Nervous About the Market? 3 Vanguard ETFs That Were Made for Times Like These.
Key Points
The Vanguard Short-Term Inflation-Protected Securities ETF is one of the safest havens during turbulent periods.
The Vanguard Consumer Staples ETF has outperformed the overall market historically during significant downturns.
The Vanguard Dividend Appreciation ETF owns high-quality dividend stocks that tend to hold up well during uncertainty.
Cracks appear to be forming in the stock market from nearly every direction. Valuations were already high, with the S&P 500 (SNPINDEX: ^GSPC) Shiller CAPE ratio near its highest level since before the dot-com bubble burst. Oil prices have skyrocketed amid uncertainty about the U.S. conflict with Iran. Inflation remains concerning. The U.S. economy seems to be weakening, with much lower-than-expected GDP growth in the latest quarter and 92,000 job losses in February.
It's completely understandable if you're nervous about the market. There's good news, though: Three Vanguard exchanged-traded funds (ETFs) were made for times like these.
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1. Vanguard Short-Term Inflation-Protected Securities ETF
What's the safest of safe haven ETFs to own when dark and gloomy clouds hover over the market? It's probably the Vanguard Short-Term Inflation-Protected Securities ETF (NASDAQ: VTIP).
As its name implies, this Vanguard ETF holds short-term securities protected against inflation. In particular, it buys short-term U.S. Treasury Inflation-Protected Securities (TIPS). The U.S. government issues these Treasury bonds and pays a fixed rate of interest every six months. Unlike most bonds, which return the original principal amount at maturity, TIPS adjust the principal based on the Consumer Price Index (CPI).
You won't make a ton of money investing in the Vanguard Short-Term Inflation-Protected Securities ETF. Over the last 10 years, the fund has delivered a return of only 3.15%. However, you won't lose money if the stock market plunges. You'll also be able to sleep peacefully knowing that if inflation roars back, the purchasing power of your initial investment won't be eroded by inflation.
This ETF gives nervous investors a better place to park cash than a standard savings account. It's also inexpensive to own, with an annual expense ratio of 0.03%.
2. Vanguard Consumer Staples ETF
If you're anxious about the market but still want exposure to stocks, the Vanguard Consumer Staples ETF (NYSEMKT: VDC) could be just the ticket. Vanguard launched this popular sector ETF in 2004.
Unsurprisingly, the Vanguard Consumer Staples ETF owns consumer staples stocks -- 104 of them. Its top holdings include Walmart (NASDAQ: WMT), Costco Wholesale (NASDAQ: COST), Procter & Gamble (NYSE: PG), The Coca-Cola Company (NYSE: KO), and PepsiCo (NASDAQ: PEP). Such stocks sell products that consumers continue to buy regardless of how the economy or the stock market is performing.
To be sure, this Vanguard ETF can decline in value. However, it has outperformed the overall market historically during significant downturns. For example, in the 2022 bear market, the ETF finished the year down only 4% compared to 19% for the S&P 500 and 33% for the Nasdaq Composite Index (NASDAQINDEX: ^IXIC).
The average expense ratio of similar funds is 0.73%. The Vanguard Consumer Staples ETF offers an expense ratio of 0.09%.
3. Vanguard Dividend Appreciation ETF
High-quality dividend stocks become much more attractive to investors during turbulent periods. Instead of trying to cherry-pick the best of these stocks to own, though, you could simply invest in the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG).
This Vanguard ETF seeks to track the S&P U.S. Dividend Growers Index. The index includes large-cap stocks with a strong track record of dividend growth. Steady dividend increases can help offset inflation's impact.
The Vanguard Dividend Appreciation ETF's portfolio currently owns 338 stocks. Its top holdings include Broadcom (NASDAQ: AVGO), Apple (NASDAQ: AAPL), Eli Lilly (NYSE: LLY), Microsoft (NASDAQ: MSFT), and JPMorgan Chase (NYSE: JPM).
Granted, this ETF isn't immune to sell-offs during market downturns. However, it has held up better than the S&P 500 (and much better than the Nasdaq) during previous steep corrections. The Vanguard Dividend Appreciation ETF is also inexpensive to own, with an annual expense ratio of 0.04%.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Keith Speights has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Apple, Costco Wholesale, JPMorgan Chase, Microsoft, Vanguard Dividend Appreciation ETF, and Walmart and is short shares of Apple. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
