ETFs
Are you worried about a stock market correction? Here are 3 ETFs that can help you sleep at night
These won’t make you rich quick, but you might be surprised by their long-term potential.
THE S&P500 is less than 1% off its all-time high as of this writing, and it’s entirely possible that it has reached a new high by the time you read this. With the S&P, Dow Jones Industrial AverageAnd Nasdaq Composite all within striking distance of record highs, despite recession worries and prolonged rising interest rates, many investors are rightly worried about a stock market correction.
Granted, we have no idea if we’ll get a correction in the near future or how bad it might be. It is entirely possible that the market will reach new highs and continue to rise. But if you’re worried about a correction, it might be a good idea to put part of your portfolio on autopilot with low-cost index funds.
Three Best Index Funds to Consider
Granted, there are literally hundreds of low-cost index funds on the market. I’m generally a fan of Vanguard funds, because Vanguard (literally) invented the concept of an index fund and still offers some of the cheapest ways to get exposure to the index. So here are three great picks that should work pretty well in the long run, no matter what happens in the near future.
1. Vanguard S&P 500 ETF
THE Vanguard S&P 500 ETF (VOO 0.47%), as its name suggests, is designed to track the long-term performance of the benchmark S&P 500. With a rock-bottom expense ratio of just 0.03%, it should track it closely.
While it may seem boring to just invest in the popular benchmark and leave it alone, consider that from 1965 to 2023, the benchmark’s annualized total returns S&P500 were above 10% – so this can be a great way to build wealth over long periods of time.
2. Vanguard High Dividend Yield ETF
If you are more of an investor looking for income and you fear a market correction, the Vanguard High Dividend Yield ETF (VYM 0.37%) might be a good choice for you. In a nutshell, this fund tracks an index of approximately 550 stocks that pay above-average dividends. Major titles include JPMorgan Chase, BroadcomAnd ExxonMobilJust to name a few.
The high dividend yield ETF has a low expense ratio of 0.06%, meaning only $6 for every $10,000 you invested will go toward fees each year. With a dividend yield of 2.9%, this could be a great choice for peace of mind as well as reliable income, if the market becomes volatile.
3. Vanguard Russell 2000 ETF
Last, but not least, the Vanguard Russell 2000 ETF (VTWO 1.07%) tracks the most popular small-cap stock index. It is extremely diversified and unlike the other two index funds mentioned here, it is still about 15% below its all-time high, reached in 2021.
In fact, small-cap stocks as a group are trading at their lowest book valuations relative to large-caps in 25 years. The last time this happened, small caps outperformed the S&P 500 for over a decade. There’s absolutely no guarantee it will play out the same way, but it could be a solid option for investors who don’t necessarily want a fund at its all-time high.
Should we wait for a correction to buy these ETFs?
To be perfectly clear, these ETFs can make great investments right now. Even if you buy them and a correction or full-blown stock market crash occurs, investors who measure their returns over several decades should do just fine.
As an example, if you invested in an S&P 500 index fund at the worst possible time (late 2007, before the financial crisis caused the S&P 500 to fall by 50%), you would be sitting on a 390% lower total return. at 17 years later.
A great way to approach ETFs like these is to slowly build a position over time by investing equal amounts at a specific interval (monthly, for example). This way, you will automatically buy more shares when the price is lower and fewer when it is more expensive.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Matt Frankel holds positions in the Vanguard S&P 500 ETF and the Vanguard Scottsdale Funds-Vanguard Russell 2000 ETF. The Motley Fool has positions in and recommends JPMorgan Chase, Vanguard S&P 500 ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends Broadcom. The Mad Motley has a disclosure policy.