It isnʻt a secret that we are knee-deep into a recession. Between the pandemic, the war in Ukraine, transportation issues, and how much more I am paying for my Jollibee Uber Eats order, things are pretty rough. Knowing the best place to invest your money right now is that much more important. In this video, we’re going to look at some recession-proof index funds and ETFs that you can use to keep your future wealth prospects safe and sound. Of course, a big disclaimer: NO investment is guaranteed to make money. So ALWAYS do your due diligence, research, and plan for every contingency.
First, let’s talk about index funds. An index fund is a low-cost stock portfolio that includes a specific segment of the stock market. This could include mirroring existing funds, such as the S&P 500, or dedicated industries such as real estate, technology stocks, small caps, mid-sized firms, real estate, dividends, sustainability, and cloud computing. You don’t have to buy every individual stock to mirror the market. Just buy an index fund and you own a piece of all of them! Warren Buffett even endorses investing in low-cost index funds. This method is also easy. As long as you can click a couple of buttons regularly, you’re set. Almost nothing is spent on managing these index funds, so the extra savings are passed on to you, the customer.
Here are my top three index funds that you can buy right now, along with a few important details to consider…
Vanguard S&P 500 Index Fund
The first is the Vanguard S&P 500 Index Fund, ticker symbol VFIAX. Almost every brokerage has its own version of the S & P 500 index fund. However, since Vanguard is the largest brokerage firm, as well the founder of index funds, we’ll focus on them. Their index funds cover almost everything we’re going to talk about. VFIAX was made to track the entire S & P 500, which is made up of the top 500 publicly traded stocks in the United States. Buying this one fund is like owning three-quarters of the stock market’s worth. Owning the S & P 500 gives you exposure to large, stable corporations.
You’re also investing in long-term US economic growth, based on an existing robust and successful history. Their most important holdings include Apple, Microsoft, Amazon, Tesla, Google, Nvidia, Netflix, and all the other big names you’ve heard of. Since its inception in 2000, it has averaged a 7.9 percent annual return. This means that a $10,000 investment made 10 years ago, with dividends reinvested back in, would now be worth $35,000.However, investing in the index fund has a minimum cost of $3,000 plus a 0.04 percent annual management fee.
Global Stock Market Index
Number two is the Global Stock Market Index, ticker symbol VTWAX. VTWAX gives you access to the global stock market through a portfolio of more than 10,000 different stocks. You get access to some of the top American and international stocks. And it diversifies your portfolio without hours of stock-buying. Even though this fund only started in 2018, its returns are over 6% in the last year and over 13% in the last three years. But it has a hefty management fee of 1% and a minimum deposit of $3,000. If you want variety in your portfolio, try this one. I thought it would be fun to add the Vanguard Real Estate Index Fund (ticker symbol VGSLX) to the list. VGSLX invests in a variety of real estate investment trusts.
Instead of owning a fraction of a stock, you own a fraction of a company that owns and runs real estate investment properties. It’s like being a small owner of hospitals, hotels, retail stores, warehouses, and everything else for just $147 a share. It also comes with a dividend of 2.9% per year. So no matter what happens to the stock price, you’ll get some passive profits. This one has great returns, with an average return of over 10% a year since 2001. However, they charge 1.2 percent in fees, which is the highest on this list. With interest rates rising, it’s unclear how this will affect real estate values. Therefore, this fund might go down. On the other hand, this is a great way to learn about real estate without having to buy your own property.
The drawback with index funds is that they have to be bought in whole numbers which requires a high minimum investment. They also can’t be transferred without paying a hefty commission. On the other hand, ETFs, or Exchange Traded Funds, trade just like stocks. There are no minimums and you can buy partial shares. You can also transfer brokerages. When you trade an ETF, you are trading the basket of stocks it owns. If you don’t have the money for index funds, check out the following ETFs. First, we have the iShares U.S. Healthcare Providers, ticker symbol IHF. Starting in 2006, IHF tracks the Dow Jones U.S. Select Healthcare Providers Index.
It has $1.2 billion in assets and an average daily volume of 42,000. Its dividend yield is 0.5%, while its expense ratio is 0.42%. IHF’s top three holdings are United Health Group (UNH), CVS, and Cigna Corp. Before the 2008 market collapse, it was priced at 49.69 dollars, but after the crash, it went down to 30.13 dollars. IHF didn’t do well in the last recession, but it’s going to hold up much better than last time because baby boomers are entering an age where they’re going to require a great deal of healthcare-related products and services.
And the Vanguard Dividend Appreciation ETF, ticker symbol VIG, is another great choice for an ETF. It tracks the performance of the Nasdaq U.S. Dividend Achievers Select Index. It has $74 billion in assets and an average daily volume of 1.1 million. It yields 1.7% and has a SUPER low 0.06% expense ratio. Microsoft, Visa, and P & G are its top three holdings. These types of companies can likely withstand any market collapse, even if it is severe. When the market is in recession, purchase VIG, knowing that these elite firms will bounce back when the recession ends. My personal feeling is that we still have a ways to go before the economy course corrects. So, in the meantime, investing in Index Funds or ETFs that can weather the storm is a great way to prepare for the future. Of course, this assumes you know what Index funds and ETFs are in the first place.