Vanguard Funds Are Normally Great Investments, but I'd Avoid This One Right Now

Investing in Vanguard exchange-traded funds (ETFs) can be a great move for investors over the long haul. Many of their most popular ETFs offer terrific diversification with an excellent group of quality stocks. Their fees are also incredibly low.

However, there's one Vanguard fund that I'd avoid right now, and that's the Vanguard Information Technology ETF (NYSEMKT:VGT). While it's done well over the years, it and other tech-heavy funds could be vulnerable to significant declines.

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Having heavy exposure to tech right now could be a problem

In recent days, the Vanguard Information Technology ETF has been declining. Concerns about rising interest rates and the war in Iran not coming to an end appear to be weighing on the markets. And in a sector such as tech, where higher interest rates could stall expansion and slow capital expenditures, it could be highly vulnerable given current economic conditions.

Larry Fink, CEO of BlackRock, also cautioned investors recently, issuing a warning that if there's a slowdown in the construction of data centers, that could trigger a recession, simply because of all the investments into artificial intelligence (AI), which is driving tremendous growth for tech companies.

Although the Vanguard Information Technology ETF technically holds more than 300 stocks, they're all in tech, with Nvidia, Apple, and Microsoft accounting for a combined portfolio weight of around 45%. That's significant exposure to three highly valued tech giants, whose shares could come under pressure if AI-related growth expectations come down.

There are safer funds to consider

Although the Vanguard Information Technology ETF has performed fantastically in recent years, rising by 125% in the past five years, it's not an ETF I'd feel safe holding today, given how high valuations have become in the tech sector and the potential for a significant correction. Back in 2022, when the S&P 500 crashed by 19% due to rising interest rates, the Vanguard fund performed even worse -- falling by more than 30%.

Amid adversity, this ETF could be incredibly risky to hang on to. For investors who may not be willing or able to simply hold on and wait out a recovery if there's a downturn in the markets, a better idea may be to invest in other ETFs that have less exposure to tech, and that may be more diversified and safer investments overall. Investing in tech can be exciting when times are good, but it can also be disastrous when they aren't.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, BlackRock, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.