Jhe stock market has been on a frantic ride so far this year. the Nasdaq officially entered bearish territory, falling more than 25% since the start of the year, and the S&P500 is also down about 16% during this period.
While this downturn could signal that a real crash is brewing, no one knows for sure what the future holds for the market. Even the experts cannot predict exactly how the market will behave in the short term, and no one can guess if we will see a crash.
However, market downturns can be a good time to invest more, as prices are significantly lower. If the market crashes in the future, there’s one investment I’m going to load up on: an S&P 500 ETF.
What is an S&P 500 ETF?
An exchange-traded fund (ETF) is a type of investment that includes multiple stocks within a single fund. An S&P 500 ETF tracks its namesake index, meaning it contains all the stocks in the index itself and aims to mirror its performance.
Because investing directly in the S&P 500 Index is impossible, investing in an S&P 500 ETF is the next closest thing.
The main reason I plan to stock up on this type of investment is that it is extremely likely to recover from a market downturn. The index itself has faced dozens of corrections, crashes, and bear markets over the decades, and it has always managed to bounce back, no matter how severe those downturns were or how long they lasted.
Additionally, the S&P 500 itself includes stocks from 500 of the largest and strongest organizations in the United States. Amazon, Apple, Alphabetand You’re here make up the index, and if any stocks are likely to survive a downturn, it’s the S&P 500.
Should you invest in an S&P 500 ETF?
This type of investment can be a great option for many investors. Not only is an S&P 500 ETF very likely to recover from market volatility, but it’s also an easy, hands-off investment.
With an ETF, you automatically invest in all shares of the fund. This means you never have to worry about picking individual stocks or deciding whether to sell particular investments. All you have to do is invest in the ETF, and it will do all the work for you.
For some investors, however, the hands-off nature of S&P 500 ETFs can be a downside. If you prefer to have more control over your portfolio, this type of investment may not be the best choice.
Moreover, by nature, S&P 500 ETFs can only generate average returns. They are designed for to follow the market, which prevents them from to beat the market. For many investors, the relative safety of this type of investment outweighs the average returns. But if your main goal is to beat the market, it may be better to invest in individual stocks.
The stock market may be fragile right now, but downturns can be one of the best times to invest because you’re buying at a deep discount. S&P 500 ETFs may not be for everyone, but they could be a smart option for you.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Katie Brockman has no position in the stocks mentioned. The Motley Fool has positions and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple and Tesla. The Motley Fool recommends the following options: $120 long calls in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.