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One of the most intimidating aspects of investing in the stock market is dealing with crashes. Stock market crashes are normal, but they can also be unpredictable and severe. And if you invest in the wrong places, you could lose a substantial amount of money.
No matter where you invest, your portfolio is likely to experience short term volatility. No investment is immune to market turmoil, after all. However, if your portfolio is strong and you hold onto your investments until the market recovers, you have a better chance of avoiding losses.
Choosing the right investments is essential to surviving a market crash, and these three Vanguard ETFs can be a great addition to your portfolio.
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1. Vanguard S&P 500 ETF
the Vanguard S&P 500 ETF (NYSEMKT: FLIGHT) tracks the S&P 500 Index, which includes stocks of 500 of the largest and most stable companies in the United States
This ETF is designed to mirror the performance of the index itself, making it more likely to survive market volatility. The S&P 500 has seen countless ups and downs over the years, but it has always recovered from the most serious crashes.
^ SPX data by YCharts
In addition, since its inception, the S&P 500 has achieved an average annual return of around 10% per annum. This means that despite all the crashes he’s been through, he’s still managed to generate positive returns over time. By investing in an S&P 500 ETF, your investments should also generate positive average returns.
2. Vanguard Total Stock Market ETF
the Vanguard Total Stock Market ETF (NYSEMKT: VTI) is similar to the S&P 500 ETF, except that it is wider. The S&P 500 ETF only contains stocks of 500 large companies, while the Total Stock Market ETF includes over 3,900 stocks of small, medium and large companies in various industries.
This broad exposure can help diversify your portfolio, and a more diversified portfolio is generally better protected against market downturns. Even though many of the fund’s stocks do not survive a market crash, the vast majority of them will.
Since its inception in 2001, this ETF has achieved an average rate of return of around 9% per year. While this is slightly lower than what the S&P 500 earned on average, keep in mind that this fund is more diversified. Lower risk often comes with lower returns, so consider your priorities when deciding to invest.
3. Vanguard Growth ETF
the Vanguard Growth ETF (NYSEMKT: VUG) includes 288 stocks of companies that have the potential for rapid growth. About half of the fund’s shares are from the tech industry, although there are stocks from a wide variety of other sectors as well.
This fund is riskier than an S&P 500 ETF or a total stock market ETF because high growth stocks can be more volatile. However, some of the most important stocks in this fund include Apple, Microsoft, Amazon, and Alphabet – giant companies which are very likely to survive stock market crashes.
One of the advantages of investing in this fund is that high growth stocks should generate above average returns. Indeed, since its launch in 2004, this ETF has obtained an average return of around 12% per year.
Stock market crashes are inevitable, so it’s best to start preparing for them now. By investing in ETFs that are more likely to experience long-term growth, you can give yourself the best chance of surviving even the worst stock market crashes.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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