Whether you’re an experienced investor or just starting out in the stock market, periods of volatility can be stressful.
The market has seen many ups and downs in recent months, and some investors are concerned that we are headed for a downturn. With so much uncertainty in the world right now, there is a chance that more turbulence is on the way.
While no one can say for sure whether or not an accident is on the horizon, there is one investment that can help you prepare: S&P 500 ETFs.
How an S&P 500 ETF can protect your money
An S&P 500 ETF is a fund that includes the same stocks as the S&P 500 index itself, with the goal of reflecting the long-term performance of the index.
Because these stocks are from some of the largest and strongest companies in the US, that makes this type of fund more likely to survive stock market downturns. Strong companies can still take a hit during downturns, but there is a strong chance that most of these stocks could eventually recover.
By investing in an S&P 500 ETF, your investments are likely to bounce back from recessions as well. Again, no investment is immune to volatility, so even S&P 500 ETFs are likely to experience short-term declines when the market is down. But over the long term, this type of fund is very likely to earn positive average returns.
Should you invest in an S&P 500 ETF?
S&P 500 ETFs are one of the safest investment types, making them a smart choice for risk-averse investors. The index itself has a decades-long track record of recovering from recessions, so there’s a good chance this type of fund will continue to do well over the long term.
One potential drawback, however, is that they cannot earn above-average returns. The S&P 500 itself is generally considered a strong representation of the stock market as a whole. Because S&P 500 ETFs are designed to follow the market, it is impossible for them to outperform it.
For many investors, this is not a deal breaker. But if above-average returns are one of your primary goals, S&P 500 ETFs may not be right for you.
Plus, when you invest in an S&P 500 ETF, you have no choice but to own a stake in every company in the index. If there are certain stocks that you would rather not own, there is no way to avoid investing in them when you own this type of fund. Again, this is not necessarily a bad thing for most investors, but it is important to consider before buying.
Whether or not a market downturn is looming, it’s wise to be prepared just in case. While S&P 500 ETFs aren’t right for everyone, they can be a fantastic investment to keep your money as safe as possible.