The economy is struggling between maintaining stable prices and ensuring high employment. The Federal Reserve is under pressure, and President Donald Trump is seeking interest rate cuts. Amid growing concerns about inflation and the impact of tariffs, investors are seeking safe and stable investment options. Now is the perfect time to rebalance your portfolio, and one way to do this is to invest in exchange-traded funds.
ETFs are highly diversified funds that reduce risk and offer stability in an uncertain market. The ETF industry is attracting investors, and you will easily find an ETF that fits your risk appetite and investment goals. If you’re looking for ETFs for inflation protection and growth, here are my top five picks.
Key Points
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ETFs offer an ideal combination of steady income and capital appreciation.
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These Schwab and Vanguard ETFs are great options for protecting your investments from inflation during uncertain economic times.
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SPDR Portfolio S&P 500 High Dividend ETF
The SPDR Portfolio S&P 500 High Dividend ETF (NYSEARCA: SPYD) tracks the S&P 500 High Dividend Index. This ETF chooses 80 stocks with the highest yield in the S&P 500 index and gives equal weightage to them. This allows the stocks to have the same impact on the performance in varying market periods. The purpose of the ETF is to generate as high a yield as possible. To achieve this, it sticks to the best 80 companies in the U.S. and focuses on their yield. It has generated a 5-year annualized return of 13.93%.
It has a yield of 4.5% and an expense ratio of 0.07%. SPYD is a low-cost way of ensuring inflation protection and growth. Its sector diversification is as follows:
- Real estate: 23.18%
- Utilities: 18.40%
- Financials: 15.50%
- Consumer staples: 14.41%
- Energy: 7.29%
Its top 3 holdings include Philip Morris International, AbbVie, and AT&T. If you’re in the investment world to ensure steady dividend income, SPYD will do it for you. It rebalances twice a year and pays quarterly dividends.
Schwab U.S. Dividend Equity ETF
The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) focuses on quality businesses in addition to growth and a high yield. It is a highly diversified ETF with a 3.75% dividend yield. Its dividends continue to grow over time, protecting investors from inflation. SCHD is known for quality over quantity. The fund follows the Dow Jones U.S. Dividend 100
Index and has 100 stocks. It invests in various sectors, including:
Index and has 100 stocks. It invests in various sectors, including:- Energy: 21.08%
- Consumer Staples: 19.06%
- Healthcare: 15.68%
- Industrials: 12.45%
Its top 10 stocks constitute 40% of the portfolio. Some of its top 10 holdings include Chevron Corporation, Cisco, PepsiCo, and AbbVie. These are companies with high yields and low volatility.
SCHD already has a yield higher than the S&P 500’s 1.3% and this yield is set to keep growing. The best way to deal with inflation is to grow your money faster than the inflation rate. This Schwab ETF checks the box. Its dividend yield has grown by over 500% since 2011.
Blue-chip dividend companies continue to increase dividend payouts, and SCHD picks the best of the lot.
Vanguard Dividend Appreciation Index Fund ETF
A popular ETF for passive income, the Vanguard Dividend Appreciation Index Fund ETF (NYSEARCA:VIG) has a yield of 1.8%. The ETF does not focus on high yields, but invests in companies that have a strong track record of dividend increases, thus, ensuring steady and stable income for investors.
Those looking to build a future income stream will prefer VIG over other ETFs. It tracks the S&P U.S. Dividend Growers Index and holds stocks of companies that raise dividends each year. It has a low expense ratio of 0.05% and holds 337 stocks. It invests in the following sectors:
- Information Technology: 26.10%
- Financials: 22.70%
- Healthcare: 15.10%
- Industrials: 11.20%
The top stocks include strong dividend companies like Walmart, Exxon Mobil, and Broadcom. But it also has industry stalwarts like Microsoft, Apple, Eli Lilly, and Mastercard. VIG makes quarterly distributions and announced a dividend of $0.871 in the most recent quarter. If you’re relying on dividend income, VIG is a smart choice. It has the potential to keep increasing the payouts.
Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (NYSE: VOO) is another passive fund with a low expense ratio of 0.03%. VOO tracks the S&P 500 and gives you access to some of the best stocks in the index. You do not need to worry about picking the right stocks or rebalancing your portfolio. It offers broad diversification, low cost, and cushions against market volatility. The fund has already attracted over $60 billion this year.
One of the most popular Vanguard funds, VOO, trades at a premium compared to other ETFs. It invests in 505 stocks across sectors as follows:
- Information technology: 33.10%
- Financials: 13.90%
- Consumer discretionary: 10.40%
- Communication services: 9.80%
Since it is a tech-heavy fund, its top holdings include the Magnificent Seven. The top 10 stocks constitute about 36% of the portfolio and include Nvidia, Tesla, Apple, Amazon, and Microsoft. VOO has a yield of 1.19% and makes quarterly distributions. It has generated a 3-year annualized return of 19.67% and a 5-year return of 16.60%.
Vanguard High Dividend Yield Index Fund ETF Shares
Another dividend ETF, Vanguard High Dividend Yield Index Fund ETF (NYSEARCA:VYM), can provide inflation protection with growth. The fund has a history of delivering steady income and capital growth over the long term. VYM tracks the FTSE High Dividend Yield. It has an expense ratio of 0.06% and has a dividend yield of 2.57%.
The fund invests in 582 stocks across the following sectors:
- Financials: 12.50%
- Industrials: 13.40%
- Technology: 12.30%
- Healthcare: 12.10%
This is an ideal ETF for investors who are not keen on investing in tech stocks or own the Magnificent Seven. VYM’s top holdings include some of the biggest dividend companies like Walmart, Johnson & Johnson, Exxon Mobil, and AbbVie. Many of the stocks in this fund are globally recognized names, and they’ve never disappointed investors.
VYM has a 3-year annualized return of 12.83% and a 5-year return of 14.52%. You get to own the highest-yield dividend stocks at low cost. This ETF will generate passive income for years without you having to worry about the market volatility.
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Author: Vandita Jadeja
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