Part 3 of Hedging the inflation crash. Fear in the market often leads to massive selloffs in general. Buying anything right before the correction/crash is often accompanied by much regret and sometimes panic selling. One of the ways to reduce the risk that you are taking in a correction is by diversifying into ETFs such as $S&P 500(.SPX)$
Most ETFs are diversified into various sectors and industry. In a market correction, although we see most industries turning red, there will be certain sectors that limits the downside. ETFs are a simple way to diversity and reduce the risk during a very volatile market.
Some ETFs even provide dividend! One such ETF that I recommend in a volatile market is $Global X NASDAQ 100 Covered Call ETF(QYLD)$. QYLD is an ETF that profits of Call Options on the S&P500. The premium it receives from selling call options is paid out to the investor. If you are unsure of how Options work, please do you own diligence in understanding them before buying this ETF to give you a better understanding of when this ETF profits most. Currently QYLD gives an estimate of ~12% dividend and is paid out monthly. After doing my own research on this ETF, i believe it is highly beneficial to own some shares in a volatile market where the premium from selling call options are high.
Other similar ETFs are $Nationwide Risk-Managed Income ETF(NUSI)$ that has a lower dividend return but more downside protection in case the market goes the wrong direction. There are many good sources online that explains the subtle differences between the aforementioned ETFs and how they can be suited to different financial portfolio.
In conclusion, ETFs are ways to reduce your risk in the market while being invested in the market. There are some ETFs that thrive in volatile market situations and it is up to the investor to use it for profits.
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