Burned by tech stock? Try These 3 ETFs Instead | personal financing
Investing in the stock market is not easy at all, but it is especially difficult during downturns. heavy technology Nasdaq It’s down nearly 30% from its peak, and individual stocks have been having a tougher time.
Even big names like Amazon And the Netflix They are down 34% and 70%, respectively, since the beginning of the year. If you are worried about investing in technology stocks, you are not alone.
To be clear, tech stocks aren’t necessarily a bad investment. But they are often capricious, which can be difficult to digest. If you are looking for a more stable investment, the following exchange-traded funds (ETFs) may be a smart choice.
1. S&P 500 ETFs
that Standard & Poor’s 500 The ETF tracks the S&P 500 index itself, which means it includes the same stocks as the index and reflects its performance. While many stocks in the S&P 500 are technology companies, there are hundreds of others that can help reduce the impact of volatility.
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In fact, while the Nasdaq is down nearly 30% from its January high, the S&P 500 is down just 19% in the same time frame. While this is still a significant drop, it is not quite as dramatic as what the tech industry has seen.
Also, the S&P 500 includes many companies that have been around for decades (or in some cases, over a century). These stocks have seen many bear markets and crashes, and they have all recovered.
Although there are absolutely no guarantees when it comes to investing, if there are any companies that are most likely to survive the vagaries of the market, it is those in the S&P 500.
2. Dividends on ETFs
An ETF is an investment that really pays you to own it. And the longer you hold this type of ETF, the more likely you are to earn.
Some companies pay a portion of their profits to shareholders, which is called a dividend. A dividend ETF, then, is a fund that includes only dividend-paying stocks. Each quarter or year, you will receive a dividend payment for every share of the ETF you own. You can then either cash out the dividends or reinvest them to buy more shares in the selected ETF.
Over time, dividends can become a steady source of passive income. While all stocks are subject to volatility, dividend payments can sometimes make it easier to continue investing when the market is tough.
3. Growth ETFs
Growth ETFs can be riskier, but they also have the potential for higher profits. Growth ETFs contain only companies that have experienced faster-than-average growth, and this will often include technology stocks.
The advantage of investing in a growth ETF over individual technology stocks is that you have more diversity. Investing in dozens or hundreds of growth stocks can limit risk if a few of these companies don’t survive the downturn.
If you choose to invest in a growth ETF, be prepared for more short-term volatility. No one knows for sure how long this market slump will last, and there is a possibility that things will get worse before they get better. But by holding your investments for the long term, you are more likely to see positive average returns.
Keep your money safe
Tech stocks can be a smart investment, but the ups and downs can be hard to bear. No matter where you invest, you will still experience some degree of volatility. But ETFs can help reduce risk while minimizing the impact of volatility, which could make it easier for you to survive this stock market storm.
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John Mackie, CEO of Whole Foods Market, an Amazon company, is a member of The Motley Fool’s Board of Directors. Katie Brockman has no position in any of the listed stocks. Motley Fool has positions at Amazon and Netflix and recommends it. Motley Fool has a disclosure policy.