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The stock market has been having a rough year so far. After reaching a new high in early January, the S&P 500 officially entered correction territory this week.
With surging inflation, ongoing supply chain issues, the continued spread of the COVID-19 omicron variant, and the Federal Reserve’s recent announcement that it plans to hike interest rates this year, many investors are feeling uncertain about the future.
That uncertainty translates to increased market volatility, and it can be a nerve-racking time to invest. However, there are a few Vanguard ETFs that are especially strong investments when the market is volatile.
Image source: Getty Images.
1. Vanguard S&P 500 ETF
S&P 500 ETFs are a fantastic option regardless of where the market stands, but they’re a particularly strong choice during downturns.
The Vanguard S&P 500 ETF (NYSEMKT: VOO) includes all the companies from the S&P 500 index itself, which are some of the strongest and most stable corporations in the country. To make it onto this prestigious list, organizations must be fundamentally solid with a long history of earning positive average returns.
While these companies might take a hit in the short term if the market dips, they’re very likely to recover. And because you’re investing in hundreds of stocks with this ETF, even if a few of the companies in the fund don’t survive, the vast majority of them will — meaning those that fail won’t sink your entire portfolio.
2. Vanguard Total Stock Market ETF
The Vanguard Total Stock Market ETF (NYSEMKT: VTI) is broader than the S&P 500 ETF, providing greater diversification, which can limit your risk. This ETF includes more than 4,100 stocks from small, midsize, and large corporations across a wide variety of industries.
This fund aims to track the stock market as a whole, which can make it a smart option during a downturn. The stock market may experience extreme volatility in the short term, but historically, it’s recovered from every crash it’s ever experienced.
Established in 2001, this ETF has experienced everything from the dot-com bubble burst to the Great Recession to the crash during the early stages of the pandemic. Despite everything, it’s earned an average rate of return of around 9% per year.
VTI data by YCharts.
Nobody knows what’s in store for the market, but if it does crash again, there’s a strong chance this ETF will be able to bounce back.
3. Vanguard Growth ETF
The Vanguard Growth ETF (NYSEMKT: VUG) includes 279 stocks that have a history of rapid growth. This fund is the riskiest on the list, but it also has the most potential for significant returns.
Tech stocks make up roughly half of the assets in this ETF. While the technology sector is known for its growth, it’s often hit hard during market downturns. Case in point: While the S&P 500 has fallen by roughly 10% since early January, the tech-heavy Nasdaq is down nearly 15% in the same time frame.
^SPX data by YCharts.
This means this ETF could experience greater volatility than the other funds on the list if the market continues to fall. However, because tech stocks often experience faster growth, this fund might also earn substantial returns when the market inevitably recovers. In fact, since its inception in 2004, it’s earned an average return of around 12% per year.
If you choose to invest in the Vanguard Growth ETF, make sure it’s part of a well-diversified portfolio. Because this fund is higher risk, it’s important to make sure it’s balanced with a mix of safer stocks or ETFs as well.
Nobody knows for certain what will happen with the stock market, but that doesn’t mean you can’t prepare. By investing in the right places, your portfolio will be ready for anything.
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Katie Brockman owns Vanguard Growth ETF, Vanguard S&P 500 ETF, and Vanguard Total Stock Market ETF. The Motley Fool owns and recommends Vanguard Growth ETF, Vanguard S&P 500 ETF, and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.
