With the broader stock market indexes hovering around all-time highs, some investors may fear that a sell-off is creeping on the horizon in 2025. After all, equity prices have outpaced earnings growth, leading to a relatively expensive market.
Valuation concerns could lead to a pullback in stock prices in 2025, but that doesn't mean investors should sell out of their positions or stop putting new capital to work in the market. However, folks should take great care to ensure they are investing in quality companies that can justify their valuations with earnings growth over time rather than chasing hot stocks to make a quick buck.
Exchange-traded funds (ETFs) can be excellent ways to invest in the market while maintaining diversification. Investment management firm Vanguard offers several low-cost ETFs that target various themes and stock market sectors. Here's why the Vanguard Dividend Appreciation ETF(NYSEMKT: VIG), Vanguard Communications ETF(NYSEMKT: VOX), and the Vanguard S&P 500 ETF(NYSEMKT: VOO) stand out as great buys now.
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Boost your passive income from dividend-growing companies
The Vanguard Dividend Appreciation ETF focuses on companies that are well positioned to continue raising their dividends for years to come. Top holdings include Apple, Broadcom, JPMorgan Chase, and Microsoft. Apple and Microsoft have yields under 1%, but they have track records for raising their dividends, as well as repurchasing stock.
Many of the top holdings in the ETF are well-known industry-leading companies. The fund's focus on earnings growth makes it an excellent choice for investors interested in quality rather than high-yield stocks at bargain-bin prices.
Granted, many of the fund's top holdings are hovering around all-time highs and have seen their valuations expand. But the fund is well diversified, with just a 30.7% concentration in the top 10 holdings and no individual holding making up more than 5% of the fund.
The Vanguard Dividend Appreciation ETF sports a yield of 1.7% -- which isn't high-yield territory, but it is better than the 1.2% yield from the S&P 500.
The communications sector offers a rare mix of growth and value
The Vanguard Communications ETF mirrors the performance of the communications sector. The fund has been one of the best-performing Vanguard ETFs year to date -- up over 35%. And yet it is still a great value because many top communications stocks have impeccable earnings and cash flow growth.
Meta Platforms, Alphabet, and Netflix are typically viewed as tech companies, but they are actually classified under the communications sector and dominate the Vanguard Communications ETF with a 52.4% combined weighting. The top 10 holdings in the fund, which include legacy media companies Walt Disney and Comcast, as well as telecom companies Verizon Communications, T-Mobile, and AT&T, make up 69.8% of the fund. The fund's heavy concentration in a handful of names means it is not very diversified and, therefore, only worth buying if you have high conviction in the top holdings -- especially Meta and Alphabet.
Even though they are both hovering around all-time highs, Meta and Alphabet stand out as solid growth stocks to buy in 2025. As you can see in the following chart, both companies have reasonable forward price-to-earnings (P/E) ratios, especially compared to other megacap growth stocks.
Granted, forward P/E ratios should be taken with some skepticism, given that they are based on analyst consensus estimates for the next 12 months of earnings, which could vary wildly based on external factors, macroeconomic conditions, or company decision-making. But still, the fact that Meta and Alphabet are less expensive than other megacap growth stocks despite running up so much over the last couple of years makes them appealing choices for investors concerned with the valuations of tech-focused companies.
Given that Meta and Alphabet depend on advertising revenue, it's worth understanding that their earnings could take a hit during a general economic downturn. However, folks who believe platforms like Alphabet-owned Google and YouTube or Meta-owned Instagram will continue growing their market share of the advertising industry should consider buying and holding the Vanguard Communications ETF through periods of volatility.
A plug-and-play tool for putting your hard-earned savings to work
With $1.37 trillion in net assets, the Vanguard S&P 500 ETF is one of the largest S&P 500 index funds on the market. The fund sports an expense ratio of just 0.03%, or $3 for every $10,000 invested. By comparison, the Vanguard Communications ETF has an expense ratio of 0.1% and the Vanguard Dividend Appreciation ETF has an expense ratio of 0.06%.
The Vanguard S&P 500 ETF mirrors the performance of the S&P 500, which has become more top-heavy in recent years as the largest companies have grown progressively more valuable and outpaced the gains of the rest of the index. The top 10 holdings in the S&P 500, which are Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta Platforms, Tesla, Berkshire Hathaway, Broadcom, and JPMorgan Chase, now make up a whopping 36.2% of the entire index.
While some investors may feel like there are better ways to put capital to work than buying top growth stocks around all-time highs, it's important to understand that valuations can become reasonable over time so long as the companies grow earnings. For the most part, today's top growth stocks are growing profits and have long runways for future earnings growth. So, while top growth stocks may look expensive right now and could produce lousy returns in the short term, they should still be excellent long-term investments.
Therefore, folks with ultra-long investment time horizons should still consider investing in an S&P 500 index fund.
Three ETFs centered around industry-leading companies
The Vanguard Appreciation ETF, Vanguard Communications ETF, and the Vanguard S&P 500 ETF are all hovering around all-time highs. But they could still be worth buying even if there is a sell-off in 2025 because all three funds focus on industry-leading, quality businesses.
Even the best companies can see an earnings slowdown during an economic downturn. However, leading companies have many advantages during a downturn that can allow them to take market share, buy out companies cheaply, or continue to invest in research and development when competitors struggle to get by.
No one knows what the market will do in 2025, but investing in quality companies -- or ETFs holding quality companies -- is a recipe for long-term wealth building. So despite big gains in recent years, long-term investors should still consider buying the Vanguard Appreciation ETF, Vanguard Communications ETF, and the Vanguard S&P 500 ETF, even if there is a market sell-off in 2025.
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JPMorgan Chase is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Daniel Foelber has positions in Walt Disney. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, JPMorgan Chase, Meta Platforms, Microsoft, Netflix, Nvidia, Tesla, Vanguard Dividend Appreciation ETF, Vanguard S&P 500 ETF, and Walt Disney. The Motley Fool recommends Broadcom, Comcast, T-Mobile US, and Verizon Communications and 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.
