Three Low-Cost Index ETFs That May Help Investors Navigate Market Volatility

Market volatility can make it challenging for investors to find stable options during downturns. Instead of selecting individual stocks, many experts recommend investing in low-cost index funds that encompass the broader stock market and maintaining those investments despite short-term fluctuations.

Among the recommended options are the Vanguard S&P 500 ETF (VOO), Vanguard Morningstar Total Stock Market ETF (VTI), and Schwab U.S. Broad Market ETF (SCHB). Each of these exchange-traded funds (ETFs) allows investors to hold a diverse assortment of U.S. stocks at a minimal cost, with an expense ratio of just 0.03%.

These funds have strong historical performance records. The S&P 500 index, which VOO tracks, has an average annual return of approximately 10% since 1928. VOO, available since September 2010, has achieved an average annual return of around 14.9% over its lifespan.

For those seeking broader exposure, SCHB contains 2,394 large-cap stocks from the major U.S. companies and has been available since November 2009, delivering average annual returns of about 14.3% since inception.

VTI offers the most expansive diversification, holding 3,519 stocks that reflect all publicly traded U.S. companies, including mid-cap and small-cap firms. It has seen average annual returns of 9.4% since its launch in May 2001, a period that encompassed significant market downturns including the 2008 financial crisis.

Investors are often concerned about the heavy weighting of technology stocks in these index funds, especially given the current market dynamics influenced by artificial intelligence advancements. Despite this, these ETFs provide a broad representation of the market, allowing investors to align with general market movements rather than over-committing to specific sectors.

In the recent bear market of 2022, these three ETFs outperformed the Nasdaq-100, highlighting their resilience through volatility. Although investing in index funds doesn’t eliminate the risks of market downturns and the potential for value loss, they can serve as a strategic approach to weather financial storms.