No one knows when or why the next stock market sell-off will occur. But we do know that market declines are part of the price of entry to unlocking long-term stock market gains.
A correction, which is defined as a drop of at least 10% from a peak, occurs approximately every 1.85 years. A bear market, which involves a decline of at least 20%, occurs approximately every 3.6 years. This means that about half of all corrections evolve into bear markets, so investors with a time horizon of at least three to five years should be prepared for a bear market.
By investing in companies with solid business models and reasonable valuations, you can position your portfolio to survive a bear market. Exchange-traded funds (ETFs) invest in dozens, if not hundreds, of companies at a time, further reducing volatility.
Here is why the Vanguard S&P 500 Value ETF(NYSEMKT:VOOV)he Vanguard Russell 2000 Value ETF (NASDAQ: VTWV)and the Vanguard Consumer Staples ETF(NYSEMKT:VDC) They are worth buying in 2025, even if there is a sell-off in the stock market.
Image source: Getty Images.
The fund targets value-focused companies such as Berkshire Hathaway, JPMorgan Chase, ExxonMobil, Walmartand more. Many of the fund’s top holdings are known for returning value to shareholders through dividends or buybacks. For example, Berkshire Hathaway famously does not pay dividends, but periodically buys back its shares to reduce its share count and increase earnings per share.
By not investing in high-growth stocks, the Vanguard S&P 500 Value ETF achieves a lower valuation and higher return than the S&P 500. The ETF has a price-to-earnings (P/E) ratio of 20.3 and a dividend yield of 1.9%, compared to a P/E of 27.6 and a 1.2% yield for the Vanguard S&P 500 ETFwhich tracks the performance of the index.
Compared to the S&P 500, the Vanguard S&P 500 Value ETF is more concentrated in lower-growth, lower-valuation sectors, such as utilities, healthcare, and financials.
Sector weighting
Vanguard S&P 500 Value ETF
Vanguard S&P 500 ETF
Finance
25.1%
13.9%
health care
16.5%
10.6%
Industrial actions
11.7%
8.6%
Consumer staples
10%
5.7%
Technology
7.7%
31.3%
Energy
6.2%
3.5%
Utilities
5.3%
2.5%
Consumer Discretionary
5.2%
10.7%
Communication services
4.6%
8.9%
Real estate
4.3%
2.2%
Materials
3.4%
2.1%
Data source: Vanguardia.
By not having high-tech stocks like Apple, microsofteither NVIDIAconsumer discretionary leaders like Amazon either teslaor communications giants like Alphabet and MetaplatformsThe Vanguard S&P 500 Value ETF is significantly underweight technology, consumer discretionary and communications relative to the S&P 500.
Value stocks tend to be priced based on strong existing earnings growth rather than potential growth. These are the types of companies that have already weathered past recessions and economic cycles and are well positioned to do so again. Therefore, investors in the Vanguard S&P 500 Value ETF can rest easy knowing they are putting their hard-earned savings to work on quality businesses.
The Vanguard Russell 2000 Value ETF is about as diversified as it gets when it comes to low-cost funds. This ETF has 1,446 holdings and no stock represents more than 0.6% of the fund. Its top holdings are likely unrecognizable to most investors. Instead of targeting flashy names, the fund invests in value stocks of varying sizes across the U.S. stock market.
The background is similar to Vanguard Russell 2000 ETFwhich tracks the Russell 2000 index focused on small-cap stocks. The Vanguard Russell 2000 Value ETF has fewer holdings because it filters out more than 500 small-cap growth stocks.
The Vanguard Russell 2000 Value ETF is a good option for people who want to put capital to work in the market without focusing on a particular investment thesis. Unlike other Vanguard ETFs that are highly concentrated in a handful of names, the Vanguard Russell 2000 Value ETF is so diversified that it has no clear leadership.
Sometimes, too much diversification can be bad because exceptional outperformance of a single stock can be lost in the wash. For example, the top-weighted stock in the Vanguard Russell 2000 Value ETF could triple in a single year and wouldn’t even move the index by 2%.
However, the fund could be ideal for people looking for a general basket of value stocks and passive income. The ETF has a P/E ratio of just 14.2 and a yield of 1.7%. The Vanguard Russell 2000 Value ETF’s diversification and value focus make it a good choice for people who are worried about a sell-off in the stock market.
This ETF reflects the performance of the consumer staples sector. Unlike the highly diversified Vanguard Russell 2000 Value ETF, the Vanguard Consumer Staples ETF focuses on just a handful of holdings, with 46% of the fund invested in Wholesale Costco, Procter & GambleWalmart and Coca-cola.
In general, the consumer staples sector is relatively resistant to recession, compared to other sectors that are more cyclical and vulnerable to economic cycles. Demand for goods sold at retailers like Costco or Walmart or produced by P&G or Coca-Cola enjoys constant demand no matter what the economy is doing. This dynamic contrasts sharply with sectors such as consumer discretionary or industrials, which benefit from an influx of capital and consumer spending.
The consumer staples sector is unlikely to keep pace with a growth-driven rally in the broader market, but it may perform well during a sell-off in the stock market. Even if there is an economic slowdown, major consumer staples companies should still be able to keep their profits stable or even achieve slight growth, while other sectors may see drastic fluctuations in corporate profits.
The Vanguard Consumer Staples ETF has a lower P/E than the S&P 500 (24.8) and a higher yield than the S&P 500 at 2.5%. Add it all up, and this fund is a good way for value investors to earn passive income from a diversified portfolio of companies.
Before you buy shares of Vanguard Admiral Funds – Vanguard S&P 500 Value ETF, consider this:
He Varied and Dumb Stock Advisor The analyst team has just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Admiral Funds – Vanguard S&P 500 Value ETF was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when NVIDIA made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $823,000!*
Stock Advisor provides investors with an easy-to-follow success plan, including guidance on how to build a portfolio, regular analyst updates, and two new stock picks each month. HeStock Advisorthe service has more than quadrupled the return of the S&P 500 since 2002*.
See the 10 actions »
*Stock Advisor returns to December 30, 2024
JPMorgan Chase is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool holds and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Costco Wholesale, JPMorgan Chase, Microsoft, Nvidia, Tesla, Vanguard S&P 500 ETF, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Three Ultra-Safe Vanguard ETFs to Buy Even If There’s a Stock Market Selloff in 2025 originally posted by The Motley Fool
