No one knows when or why the next stock market sell-off will occur. But we know that market downturns are part of the price of admission to unlocking the long-term gains of the stock market.
A correction occurs, which is defined as a decline of at least 10% from the high Every 1.85 years. A bear market, a decline of at least 20%, happens almost every time 3.6 years. This means that approximately half of corrections develop into bear markets, so investors with a time horizon of at least three to five years should be prepared for a bear market.
By investing in companies with strong business models and reasonable valuations, you can position your portfolio to withstand a bear market. Exchange-traded funds (ETFs) invest in dozens, if not hundreds, of companies at a time – reducing volatility.
By not investing in high growth stocks, the Vanguard S&P 500 Value ETF achieves a lower valuation and higher return than an exchange-traded fund. Standard & Poor’s 500. The ETF has a price-to-earnings (P/E) ratio of 20.3 and a dividend yield of 1.9%, compared to the fund’s 27.6 P/E and 1.2% yield. Vanguard S&P 500 ETFwhich tracks the performance of the index.
Compared to the S&P 500, the Vanguard S&P 500 Value ETF is more concentrated in low-growth, low-valuation sectors like utilities, healthcare and financials.
Data source: Vanguard.
Value stocks tend to be priced based on strong current earnings growth rather than potential growth. These are the types of companies that have already suffered from past recessions and economic cycles, and are well positioned to do so again. Therefore, investors in the Vanguard S&P 500 Value ETF can rest assured knowing they are putting their hard-earned savings into high-quality businesses.
The Vanguard Russell 2000 Value ETF is about as diverse as it gets when it comes to low-cost funds. This ETF has 1,446 holdings, and no single stock makes up more than 0.6% of the fund. Its most important holdings are likely unrecognizable to most investors. Instead of targeting flashy names, the fund invests in value stocks of varying sizes in the US stock market.
The box looks like Vanguard Russell 2000 ETFwhich tracks the Russell 2000 Index, which focuses on small-cap stocks. The Vanguard Russell 2000 Value ETF has fewer holdings because it filters out more than 500 small-cap growth stocks.
The Vanguard Russell 2000 Value ETF is suitable for people who want to invest capital in the market without focusing on a specific investment thesis. Unlike other Vanguard ETFs that are highly concentrated in a few names, the Vanguard Russell 2000 Value ETF is so diversified that it has no clear leadership.
Sometimes, excessive diversification can be a bad thing because the exceptional outperformance of one stock can get lost in the wash. For example, the top-weighted stock in the Vanguard Russell 2000 Value ETF could triple in one year and not move the index by 2%.
However, the fund could be a great fit for people looking for a general basket of value stocks and passive income. The ETF has a P/E ratio of just 14.2 and a yield of 1.7%. The diversification and value focus of the Vanguard Russell 2000 Value ETF makes it suitable for people who are concerned about a sell-off in the stock market.
This ETF reflects the performance of the consumer staples sector. Unlike the highly diversified Vanguard Russell 2000 Value ETF, the Vanguard Consumer Staples ETF is centered around a few holdings, with 46% of the fund invested in… Costco wholesale, Procter & GambleWalmart, and coca cola.
In general, the consumer staples sector is relatively recession-resistant, compared to other more cyclical sectors that are exposed to economic cycles. Demand for goods sold at retailers such as Costco or Walmart or produced by Procter & Gamble or Coca-Cola has a constant demand no matter what the economy is doing. This dynamic stands in stark contrast to sectors such as consumer discretionary or industrial sectors, which benefit from the influx of capital and consumer spending.
The consumer staples sector is unlikely to be able to keep up with the growth-driven rally in the broader market, but could do well during a stock market sell-off. Even if there is an economic slowdown, leading consumer goods companies should still be able to maintain steady earnings or even achieve slight growth, while other sectors may see dramatic fluctuations in corporate profits.
The Vanguard Consumer Staples ETF has a lower P/E ratio than the S&P 500 (24.8) and a higher yield than the S&P 500 at 2.5%. Add it all up, and this fund becomes a good way for value investors to collect passive income from a diversified portfolio of companies.
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JPMorgan Chase is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Susan Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Daniel Fulber He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Costco Wholesale, JPMorgan Chase, Microsoft, Nvidia, Tesla, the Vanguard S&P 500 ETF, and Walmart. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has Disclosure policy.
3 ultra-safe ETFs to buy, even if there’s a stock market sell-off in 2025 Originally published by The Motley Fool
