(Katee Brockman)
As inflation continues to rise, many Americans worry that a recession is looming. While no one, not even the experts, can say when or if we will face a recession, it doesn’t hurt to start preparing just in case.
If a recession looms, it can be tempting to pause investing. But economic downturns can be one of the best opportunities to invest. plusbecause stock prices are generally much lower.
However, it is critical that you choose the right investments. Not all stocks will survive a recession, and investing in the wrong places could be costly. However, there is one exchange-traded fund (ETF) that is almost guaranteed to bounce back from a recession: the ETF. S&P 500 ETFs.
Why invest in an S&P 500 ETF?
An S&P 500 ETF is a type of investment that tracks the S&P 500 Index itself, meaning that it includes the same stocks as the index and is intended to reflect their performance over time.
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The S&P 500 itself has a long history of recovering from even the worst recessions and market crashes. In the last two decades alone, the market has experienced everything from the bursting of the dot-com bubble to the great recession to shock in the early stages of the COVID-19 pandemic. Through it all, however, the S&P 500 has rallied.
That means that if we face another recession, the index will most likely bounce back from this one as well. And because the S&P 500 ETF tracks the index, it will rally as well.
However, keep in mind that no investment is immune to short-term volatility. The S&P 500 is already down about 17% year-to-date, and could drop further if we enter an official recession. However, keeping a long-term perspective is key.
Despite short-term turbulence, the S&P 500 has prospered over time. In fact, since the year 2000, it has obtained returns of almost 170%. By investing now and simply holding your investments for the long term, you are almost guaranteed to see positive average returns over time, no matter what happens in the short term.
Is an S&P 500 ETF Right for You?
S&P 500 ETFs are relatively safe and are great for risk-averse investors as well as those who prefer a hands-off type of investment.
With an S&P 500 ETF, you never have to pick individual stocks or decide when to buy or sell. By investing in a single fund, you instantly get a small stake in all 500 companies that make up the index. So all you have to do is invest as much as you can afford and sit back and wait.
On the other hand, if you like to research companies and select individual stocks for your portfolio, an S&P 500 ETF may not be the right choice for you. Similarly, if there are certain companies within the S&P 500 that you would rather not own, there is no way to opt out of particular stocks with this type of investment.
Also, keep in mind that an S&P 500 ETF can only earn average returns. In other words, it is impossible for beat the market. If earning above-average returns is a priority for you, investing in individual stocks may be a better option.
S&P 500 ETFs are one of the safest investments to buy during a recession, because they are highly likely to bounce back from any downturn. But they are not suitable for everyone. Before you buy, consider your investment preferences to decide if they would be a good addition to your portfolio.
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