In the ever-changing world of investing, market volatility can be as constant as change itself. The swings can unnerve even the most seasoned investors, tempting them to make hasty decisions that may harm their long-term financial goals.
Many investors may be scared of the ongoing stock market volatility caused by geopolitics. President Donald Trump addressed the nation Wednesday evening, outlining the rationale behind the war in Iran and signaling that the United States is approaching the final phase of its objectives.
While he did not offer a definite exit strategy, he warned that the United States would strike Iran “extremely hard” over the next two to three weeks, after which the Strait of Hormuz would “open up naturally”, as quoted on Yahoo Finance.
The remarks indicate that the coming three weeks will likely be extremely volatile. Then, what should be your stance? Should you stay invested in the markets or wait on the sidelines?
If you go by Warren Buffett, “the stock market is a device which transfers money from the impatient to the patient.” Note that U.S. economic and corporate fundamentals do not seem to be a cause of concern, if we rule out the war scenario.
Hence, we highlight a few ETFs that can be invested in and held in the current volatile market, as these products are ageless and great long-term holdings.
iShares Core S&P 500 ETF IVV – Zacks Rank #2 (Buy)
The fund IVV tracks the performance of the S&P 500 index, which comprises 500 of the largest publicly traded companies in the United States. It offers exposure to blue-chip stocks across multiple sectors and has historically delivered competitive returns compared to other large-cap benchmarks.
History suggests that market downturns are often followed by strong recoveries. After the Global Financial Crisis, the S&P 500 bottomed on March 6, 2009, at 666 and went on to deliver a 10-year annualized return of 17.8%, as quoted on CNBC.
Similarly, a decade after the Black Monday, the index posted annual gains of 17.2%, as quoted on the above-said CNBC article. These trends indicates the long-term resilience of the broader equity markets (read: War or Not? Don’t be Fooled by the Latest Slump in S&P 500 ETFs).
Vanguard Total Stock Market ETF VTI – Zacks Rank #3 (Hold)
Having exposure to the overall stock market, irrespective of capitalization and style is an intriguing bet over the long term as it offers true diversification. Diversification is a way to win in an unstable market.
The underlying CRSP US Total Market Index representing nearly 100% of the U.S. investable equity market covering nearly 4,000 constituents across mega, large, small and micro capitalizations. The fund VTI charges 3 bps in fees and yields 1.17% annually. The fund has surged about 54% in the past five years.
SPDR Gold Shares GLD – Zacks Rank #3
Gold has traditionally been seen as a safe haven in times of financial uncertainty. The GLD ETF offers investors an effective way to incorporate gold into their portfolio without the need to physically own the metal.
Gold ETFs have fallen initially during the war as rising yields and a strong dollar have weighed on non-yielding bullion demand. The dip may be a buying opportunity as the Fed has assured that inflation is under control and rate hike expectations have declined.
Plus, the expected central bank demand (post war) should support the long-term outlook. GLD has jumped about 170% in the past five years (read: Gold ETFs Slide Deeper: More Short-Term Pain but Long-Term Gain?).
Vanguard High Dividend Yield Index Fund ETF VYM– Zacks Rank #1 (Strong Buy)
In such a volatile market, dividend ETFs normally come to the rescue. The hunt for dividends in the equity market is always on, irrespective of how it is behaving. If investors are mired in a web of equity market uncertainty, global growth worries and geopolitical crises, the lure of dividend investing increases further.
The underlying FTSE High Dividend Yield Index consists of common stocks of companies that pay dividends that generally are higher than average. VYM charges 4 bps in fees and yields 2.37% annually. The fund has gained 45.6% in the past five years.
Technology Select Sector SPDR ETF XLK– Zacks Rank #1
Technological innovations are part and parcel of the current era. We believe that no matter if the Fed hikes, pauses, stays the course, or cuts rates, tech investing will be in fine fettle due to the AI boom and the perception that the era of rock-bottom rates is over. Both tech and higher rates are the new normal, and investors are becoming accustomed to it.
The tech fund XLK charges 8 bps in fees and yields 0.57% annually. The fund has gained about 99% in the past five years.
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SPDR Gold Shares (GLD): ETF Research Reports
State Street Technology Select Sector SPDR ETF (XLK): ETF Research Reports
Vanguard Total Stock Market Index Fund ETF Shares (VTI): ETF Research Reports
iShares Core S&P 500 ETF (IVV): ETF Research Reports
Vanguard High Dividend Yield Index Fund ETF Shares (VYM): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
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