What is the safest ETF to buy?
Low-risk ETFs like Invesco S&P 500 High Dividend Low Volatility ETF SPHD, Simplify Tail Risk Strategy ETF CYA, Cambria Tail Risk ETF TAIL and AGF U.S. Market Neutral Anti-Beta Fund BTAL could be compelling choices. These ETFs are designed for investors who prioritize capital preservation over high returns.
Low-risk ETFs like Invesco S&P 500 High Dividend Low Volatility ETF SPHD, Simplify Tail Risk Strategy ETF CYA, Cambria Tail Risk ETF TAIL and AGF U.S. Market Neutral Anti-Beta Fund BTAL could be compelling choices. These ETFs are designed for investors who prioritize capital preservation over high returns.
Fund (ticker) | YTD performance | 5-year performance |
---|---|---|
Vanguard S&P 500 ETF (VOO) | 6.5 percent | 14.6 percent |
SPDR S&P 500 ETF Trust (SPY) | 6.5 percent | 14.6 percent |
iShares Core S&P 500 ETF (IVV) | 6.5 percent | 14.6 percent |
Invesco QQQ Trust (QQQ) | 6.3 percent | 21.1 percent |
ETFs can be safe investments if used correctly, offering diversification and flexibility. Indexed ETFs, tracking specific indexes like the S&P 500, are generally safe and tend to gain value over time. Leveraged ETFs can be used to amplify returns, but they can be riskier due to increased volatility.
Symbol | Name | 5-Year Return |
---|---|---|
XSD | SPDR S&P Semiconductor ETF | 24.28% |
SPXL | Direxion Daily S&P 500 Bull 3X Shares | 23.43% |
FTEC | Fidelity MSCI Information Technology Index ETF | 23.39% |
VGT | Vanguard Information Technology ETF | 23.25% |
ETFs are less risky than individual stocks because they are diversified funds. Their investors also benefit from very low fees.
- Certificates of deposit (CDs) and share certificates.
- Money market accounts.
- Treasury securities.
- Series I bonds.
- Municipal bonds.
- Corporate bonds.
- Money market funds.
- Dividend stocks.
- iShares Russell Top 200 Growth ETF (NYSE:IWY) Annualized Return Over 10 Years: 16.09% ...
- Invesco QQQ Trust (NASDAQ:QQQ) Annualized Return Over 10 Years: 17.92% ...
- Vanguard Information Technology Index Fund (NYSE:VGT) 10-Year Daily Total Returns: 19.52%
Market risk
The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.
Symbol | Name | Avg Daily Share Volume (3mo) |
---|---|---|
SPXU | ProShares UltraPro Short S&P500 | 27,874,479 |
TNA | Direxion Daily Small Cap Bull 3X Shares | 24,946,064 |
SPXS | Direxion Daily S&P 500 Bear 3X Shares | 24,175,125 |
GDX | VanEck Gold Miners ETF | 24,090,291 |
Can a ETF go to zero?
However, it's rare for broad-market ETFs to go to zero unless the entire market or sector it tracks collapses entirely. The sharpest decline the last few decades has been in 2007, when some total stock market ETFs like IWDA lost 37% in one year.
ETFs offer guaranteed liquidity – you don't have to wait for a buyer or a seller. This means your ETF should sell on the day you ask to sell it as long as the stock exchange is open and your instruction is received in time.
You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.
The most volatile stock ETF, Direxion Daily Gold Miners Bear 3x ETF (DUST), has a three-year standard deviation of 125.45 and a three-year average annual return of -44.36%. Naturally, if you look hard enough, you can find stocks with higher risk ratings than members of the blue-chip S&P 500.
Symbol | Name | Dividend Yield |
---|---|---|
QRMI | Global X NASDAQ 100 Risk Managed Income ETF | 12.22% |
YYY | Amplify High Income ETF | 12.13% |
KBWD | Invesco KBW High Dividend Yield Financial ETF | 12.06% |
SARK | AXS Short Innovation Daily ETF | 11.88% |
- Vanguard High Dividend Yield ETF (VYM).
- iShares Core High Dividend ETF (HDV).
- Schwab U.S. Dividend Equity ETF (SCHD).
- SPDR Portfolio S&P 500 High Dividend ETF (SPYD).
- Vanguard International High Dividend Yield ETF (VYMI).
- Invesco S&P 500 High Dividend Low Volatility ETF (SPHD).
The securities that underlie the funds are held by a custodian, not by Vanguard. Vanguard is paid by the funds to provide administration and other services. If Vanguard ever did go bankrupt, the funds would not be affected and would simply hire another firm to provide these services.
These assets generally have a low-to-negative correlation with stocks and volatility, making them possible diversifiers in trying times. We rounded up a list of five exchange-traded funds, or ETFs, that are built with these features and a degree of crash protection in mind.
"Overall, Vanguard's ETFs are widely acknowledged as dependable choices for investors seeking cost-effective means to achieve diversified exposure," August says. A great example is VT, which provides investors with exposure to over 9,800 global equities, all for a 0.07% expense ratio.
The Bottom Line
Safe assets such as U.S. Treasury securities, high-yield savings accounts, money market funds, and certain types of bonds and annuities offer a lower risk investment option for those prioritizing capital preservation and steady, albeit generally lower, returns.
What is the safest investment in a recession?
Treasury Bonds
Investors often gravitate toward Treasurys as a safe haven during recessions, as these are considered risk-free instruments. That's because they are backed by the U.S. government, which is deemed able to ensure that the principal and interest are repaid.
- Private credit.
- Individual stocks.
- Real estate.
- Fine art.
- Debt.
- A business.
- Private startups.
- Cryptocurrencies.
Look at the ETF's underlying index (benchmark) to determine the exposure you're getting. Evaluate tracking differences to see how well the ETF delivers its intended exposure. And look for higher volumes and tighter spreads as an indication of liquidity and ease of access.
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.
Ticker | Fund name | 5-year return |
---|---|---|
SMH | VanEck Semiconductor ETF | 33.79% |
SOXX | iShares Semiconductor ETF | 30.26% |
XLK | Technology Select Sector SPDR Fund | 25.12% |
IYW | iShares U.S. Technology ETF | 24.37% |
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