Are you worried about the stock market this year? After three straight years of above-average gains for the S&P 500, you wouldn't be wrong to be concerned about an inevitable slowdown. The market has been red hot, and expecting another strong year might be optimistic. As of Jan. 26, the broad index is up just around 1.5%, and that's with it rebounding recently.
If you want to reduce your risk in the markets this year, you may want to consider investing in exchange-traded funds (ETFs) that can give you a bit of safety and stability, rather than growth potential. While S&P 500 index funds are normally safe long-term options, that's only if you're hanging on for years or decades, as that can give you plenty of time to recover from a correction or crash in the markets.
A safer alternative this year may be to invest in utility stocks, and an excellent way to do so is through the Vanguard Utilities Index Fund ETF (VPU 0.69%).
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The Vanguard fund has low fees and a great yield
Utility companies generate consistent, recurring revenue. There may not be much growth from these types of businesses from one year to the next, but there's also not a whole lot of volatility. They also frequently offer dividends, which can make them suitable options for investors who just want to collect a payout and not worry about anything else.
Currently, the Vanguard Utilities Index Fund yields 2.7%, which is more than double the S&P 500 average of 1.1%. That can allow you to generate some reliable cash flow without worrying about how a particular stock is performing, and how safe its payout is. The ETF has 67 different stocks in its portfolio, providing you with some excellent diversification. It also has a low expense ratio of just 0.09%.
NYSEMKT: VPU
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Why the fund may be an ideal option for risk-averse investors this year
There isn't much risk going with top utility stocks, such as NextEra Energy, Constellation Energy, and Southern Company, which are the ETF's top holdings. And another key feature for low-risk investors to consider is volatility. This ETF has averaged a beta of less than 0.7 over the past five years, indicating that it doesn't follow the performance of the underlying markets too closely. The fund can provide you with some much-needed stability during what may be a tumultuous year on the markets.
In the past five years, the ETF has risen by just 33%, which is far below the S&P 500's gains of 80%. But if the market faces a correction or crash this year, the fund may help keep your losses to a minimum. If you're a risk-averse investor, this is an ETF you'll want to consider holding in your portfolio right now.
