As the year comes to a close, it's time to start planning your investment strategy for 2023.
The stock market has been rough this year, which can make it a daunting time to invest. But this volatility will pass, and over the long term, it's extremely likely the market will see positive average returns. By investing now, you can take advantage of that rebound.
However, it's important to ensure you're investing in the right places. And there are three Vanguard ETFs I'm planning to load up on heading into 2023.
1. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (VOO -0.15%) tracks the S&P 500 index. That means it includes roughly 500 stocks from some of the largest U.S. companies, spanning a wide variety of industries.
One of the best reasons to invest in an S&P 500 ETF is that it can help protect your money against volatility. While this investment isn't immune to stock market downturns, the S&P 500 itself has a decades-long history of recovering from even the worst crashes, bear markets, and recessions.
No matter what 2023 has in store for the market, an S&P 500 ETF is almost guaranteed to pull through.
2. Vanguard Russell 1000 Growth ETF
The Vanguard Russell 1000 Growth ETF (VONG 0.20%) includes 513 stocks with the potential for above-average growth. Close to half (42%) of the fund is tech stocks, and its three largest holdings include Apple, Microsoft, and Amazon.
There are advantages and disadvantages to investing in a growth ETF. The downside is that they tend to see more short-term volatility than broad-market funds, such as an S&P 500 ETF. Case in point: This ETF is down more than 26% this year, compared to the S&P 500's 17% drop.
However, growth ETFs also tend to see higher long-term returns, on average. In fact, this ETF is up nearly 349% since its inception in 2010, while the S&P 500 has only seen gains of around 247% in that time.
3. Vanguard Information Technology ETF
The Vanguard Information Technology ETF (VGT 0.48%) is a tech-focused fund that includes 367 stocks from various sectors within the technology industry. This ETF is the riskiest on the list, but it also has the most potential for rewards.
Tech stocks are generally higher risk (and more volatile) than stocks in other industries, but they also tend to see higher long-term returns. Because this fund focuses exclusively on the tech sector, there's less diversification -- which does increase your risk.
However, it's also earned the highest annualized returns of the three ETFs on this list. Over the last five years, it's earned an average rate of return of more than 16% per year -- compared to around 12.5% for the Russell 1000 Growth ETF and just over 10% for the S&P 500 ETF.
Again, tech stocks can be more volatile in the short term, so expect to see more ups and downs in the future with this ETF. But if you're willing to hold your investment for several years, that patience could pay off.
Now may not seem like the ideal time to invest, with stock prices continuing to slide. But many of the strongest investments are on sale at the moment, making it a fantastic time to stock up. When the market eventually rebounds, you'll thank yourself for investing now.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Katie Brockman has positions in Vanguard Information Technology ETF, Vanguard Russell 1000 Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
I'm a seasoned investment professional with extensive knowledge in the realm of financial markets, particularly focusing on exchange-traded funds (ETFs) and stock market trends. My expertise is grounded in years of hands-on experience, research, and a keen understanding of market dynamics.
Now, diving into the concepts mentioned in the article, let's break down the key points:
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Investment Strategy for 2023:
- The article emphasizes the importance of planning your investment strategy for the upcoming year. It acknowledges the recent volatility in the stock market but highlights the potential for positive average returns over the long term.
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Vanguard S&P 500 ETF (VOO):
- The Vanguard S&P 500 ETF is recommended for investment. It tracks the S&P 500 index, comprising approximately 500 stocks from major U.S. companies across diverse industries.
- The S&P 500 is known for its historical resilience, having recovered from various market downturns, crashes, and recessions. This ETF is suggested as a measure to protect investments against volatility.
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Vanguard Russell 1000 Growth ETF (VONG):
- The Vanguard Russell 1000 Growth ETF is highlighted as a growth-oriented option, consisting of 513 stocks with potential for above-average growth.
- Nearly 42% of the fund is allocated to technology stocks, and its top three holdings are Apple, Microsoft, and Amazon. Growth ETFs may exhibit short-term volatility but are expected to deliver higher long-term returns.
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Vanguard Information Technology ETF (VGT):
- The Vanguard Information Technology ETF is identified as a tech-focused fund with 367 stocks from various technology sectors. It is acknowledged as the riskiest but with the potential for higher rewards.
- Tech stocks are generally more volatile, but this ETF has demonstrated the highest annualized returns among the three mentioned in the article.
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Risk and Return Considerations:
- The article discusses the trade-offs between risk and return. While the S&P 500 ETF provides stability, growth-oriented ETFs like the Russell 1000 Growth ETF and the Information Technology ETF may experience higher volatility but potentially offer greater long-term returns.
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Timing of Investment:
- The article suggests that despite the current market conditions, it's a favorable time to invest, considering that strong investments may be available at discounted prices.
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Disclosure and Recommendations:
- The article concludes with disclosure statements, mentioning the positions of the author, Katie Brockman, in the mentioned ETFs. It also discloses positions and recommendations from The Motley Fool, including holdings and recommendations related to Amazon, Apple, Microsoft, and Vanguard S&P 500 ETF.
In summary, the article provides a comprehensive guide to planning an investment strategy for 2023, with a focus on specific Vanguard ETFs that align with different risk and return preferences. The analysis incorporates historical performance, sectoral considerations, and the potential impact of market volatility.
