Play the S&P for Almost No Fee

Play the S&P for Almost No Fee

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add exposure to most of the U.S. stock market to your portfolio, the Vanguard S&P 500 ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF's expense ratio -- its annual fee -- is a really, really low 0.05%. It offers a dividend yield recently near 2%, too.

This ETF has neither trounced the S&P 500 nor significantly lagged it, as it's an index fund designed to mimic its results, holding the same securities.

Why the S&P 500?
The S&P 500 is a broad-market index, offering investors quick and inexpensive exposure to the overall market. Its 500 components, representing most of America's biggest companies, make up about 80% of the overall market's value.

More than a handful of S&P 500 components had strong performances over the past year, while others didn't do quite so well but could see their fortunes change in years to come. Cisco Systems , for example, surged 27%. Its fourth-quarter results featured revenue up 6% but earnings that fell from the year before. The company also announced that it would cut 4,000 positions, or about 5% of its staff. Some saw the stock's subsequent drop as an overreaction. Meanwhile, Cisco has bought network security specialist Sourcefire and is restructuring itself and integrating its various business lines, such as cloud computing, video communications, and mobile devices. It's sitting on more than $50 billion in cash and equivalents, and the stock yields 2.9% and looks appealing with a forward P/E of 11.

Procter & Gamble gained 12% and recently yielded 3.1%. The company has been struggling in recent years, with its beauty and grooming segments shrinking somewhat. Its last quarter featured modest growth and a drop in profitability due to rising expenses. Bulls love its billion-dollar brands such as Crest and Tide, while bears worry about price wars and currency risks.

Oracle advanced 6% and recently yielded 1.4%. It has posted some disappointing quarters and modest growth lately, and it has also been making some competitive compromises. It has doubled its dividend while announcing big stock buybacks and generating prodigious free cash flow that tops $14 billion annually. The stock seems appealingly valued at recent levels.

Philip Morris International is roughly flat over the past year and yields 4.3%, which reflects a recent 11% dividend hike. It focuses on tobacco sales outside the U.S., where regulations and restrictions are often more relaxed, and it sports seven of the top 15 cigarette brands in the world, including Marlboro. Still, despite its market dominance, it faces shrinking volumes, and its free cash flow has been shrinking, too. The company recently announced plans to spend $625 million to boost its position in the Algerian market. Emerging and developing markets represent significant growth potential for Philip Morris.

The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies and make investing in it -- and profiting from it -- that much easier.

This isn't the only appealing ETF out there. You can learn more about a few ETFs that have great promise for delivering profits to shareholders by checking out The Motley Fool's special free report "3 ETFs Set to Soar." Just click here to access it now.

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Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Procter & Gamble. The Motley Fool recommends Cisco Systems and Procter & Gamble. It owns shares of Oracle and Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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