Many investors understand the wisdom behind exchange-traded funds (ETFs). These investment vehicles provide the easy trading features and simplicity of a stock along with the diversification and flexibility that come with owning a professionally managed portfolio. ETFs offer access to large, yet focused, stock portfolios through a single ticker.
However, they're not all created equal. While one of the benefits of investing in ETFs is reduced risk, some ETFs are still quite risky. And while some ETFs might be secure investments, they won't maximize your investable money.
Then there are the ETFs that offer some level of security while also maximizing your potential gains. The Invesco QQQ Trust ETF (QQQ -0.52%), Vanguard Growth ETF (VUG -0.82%), and Vanguard S&P 500 ETF (VOO -0.39%) are three examples of funds in this category. Here's why you might want to buy them in June.
1. Invesco QQQ Trust: AI is leading the market's gains
The Invesco QQQ Trust ETF mirrors the Nasdaq-100, an index made up of 100 of the largest non-financial companies listed on the Nasdaq stock exchange. It has outperformed the broader market over time, and it soars when the market is doing well like it is now.
QQQ total return level data by YCharts.
Its top holdings are some of the largest tech companies in the world by market cap, and their stock prices have swelled now specifically due to heavy investments in artificial intelligence (AI) -- think Nvidia, Amazon, and Apple.
Investing in the QQQ Trust ETF diversifies your money across a small slice of top growth stocks, allowing you to benefit from a position in each of them. That way, if any one of them falters, the others can make up any losses.
2. Vanguard Growth ETF: Maximizing the market
The Vanguard Growth fund is more diversified than the QQQ Trust fund, but still heavily weighted toward large growth stocks. It mirrors the CRSP U.S. Large Cap Growth Index and has about 200 of the largest U.S.-based companies by market cap.
Its largest holdings are similar to QQQ Trust, but it isn't limited to Nasdaq-listed or nonfinancial stocks, so it also includes stock growth giants like Eli Lilly and Visa. Its broader diversification gives investors exposure to trends outside of tech and AI that they won't get in a Nasdaq-100 index fund.
It has also outperformed the market over many years.
This particular Vanguard ETF also has an ultra-low expense ratio of 0.04%. As the market continues to rise, owning shares of this ETF gives investors the opportunity to gain from trends across the board in the U.S. economy. Specifically, if the Federal Reserve does lower interest rates, that will be acutely felt in major financial stocks. That's why buying now could benefit shareholders as the year progresses.
3. Vanguard S&P 500 ETF: Buying the market
There's always the chance that unexpected occurrences will hurt the market -- so-called Black Swan events that economists can't forecast (a global pandemic is a great recent example). Even events that seemed bound to happen can't be accurately predicted.
Consider the current economy: It seems obvious that flooding the economy with stimulus money would lead to inflation, and then to higher interest rates. But the market didn't price that in when it skyrocketed in 2021. That turned into a bear market as a result and eventually rebounded but there is still some uncertainty out there. What happens next is anybody's guess.
That's why it's so safe to have some of your money in a standard S&P 500 index fund at any given time. The Vanguard S&P 500 ETF mirrors the full S&P 500, and investing in it gives you exposure to 500 top-level U.S. stocks on the market. It also has a super-low expense ratio of only 0.03%, the lowest on this list and low in comparison with similar ETFs.
This is what Warren Buffett recommends, and he puts his money where his mouth is, with not one but two different S&P 500 index funds in the Berkshire Hathaway equity portfolio.
With the economy still volatile, interest rates still high, and economists unsure about how it will all shake out, having some funds in an ETF that tracks the overall market is a recipe for a secure and growing long-term investment. Buying now will give you the chance to capture the current bull market growth.
