It’s been a turbulent year so far for the stock market. After falling more than 10% and officially entering correction territory earlier this year, the S&P500 quickly jumped up before diving again.
While no one can say for sure where the market is headed, many factors could contribute to increased volatility – from the conflict in Ukraine to rising inflation to an increase in COVID-19 cases, for example.
If the market is deteriorating, it may be a good 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 that it includes the same stocks as the index itself and reflects its long-term performance.
One of the main advantages of this type of investment is that it is extremely likely to recover from market downturns. The S&P 500 itself has seen countless crashes over the decades and has always managed to bounce back. Since this type of fund tracks the S&P 500 itself, chances are it will rally as well.
Each S&P 500 ETF includes stocks from 500 of America’s largest companies, making each a solid overall investment. Strong companies are more likely to grow over time, and when you have hundreds of these stocks in your portfolio, your investments are more likely to survive volatility.
2. Growth ETFs
A growth ETF is a type of fund that only includes stocks with faster-than-average growth potential.
The downside of growth ETFs is that they are 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 declines than their more established counterparts.
However, it 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, more reward potential often comes with more risk. Because growth ETFs can be riskier than, say, S&P 500 ETFs, it’s wise to have a diversified portfolio to protect your money as much as possible.
3. Dividend ETFs
A dividend ETF is a fund that pays you to own it. Some companies return part of their profits to shareholders, which is called a dividend. A dividend ETF is therefore 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 dividends you will receive. Over time, these dividends can potentially add up to thousands of dollars per year.
Again, because stock prices are lower during market crashes, this can present a smart opportunity to reload dividend-paying ETFs for a fraction of the cost. By continuing to invest and build your portfolio, you can create a steady stream of passive income.
Although the market is volatile right now, no one knows if a crash is imminent. However, by loading up on the right investments, you can be better prepared for whatever may come your way.