Burned by Tech Stocks? Try These 3 ETFs Instead
Investing in the stock market is never easy, but it’s especially difficult during a downturn. The tech-heavy Nasdaq is down roughly 30% from its peak, and individual stocks have had an even rougher time.
Even big names like Amazon and Netflix are down roughly 34% and 70%, respectively, since the beginning of the year. If you’re nervous about investing in tech stocks, you’re not alone.
To be clear, tech stocks are not necessarily a bad investment. But they’re often volatile, which can be tough to stomach. If you’re looking for a more stable investment, the following exchange-traded funds (ETFs) could be a smart option.
1. S&P 500 ETFs
An S&P 500 ETF tracks the S&P 500 index itself, meaning it includes the same stocks as the index and mirrors its performance. While many stocks within the S&P 500 are tech companies, there are hundreds of other stocks that can help reduce the impact of volatility.
In fact, while the Nasdaq has fallen nearly 30% from its high in January, the S&P 500 is only down around 19% in that same time frame. While that’s still a significant dip, it’s not quite as dramatic as what the tech industry has experienced.
Also, the S&P 500 includes many companies that have been around for decades (or in some cases, more than a century). These stocks have experienced multiple bear markets and crashes, and they’ve recovered from all of them.
While there are never any guarantees when it comes to investing, if there are any companies that are more likely to survive market volatility, it’s those within the S&P 500.
2. Dividend ETFs
A dividend ETF is an investment that will actually pay you to own it. And the longer you own this type of ETF, the more you can potentially earn.
Some companies pay a portion of their profits back to shareholders, which is called a dividend. A dividend ETF, then, is a fund that only includes dividend-paying stocks. Each quarter or year, you’ll receive a dividend payment for each share of the ETF you own. You can then either cash out or reinvest those dividends to buy more shares of that particular ETF.
Over time, dividends can become a consistent source of passive income. While all stocks are subject to volatility, dividend payments can sometimes make it easier to continue investing when the market is rough.
3. Growth ETFs
Growth ETFs can be riskier, but they also have higher earning potential. A growth ETF only contains companies that have seen faster-than-average growth, and this will often include tech stocks.
The advantage of investing in a growth ETF over individual tech stocks is that you have more diversity. Investing in dozens or hundreds of growth stocks can limit your risk if a few of those companies don’t survive a downturn.
If you choose to invest in a growth ETF, be prepared for more short-term volatility. Nobody knows for certain how long this market slump will last, and there’s a chance that things could get worse before they get better. But by holding your investments for the long term, you’re more likely to see positive average returns.
Keeping your money safe
Tech stocks can be a smart investment, but it can be tough to tolerate the rollercoaster of ups and downs. No matter where you invest, you’ll still experience some degree of volatility. But ETFs could help limit your risk while reducing the impact of volatility, which might make it easier to survive this stock market storm.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.