It's not easy to be an investor right now. The S&P 500 is down close to 20% from its peak in early January, inflation is up 9.1% over the past year (the highest spike in more than 40 years), and there's a chance that a recession could be looming.
It can be tempting, then, to stop investing altogether until the market and the economy stabilize. However, investing during a downturn isn't as risky as it might seem.
While it's important to invest carefully and take precautions during an economic slump, there's one recession-proof investment that could help you generate long-term wealth: S&P 500 ETFs.
Why invest in S&P 500 ETFs right now?
An S&P 500 exchange traded-fund (ETF) is a collection of stocks that mirrors the S&P 500 index itself. In other words, the ETF includes the same stocks as the index and aims to match its performance over time.
While no investments are completely immune to stock market volatility and recessions, if there's one investment that's almost guaranteed to recover from downturns, it's the S&P 500 ETF.
The S&P 500 itself has faced countless recessions, bear markets, and full-blown market crashes in its history. No matter how severe those downturns were, though, it's managed to recover from every single one of them. It's extremely likely, then, that it will recover from this one, too.
Right now is also one of the best opportunities to invest. Because stock prices are so much lower at the moment, it's a fantastic chance to buy at a discount. The S&P 500 is down roughly 20% this year, which means you're snagging a quality investment at a 20% discount.
Keep in mind, too, that even if stock prices continue to fall in the coming months, you won't actually lose any money unless you sell. The S&P 500 is almost guaranteed to rebound from this downturn, so as long as you simply hold your investments, you can get through this rough patch without losing anything.
Is the S&P 500 ETF right for you?
S&P 500 ETFs are perfect for those who want a safer, hands-off type of investment. Again, the index itself has a long history of recovering from even the worst market crashes, so no matter what happens in the coming months, there's a very good chance your portfolio will recover.
In addition, S&P 500 ETFs are low-maintenance. You never need to worry about choosing individual stocks or deciding when to buy or sell. Just invest as much as you can afford, then let the fund take care of the rest.
This type of investment may not be the best fit for those who want to take a more hands-on approach. If you enjoy researching stocks and prefer to hand-pick every stock in your portfolio, an S&P 500 ETF might not be ideal.
Finally, keep in mind that S&P 500 ETFs can only earn average returns. They're designed to follow the market, which means it's impossible for them to beat the market. If that's a deal-breaker for you, investing in individual stocks may be a better option.
It's uncertain how this market slump will play out, and nobody knows whether we'll face a recession or not. Either way, though, I plan to continue investing. And S&P 500 ETFs could be a fantastic option for many investors looking to minimize risk during periods of volatility.
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