One simple way to diversify your portfolio and protect your money is through exchange-traded funds (ETFs). In times of turmoil, I tend to retreat and turn to safer picks like dividend ETFs, asserts Jimmy Mengel, editor of The Crow's Nest.
When looking at a coming bear market, these funds tend to be more stable than a basket of stocks you pick yourself. It’s far easier to sink a single boat then it is to sink a fleet of them. Here are a few ETFs that are worth holding onto if you think an approaching storm is coming.
PowerShares S&P 500 High Dividend Low Volatility ETF (SPHD)
The PowerShares S&P 500 High Dividend Low Volatility ETF is focused on providing high dividends — a super 3.6% — on low volatility holdings, which is obviously a great match. Combine that with an average 50% dividend increase in the payouts over the past four years, and you’ll have a very safe and attractive ETF on your hands.
The fund holds steady companies like utilities, REITs, and defensive consumer stocks. It also has a perfect five-star rating from Morningstar. And that puts it in a select group of the top 10% of funds. It also sports a rather low 0.30% expense ratio.
And it pays out that 3.6% every single month. It’s a great bet to ride out any storms that might be coming. And it’s a great long-term bet. We’re adding PowerShares S&P 500 High Dividend Low Volatility to the portfolio for long-term income and stability.
iShares National Muni Bond ETF (MUB)
A municipal bond is essentially debt issued by states, cities, and counties around the U.S. Job numbers are solid, and states and municipalities are taking in plenty of taxes. Some states are looking better than others. But I would still say an ETF is the way to go to get broad exposure to diversified areas of the country.
One thing to keep in mind when you buy an individual muni bond is that you’ll get every penny back plus your yield when the bond reaches maturity. But it’s complicated to put together a portfolio of individual bonds without a professional advisor to comb through the balance sheets.
I like to keep things simple. The iShares National Muni Bond ETF is a low-cost index fund that gives you broad exposure to muni bonds from across the U.S. It seeks to track the investment results of the S&P National AMT-Free Municipal Bond IndexTM – a value-weighted index that’s designed to measure the performance of the investment-grade tax-exempt U.S. municipal bond market.
In all, the ETF tracks around 3,500 “investment-grade” municipal debts. Each holding takes up a tiny sliver of the total. And that makes it incredibly diversified and protected against problem states that would be in any danger of default.
The best part? It’s tax-free! Any income you reap from iShares National Muni Bond is exempt from Federal taxes! Even if you only factor in the federal tax break, that would mean you would need to earn 3.7% on a common taxable ETF to earn the same amount of income you’d get from MUB’s 2.3%.
This won’t make you rich overnight. But it will protect and grow your money in good times and bad. We’re adding iShares National Muni Bond ETF as long-term portfolio protection.
Utilities Select Sector SPDR ETF (XLU)
Utilities are one of your safest bets in any market. People will pay their water and electric bills before anything else. And most utilities act as de facto monopolies. Utilities Select Sector SPDR ETF is comprised of 100% utility stocks. It’s a pure play on the sector.
The fund seeks to provide investment results that correspond generally to the price and yield performance of publicly traded equity securities of companies in the Utilities Select Sector Index. It also yields a solid 3.44%. Utilities Select Sector SPDR ETF is the perfect addition to a crash-proof portfolio.
