One of the most intimidating aspects of investing in the stock market is dealing with crashes. Market crashes are normal, but they can also be unpredictable and severe. And if you're investing in the wrong places, you could lose a substantial amount of money.
No matter where you invest, your portfolio will still likely experience short-term volatility. No investments are immune to stock market turbulence, after all. However, if your portfolio is strong and you hold your investments until the market recovers, you have a better shot at avoiding losses.
Choosing the right investments is key to surviving a market crash, and these three Vanguard ETFs can be a strong addition to your portfolio.
1. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (NYSEMKT: VOO) follows the S&P 500 index, which includes stocks from 500 of the largest and most stable companies in the U.S.
This ETF is designed to mirror the performance of the index itself, making it more likely to survive market volatility. The S&P 500 has experienced countless ups and downs over the years, yet it's always recovered from even the most severe crashes.
Also, since its inception, the S&P 500 has earned an average annual return of around 10% per year. That means despite all the crashes it's experienced, it's still managed to earn positive returns over time. By investing in an S&P 500 ETF, your investments are likely to see positive average returns as well.
2. Vanguard Total Stock Market ETF
The Vanguard Total Stock Market ETF (NYSEMKT: VTI) is similar to the S&P 500 ETF, except it's broader. The S&P 500 ETF only contains stocks from 500 large companies, while the Total Stock Market ETF includes more than 3,900 stocks from small, midsize, and large corporations across a variety of industries.
This broad exposure can help diversify your portfolio, and a more diversified portfolio is generally more protected against market downturns. Even if several of the stocks in the fund don't survive a market crash, the vast majority of them will.
Since its inception in 2001, this ETF has earned an average rate of return of around 9% per year. While that is slightly lower than what the S&P 500 has earned, on average, keep in mind that this fund is more diversified. Lower risk often comes with lower returns, so consider your priorities when deciding on investments.
3. Vanguard Growth ETF
The Vanguard Growth ETF (NYSEMKT: VUG) includes 288 stocks from companies that have the potential for rapid growth. About half the stocks in the fund are from the tech industry, though there are stocks from a wide variety of other sectors as well.
This fund is riskier than an S&P 500 ETF or Total Stock Market ETF because high-growth stocks can be more volatile. However, some of the largest stocks in this fund include Apple, Microsoft, Amazon, and Alphabet — behemoth companies that are very likely to survive market crashes.
One advantage of investing in this fund is that high-growth stocks are expected to earn higher-than-average returns. In fact, since this ETF was launched in 2004, it has earned an average return of around 12% per year.
Stock market crashes are inevitable, so it's best to start preparing for them now. By investing in ETFs that are more likely to experience long-term growth, you can give yourself the best chance at surviving even the worst market crashes.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Katie Brockman owns shares of Vanguard Total Stock Market ETF. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, Vanguard Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.