Stock Market Sell-Off: Here Are the 3 Best Vanguard ETFs to Buy on the Dip

Investing is all about opportunity. For long-term investors, stock market dips can be a great time to accumulate shares. By purchasing shares at an even slightly lower price, investors can help lower their cost basis, which, over time, can help build wealth.

So, let’s examine three Vanguard exchange-traded funds (ETFs) that are worth picking up on the next stock market dip.

Image source: Getty Images.

Vanguard Information Technology ETF

My top pick is the Vanguard Information Technology ETF (VGT 0.57%). There’s plenty to love about this ETF, starting with its performance. Based on its total return (price appreciation plus dividend payments), this fund has grown at a compound annual growth rate (CAGR) of 13.3% dating back to its inception in 2004.

The fund is loaded with top tech stocks, including plenty of “Magnificent Seven” stocks like Microsoft, Nvidia, and Apple. In addition, there’s representation from the semiconductor, software, cloud computing, artificial intelligence (AI), and networking sectors.

Data source: Vanguard Group.

As an index fund, its costs are low, with an expense ratio of 0.10%. That works out to only $10 per year in fees for every $10,000 invested.

However, like all investments, this fund comes with its own unique set of risks. Since the fund focuses on the tech sector, there’s significant concentration risk. If tech spending were to slow, this fund would be hard hit. Moreover, the high valuation of most tech stocks could pose a problem, particularly if the broader market turned negative.

That said, the tech sector has been an excellent sector to invest in over the last few decades, mainly due to its high levels of growth when compared to other market sectors. Therefore, when they can, growth-oriented investors should be happy to pick up shares of this fund on the cheap.

Vanguard High Dividend Yield Index ETF

Next, I’m turning to a value-oriented fund, the Vanguard High Dividend Yield Index ETF (VYM 0.46%).  I prefer growth stocks to value, but every portfolio needs some balance to it. On top of that, I’m growing more bearish on the overall economy as economic warning signs — like rising unemployment — continue to flash.

Therefore, I want to add a low-cost, value-oriented ETF like this fund when possible. The Vanguard High Dividend Yield Index ETF focuses on large-cap, dividend-paying stocks. Its top holdings include corporate mainstays like Walmart, ExxonMobil, and Home Depot.

Data source: Vanguard Group.

Granted, many of these stocks have underperformed the tech giants that dominate the Magnificent Seven and the S&P 500 over the last decade. However, dividend stocks could benefit from a falling interest rate environment, something we haven’t experienced in a few years, and something that is likely to occur as the Federal Reserve begins to cut interest rates later this year.

As short-term rates decrease, income-seeking investors could reallocate money from money market funds into dividend-paying stocks as they search for higher investment yields. That could serve as a boost to dividend-paying stocks, like the ones held by this fund.

At any rate, adding this dividend-focused ETF on the dip is a smart, cheap way for any investor to add some value stocks to their portfolio.

Vanguard S&P 500 ETF

Last, there’s the Vanguard S&P 500 ETF (VOO 0.35%). This ETF tracks the S&P 500 and does so with one of the lowest expense ratios around — a mere 0.03%. That means investors only pay $3 annually in fees for every $10,000 invested.

True, this fund won’t outperform the stock market, but that’s not its purpose. Rather, this fund is the “set-it-and-forget-it” option. By purchasing shares of this fund, investors ensure that at least a portion of their portfolio will mirror the performance of the S&P 500 index — which is one of the most widely cited measures of the stock market.

Therefore, buying this ETF is a great option whenever there are dips, corrections, or bear markets. By accumulating shares of this ETF when volatility is high, investors can reduce their overall cost basis in the fund. And since the ETF is a broad-based measure of the stock market, it’s the sort of investment that everyone should feel comfortable holding for the extreme long term.

Indeed, the longer an investor holds shares in this fund, the better. That allows time to work to their advantage, along with the power of compounding.

In short, sometimes it’s best to keep it simple. The stock market is the greatest long-term wealth generator around. So when it takes a dip, consider it a sale, and remember to scoop up some shares of one of these three ETFs.