It’s been a shaky year so far for the stock market. After falling more than 10% and officially entering correction territory earlier this year, the S&P 500 quickly surged before dipping once again.
While no one can say for certain where the market is headed, there are plenty of factors that could contribute to increased volatility — from the conflict in Ukraine to rising inflation to an uptick in COVID-19 cases, for example.
If the market does take a turn for the worse, though, it can be a smart time to invest. Stock prices are lower during downturns, and there are a few exchange-traded funds (ETFs) you might want to stock up on.
1. S&P 500 ETFs
An S&P 500 ETF is a fund that tracks the S&P 500 Index. This means it includes the same stocks as the index itself and mirrors its long-term performance.
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One of the primary advantages of this type of investment is that it’s extremely likely to recover from market downturns. The S&P 500 itself has experienced countless crashes over the decades and has always managed to bounce back. Because this type of fund follows the S&P 500 itself, there’s a good chance it will recover, as well.
Each S&P 500 ETF includes stocks from 500 of the largest US companies, which makes any of them a solid overall investment. Strong companies are more likely to grow over time, and when you have hundreds of those stocks in your portfolio, your investments are more likely to survive volatility.
A growth ETF is a type of fund that only includes stocks with the potential for faster-than-average growth.
The downside to growth ETFs is that they’re often hit harder during market downturns. High-growth stocks tend to be more volatile, in general, so when the market dips, they often see more extreme price drops than their more established counterparts.
However, that also makes them more affordable and provides more opportunities for growth. If you invest in a growth ETF when stock prices are lower, you may see higher returns once the market rebounds.
Of course, with more potential for reward often comes more risk. Because growth ETFs can be higher risk than, say, S&P 500 ETFs, it’s wise to have a diversified portfolio to protect your money as much as possible.
A dividend ETF is a fund that actually pays you to own it. Some companies pay a portion of their profits back to shareholders, which is called a dividend. A dividend ETF, then, is a fund that only includes these types of stocks.
Dividend ETFs can become a source of passive income over time. The more shares you own, the more you’ll receive in dividend payments. Over time, those dividends can potentially add up to thousands of dollars per year.
Again, because stock prices are lower during market slumps, it can present a smart opportunity to load up on dividend ETFs for a fraction of the cost. By continuing to invest and build your portfolio, you can create a steady stream of passive income.
Though the market is volatile right now, nobody knows whether a crash is looming. By loading up on the right investments, though, you can be better prepared for whatever may happen.
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