their 20-year highs for about two and a half years now, rather than trimming them back toward the historically low levels they have sat at during most of the 21st century. Growth companies can't evade the impact of higher borrowing costs forever. Value companies, by contrast, are more adapted to such conditions.
Image source: Getty Images.
The kicker: While they should not be viewed as the primary reason to step into the Vanguard Value fund, this ETF's reliable dividend payments can compensate somewhat for its less-exciting growth potential. New investors today will be plugging into it while its trailing dividend yield stands at just under 2.2%.
A better-balanced portfolio will let you remain aggressive
Still not convinced? That's OK -- there's no denying there are still some juicy growth stories out there that could supercharge your portfolio's performance for at least a bit longer.
Just consider this, though: You don't have to convert all of your holdings to value investments in one fell swoop.
Remember, you're only trying to figure out what to do with an idle $1,000 (or some other fraction of your investable assets) based on what you think the long-term future likely holds. You don't need to cash in all of your favorite growth holdings now. Indeed, putting funds into a broad-based dividend-paying value investment right now would make it easier for you to hold onto a few hand-picked growth stocks that you think are still positioned to defy the bigger headwind that growth as a category is facing at this time.
In other words, playing a bit of smart defense here would also let you continue playing some selective offense.
