In the current climate, it’s not easy to decide where to park your capital. Bitcoin (CCC:BTC-USD) is trading at historic highs. Electric vehicle (EV) stocks continue to make waves. And a day does not go by when we don’t see another SPAC (special purpose acquisition company) stock enter the fray. Amongst all this, what’s the safest way to play the market? Well, that would have to be exchange-traded funds (ETFs).
You may be asking yourself why you should invest in ETFs. One can easily just pick up every stock out there that has been doing well.
As a cost-effective way of managing a broadly diversified portfolio, owning ETFs versus stocks has several advantages. They provide superior tax efficiency, lower risk and greater trading flexibility than actively managed funds.
So, without further ado, let’s look at seven ETFs that will shield you during a bear market:
- Vanguard 500 Index Fund ETF (NYSEARCA:VOO)
- ARK Innovation ETF (NYSEARCA:ARKK)
- WisdomTree US LargeCap Dividend Fund (NYSEARCA:DLN)
- iShares Core High Dividend ETF (NYSEARCA:HDV)
- Invesco QQQ ETF (NASDAQ:QQQ)
- Vanguard Growth Index Fund ETF (NYSEARCA:VUG)
- Industrial Select Sector SPDR Fund (NYSEARCA:XLI)
ETFs to Buy: Vanguard S&P 500 ETF (VOO)
Sometimes, even investing in ETFs can be challenging. If you are confused, it’s always better to go with a conventional approach. And you cannot get more traditional than VOO, which is benchmarked against the S&P 500 index of primarily U.S. blue-chip stocks.
The Vanguard S&P 500 ETF is for those investors who do not want any surprises. The ETF offers a simple approach to invest in “the market” that won’t cause you any sleepless nights.
The usual heavy hitters like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Facebook (NASDAQ:FB) are well represented in the portfolio. It’s no surprise since tech stocks make up more than a quarter of VOO’s holdings. However, it is also invested in more traditional fare like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX).
ARK Innovation ETF (ARKK)
From a largely passive investment to one that is full of risk and excitement. Cathie Wood had an excellent 2020. Five of her innovation-themed funds became the 25 best-performing equity ETFs of the year.
If VOO is the safest way to play, ARKK is for those that can stomach a bit of risk and excitement. As Chief Executive Officer and Chief Investment Officer of ARK Invest, Wood is focused on investing in four disruptive industries: genomics, industrial innovation, next-gen internet and financial technology.
Total assets under management are north of $20 billion. Holdings include electric vehicle giant Tesla (NASDAQ:TSLA), online payments processor Square (NYSE:SQ), streaming-device maker Roku (NASDAQ:ROKU) and genetic-testing expert Invitae (NYSE:NVTA), to give you an indication of the diversification of the portfolio.
However, the company is focusing on innovative companies. Hence, expect more volatility from this one. Although, with an experienced executive such as Wood at the helm, ARKK is a fascinating investment.
ETFs to Buy: WisdomTree U.S. LargeCap Dividend Fund (DLN)
The zig-zag nature of this list continues with the next entry. As its name suggests, DLN invests in large-cap companies with a history of strong, stable payments.
More of a defensive play, DLN is tempting for those looking to maximize current returns from the equity portion of their portfolios rather than focusing on a market capitalization weighting.
Unfortunately, that makes it tilt toward sectors that have historically had high payouts.
iShares Core High Dividend ETF (HDV)
Continuing the dividend theme, HDV allows you to invest in high-yield dividend stocks. Much like DLN, holdings comprise companies that offer consistent dividend payments and have a stable profit history.
Since the index does not invest in companies with a low payout ratio, some volatile yet exciting picks are not in its portfolio.
Additionally, this index gives you access to 75 dividend-paying domestic stocks screened for financial health.
The total one-year return stands at 38.14%, and the trailing-12-month yield is 3.73%.
ETFs to Buy: Invesco QQQ ETF (QQQ)
Invesco QQQ tracks the Nasdaq-100 index, making it similar to VOO, yet different. The S&P 500 returned an impressive 16% in 2020. Notwithstanding, the Nasdaq-100 index returned 45% during the same period.
You can credit that to the Nasdaq stock exchange being more concentrated, because the total number of stocks in the Nasdaq-100 is much smaller than the S&P 500. Thus, due to fewer names and those names doing exceedingly well, QQQ is another safe way to play the market for stable returns.
Top holdings include Apple, Microsoft, Amazon (NASDAQ:AMZN) and Tesla.
Vanguard Growth ETF (VUG)
Our next entry on this list of ETFs is all about growth potential. Some investors may not like VOO or QQQ index funds’ broad-based approach; for them, VUG will be more to their liking.
It uses sophisticated screening methods to ensure only the companies displaying consistent top-line and bottom-line growth are included in its holdings.
The portfolio includes 250 stocks from a diversified array of industries, with names such as Apple, Home Depot (NYSE:HD) and Union Pacific (NYSE:UNP) representing a sizeable chunk of the fund’s holdings.
ETFs to Buy: Industrial Select Sector SPDR Fund (XLI)
At first glance, Industrial Select Sector SPDR Fund may seem like an unusual pick. Vaccines are rolling out, but we are not back to full throttle as of yet.
Still, if analyst projections are anything to go by, industrial stocks should start whirring again very soon. While industrials might be a hard cyclical sector to read, if you are bullish on the U.S. economic recovery, this fund is a must-have for your portfolio.
Considering the nature of the fund, you will only find the top 73 industrial stocks on the S&P 500 in this portfolio. The fund is market-cap weighted. Consequently, the large caps command the biggest weights.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.