A poll from early April revealed 81% of Americans believe the U.S. is going to experience a recession in 2022. If and when that happens, the stock market will tank. That means investors are seeking ways to mitigate their exposure to that risk with funds like the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). If timing the market is out and playing the long game is in, then SPY stock is worth understanding.
The SPY exchange-traded fund (ETF) is governed by a trust that seeks returns that generally correspond to those of the S&P 500. That means the ETF contains positions that broadly mirror those of the market at large. Given the S&P 500 is down year-to-date (YTD), it’s no surprise SPY stock is also down.
So, why should investors buy SPY stock in a recession? Let’s consider a few scenarios here. First, if no recession occurs, the SPY ETF should continue to gradually move upward along with the S&P 500 as it rebounds.
If a recession does occur, share prices are very likely to drop precipitously. That isn’t the kind of situation investors want to be involved in. But, if a recession begins, investors are going to be in the market in any case. You can either stick with the stock market or pull all of your capital out of it in fear of a recession.
Warren Buffett doesn’t advise doing the latter. He’s a staunch advocate of the long-term perspective. That means riding out the highs and lows of the market with the knowledge it’s going to move higher over time. Given that SPY stock is slightly down YTD, that means now may be a good time to invest.
Even if a recession occurs, investors should understand that over time, the markets will grow to higher highs than those that occurred in the pandemic. The SPY ETF provides exposure to that overall growth.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.