Five hundred dollars won't buy much stock market diversification. Shares of successful corporations like Microsoft trade at that price alone. When buying exchange-traded funds, your investment money go further. These funds let you buy a basket of equities in one transaction, offering you affordable and efficient exposure to a sector, investing style, or market.
With indices approaching all-time highs, it may make sense to buy underperforming markets to balance your investments. This includes several stocks outside the large-cap tech titans that have driven recent stock market increases. Let's examine two popular ETFs that cover this ground.
1. Vanguard Mid-Cap ETF The Vanguard Mid-Cap ETF (NYSEMKT: VO) passively follows medium-size firms with market capitalizations between $2 billion and $10 billion. That approach eliminates the risk of overexposure to the few major stocks that have drove much of the market's returns in recent months. Apple and Microsoft, worth $2.6 trillion and $3 trillion, aren't in this ETF.
You will get over 300 mid-cap equities from all market sectors. The ETF's portfolio averages 21 P/E, compared to the S&P 500's 24. Motorola, Cintas, and AI-focused Palantir Technologies are its major holdings. This ETF charges a low 0.04% cost, or $4 every $1,000 invested. This compares to peers charging over $91 for $1,000 invested.
2. iShares Morningstar Small-Cap Value Small-cap companies, especially value ones, have missed the market rise in recent months. That might boost the iShares Morningstar Small-Cap Value ETF (NYSEMKT: ISCV) price. This fund targets small-cap companies ($250 million to $2 billion). The stock must also be inexpensive compared to peers.
Individual stock investments in this pool are risky due to their volatility. This ETF provides quick exposure to over 1,000 small-cap equities. Toll Brothers and Dicks Sporting Goods are among its main holdings. This fund costs 0.06% management fees.
Definitely not for everyone. In the past year, it underperformed the S&P 500 due to its lack of market correlation. Its focus on companies with lower stock valuations may help it perform better in flat or sinking markets.
Anyway, consider adding both ETFs to your portfolio to obtain exposure to other non-Magnificent Seven firms. That makes your portfolio more resilient during stock market volatility.
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