As the market works through its first correction in four years, now is a good time to take a look at the best ETFs to buy at lower prices.
Understandably, many investors may have been hesitant to buy more shares of equity ETFs in recent months after stocks hit an all-time high in May. And there are likely investors now who feel it best to sit on the sidelines while we wait to see if the rebound lasts.
But the recent dip made for an opportune time to buy shares of select ETFs, especially for investors with a long-term time horizon. And any future dips will be just as opportune.
A smart and tactical approach to buying at relatively low prices in increments will lead to long-term success. In this regard, the best ETFs to buy are those that are most likely to outperform in the next few years and beyond, not the next few weeks or months.
Here are three of the best ETFs to buy on any future dips.
Best ETFs to Buy on the Dip: iShares Core S&P 500 (IVV)
Expenses: 0.07%, or $7 annually on $10,000 invested
During and immediately following a market correction, a low-cost, broadly diversified index fund like iShares Core S&P 500 (IVV) is definitely among the best ETFs to buy.
IVV makes for a good core holding, even outside of present conditions. But the most volatile ETFs are likely to be the focused funds and equity sector ETFs. Therefore, many ETF investors already hold IVV, and in an uncertain market, picking up more shares of a solid core holding may be the best bet for both the short-term investors and long-term investors alike.
Although IVV is not the most popular S&P 500 ETF on the market, it’s rock-bottom expense ratio of 0.07% gives it a slight edge on long-term performance.
Best ETFs to Buy on the Dip: Financial Select Sector SPDR (XLF)
The financials sector is arguably oversold, and the Financial Select Sector SPDR (XLF) is a solid choice for broad exposure to high-quality, large-cap financial stocks.
Financial stocks in general were hit harder in the correction than the broader market indices. A prime example is JPMorgan Chase (JPM), which saw its stock price drop more than 20% on Monday before recovering to a mere 5.3% decline. The financial sector firm was upgraded to a “buy” on Tuesday by CLSA, with a price target of $78 per share — representing approximately 20% upside from current prices.
Unless you think a full-blown bear market is upon us and the U.S. economy is headed toward recession, financial stocks look good in the short-term and can be a good long-term play as well. Assuming rates remain low and the Fed doesn’t tighten too quickly and aggressively, banks can charge customers more for lending, and brokerage firms can prosper in the final phase of the business cycle.
Best ETFs to Buy on the Dip: Vanguard FTSE Europe (VGK)
Foreign stocks can play an important role in a diversified portfolio. But emerging markets ETFs aren’t likely to return to favor any time soon. However, European stocks can do relatively well during and immediately following the market correction, and Vanguard FTSE Europe (VGK) is a fine choice in that regard.
In one of the worst weeks for stocks in years, the S&P 500 Index fell 9.9% through August 24. VGK fared slightly better with a decline of 8.5%. Year-to-date, the S&P 500 is down 3.8%, whereas VGK is down a palatable 1.4%.
Once the market malaise begins to settle, the U.S. dollar is likely to resume its relative strength against the Euro, which will continue to support European stock prices, as was the case prior to the correction.
With an expense ratio of 0.12%, VGK is the cheapest fund in the Europe stock category. The portfolio is broadly diversified, and top holdings include Nestle (NSRGF), Novartis (NVS) and Roche Holding (RHHBF).
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. However he holds IVV in some client accounts. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.