Wthe hen will be next stock market crash happen? If we could predict this accurately, it would save us a lot of stress as investors. But while some people say the conditions are right for a near-term market downturn, the next bear might not be rearing its ugly head for months, if not years. And because market timing is a generally poor strategy, trying to sell your stocks based on a hunch about when Wall Street is going to hit slippage is almost certain to cost you profits in the long run.
That said, it is still important to be prepared for the day when stocks do take a turn for the worse. With that in mind, here is an investment that is perfect to hold on to before, during and after a stock market crash, regardless of when that crash occurs.
A solid investment for good times and bad
You will often hear it said that a diverse portfolio is your ticket through a stock market recession. That’s right, that’s why it’s worth investing in S&P 500 AND F.
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ETF, or exchange traded funds, allow you to integrate large segments of the market into your portfolio with a single investment. And while there are a wide variety of different ETFs, each with their own components, for strong protection against the impact of market downturns, ETFs that track the performance of the S&P 500 Index are a particularly smart choice.
Why is that ? The S&P 500, by nature, is extremely diverse. After all, it is made up of 500 of America’s largest publicly traded companies by market capitalization.
The S&P 500 also has a solid history of performing well over time. Now, that doesn’t mean that the index offers positive returns every year. Indeed, in 2002, the total return of the S&P 500 was negative 22.10%. In 2008, during the Great Recession, it was 37% negative. Ouch.
Despite these lean years, over the past 30 years the S&P has generated an average total annual return of over 12%. And some years have been downright exceptional. In 1995, the index generated a return of 37.58%. More recently, in 2019, its return was 31.49%. These good results make it possible to make up for the years when its performance is less good.
This is also why S&P 500 index funds are solid bets as long-term investments. While they can fluctuate in the short term, if history is any guide, in the long term they will serve you well – mitigating downside risks for individual stocks and keeping you exposed to the general upside in the market.
There are different S&P 500 ETFs you can choose from, but a good place to start is the Vanguard S&P 500 ETF (NYSEMKT: VOO). Since its inception in 2010, it has generated an average annual return of almost 16%. To be fair, this ETF was created after the Great Recession, which means that there has not been a major and prolonged stock market crash since its launch (although stock values ââfell significantly in March 2020 when the pandemic of coronavirus struck for the first time, this slowdown was short-lived and the overall market recovered well before the end of the year). But it also has an extremely low expense ratio of 0.03%, which should make it a top choice for investors.
Peace of mind
We can’t know for sure when stock values ââare going to fall, but it is a scenario we can prepare for. Putting an S&P 500 ETF in your portfolio is a smart move that will help you weather the crash, profit from the rebound, and gain the edge over the long term.
10 stocks we prefer over the Vanguard S&P 500 ETF
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* The portfolio advisor returns on February 24, 2021
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.