2 Simple Vanguard ETFs to Buy with $750 During the Stock Market Liquidation

The stock market has been on an almost linear uptrend over the past six months. THE S&P500 (INDEXSNP: ^GSPC) gained 27% from its October 2023 low point, and the Nasdaq-100 the technology index jumped 30%.

However, both indices are currently in the midst of a sell-off and have lost 4% and 3% respectively from their recent highs. History proves that the stock market always recovers given enough time, so this decline will likely be a buying opportunity.

Rather than trying to pick winners and losers from thousands of available stocks, investors may be better off purchasing exchange-traded funds (ETFs). They provide diversified exposure to the market as a whole by holding hundreds or even thousands of individual stocks, and they are managed by a team of professionals who adjust portfolios as necessary.

The Vanguard Group is one of the largest ETF issuers in the world and manages several funds designed to track the performance of popular indexes like the S&P 500. Here's why investors with spare cash might want to allocate $750 to buy a action of the Vanguard S&P 500 ETF (FLIGHT -0.84%) and part of the Vanguard Total Stock Market ETF (VTI -0.79%).

1. Vanguard S&P 500 ETF (VOO)

The VOO ETF has a very simple objective: to closely track the performance of the S&P 500 index. To achieve this, it holds a stake in all 500 companies in the index and maintains a very similar weighting.

It's a great choice for investors of all experience levels, because companies must meet strict criteria to enter the S&P 500 – so only the highest quality names make the cut:

• A company must have a market capitalization of at least $18 billion.
• A company must be American and have at least 50% of its shares available for public trading.
• A company must be profitable: the sum of its earnings per share over the last four quarters must be positive, and it must also report positive earnings in the most recent quarter.

The S&P 500 is also incredibly diverse, with 11 sectors represented. These include energy, financials, consumer discretionary, healthcare, and information technology, to name a few. Information technology has the highest weighting in the index at 29.6%, primarily because it includes the world's largest technology companies. In fact, the top five holdings in the VOO ETF (and the S&P 500) are:

Data source: The Vanguard Group. Portfolio weightings are accurate as of March 31, 2024 and are subject to change.

These technological stocks are gaining importance with the advent of artificial intelligence (AI). Microsoft is a leader in software in this industry, thanks in part to its $10 billion investment in ChatGPT developer OpenAI last year. Nvidia, on the other hand, makes the most powerful data center chips for processing AI workloads, making it the industry leader in hardware.

Therefore, the VOO ETF can still offer investors healthy exposure to exciting new technologies despite its diverse composition.

Vanguard ETFs are also popular because of their low holding costs. The VOO ETF has an expense ratio of just 0.03%, which is the percentage of assets under management deducted from the fund each year to cover costs such as personnel, marketing and general operations. Vanguard says comparable ETFs have an expense ratio of 0.79%, which can significantly reduce long-term returns.

The S&P 500 has generated a compound annual return of 10.3% since its inception in 1957. Its average annual return over the past 10 years is an even higher 13%, thanks in part to a heavy weighting in the technology sector. Either way, the VOO ETF is a great bet in the current stock market selloff.

2. Vanguard Total Stock ETF (VTI)

The VTI ETF is even more diversified than the VOO ETF because it holds 3,717 different stocks. Its objective is to monitor the performance of the CRSP US Total Market Index, which was formulated to represent the entire US stock market. In other words, it owns all the large, mid and small cap stocks listed on major US exchanges.

The VTI ETF is heavily weighted toward the technology sector, which represents 32.1% of its portfolio composition. Its five main holdings are identical to those of the VOO ETF; however, the weighting of each name is smaller because VTI owns many other stocks:

Data source: The Vanguard Group. Portfolio weightings are accurate as of March 31, 2024 and are subject to change.

But the bottom half of the VTI ETF could be of more interest to investors right now, as Wall Street analyst Tom Lee of Fundstrat Global Advisors is extremely bullish on small-cap stocks in 2024. He thinks the Reserve US federal government will reduce interest rates later. this year, and given that small businesses generally need more financing to fuel their growth, this will be a tailwind.

In fact, Lee believes that small-cap companies Russell 2000 The index could return 50% in 2024. The VTI ETF can help investors capture this gain, while maintaining exposure to the largest segment of the market, particularly AI stocks that I I spoke earlier.

The VTI ETF has underperformed the S&P 500 over the long term, with a compound annual return of 8.6% since its inception in 2001. However, it could do much better in the medium term if analysts like Lee are right about the lower part of the index. market this year. Therefore, this ETF could be a great buy during a market sell-off.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Vanguard Index Funds-Vanguard Total Stock Market ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.