Over the past two years, the $S&P 500(.SPX)$ has soared over 43%, fueled primarily by AI stocks. But let's face it, whether it's due to economic shifts, interest rate environments, or industry dynamics, a market crash is coming – just a matter of when.
We can't predict when the fall will happen or how long the bear will hibernate, but smart investors always keep an umbrella handy for the inevitable rainy day.
Crash Course in US Market Meltdowns
The most notorious and devastating crash? The Great Crash of 1929, ushering in the Great Depression.
Then, 58 years later, October 19, 1987, saw the infamous "Black Monday," where the $DJIA(.DJI)$ plunged 22.6% in a single day.
And in the 21st century, amidst all the tech-fueled euphoria, there were still those scary dips – the dot-com bubble bursting in 2000, the subprime mortgage meltdown in 2008, and the COVID-induced panic plunge in early 2020.
When's the Next One Coming?
Since the COVID crash, the US market's been on a tear, but analysts and fund managers are increasingly jittery about sky-high valuations, and a correction or crash feels like it's just around the corner.
High valuations aside, the other elephant in the room? Persistent high-interest rates, which aren't doing any favors for the economy, corporate profits, consumer sentiment, or the stock market.
And let's not forget the geopolitical tensions simmering in Eastern Europe and the Middle East, plus America's mountain of unsustainable debt – all red flags investors need to keep a wary eye on.
ETFs to Shield You from the Storm
When it comes to minimizing the damage from a market crash, focus on quality, recession-resistant, or low-correlated investments like short-term Treasuries and select REITs.
Here are 7 defensive ETFs that can help you weather the storm:
1. $Utilities Select Sector SPDR Fund(XLU)$
The Utilities Select ETF, with $13.8 billion in assets under management (AUM), tracks the Utilities Sector Index.The fund has an expense ratio of just 0.09% and a yield of 3% over the past 12 months.
2. $Vanguard Consumer Staples ETF(VDC)$
The $6.8 billion Consumer Staples ETF tracks the MSCI US Investable Market Consumer Staples 25/50 Index.The fund has an expense ratio of 0.10% and a yield of 2.5% over the past 12 months.
3. $iShares Global Healthcare ETF(IXJ)$
The $3.9 billion Healthcare ETF tracks the S&P Global 1200 Healthcare Sector Index.The fund expense ratio is 0.42% and the yield over the past 12 months is 1.3%.
4. $iShares 1-3 Year Treasury Bond ETF(SHY)$
The $24 billion U.S. short-term Treasury ETF, which invests in Treasuries with maturities between one and three years, currently yields 3.4% over the past 12 months.
5. $SPDR Gold MiniShares Trust(GLDM)$
A $7.4 billion gold ETF has an expense ratio of just 0.10%.
6. $iShares Residential and Multisector Real Estate ETF(REZ)$
A $634 million REIT ETF that tracks the FTSE Nareit All Residential Capped Index. The fund has a trailing 12-month yield of 2.8% and an expense ratio of 0.48%.
7. $Invesco DB Base Metals Fund(DBB)$
$196 million Base Metals ETF, which tracks the DBIQ Optimum Yield Industrial Metals Index. The fund expense ratio is 0.75% and the yield over the past 12 months is 6.4%.
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