Too Stressed to Invest? Experts Weigh In on Finding Safety in Volatility

An expert has the solution for stressed out investors looking to reduce volatility in this market, while remaining invested.

| More on:

The TSX today remains a stressful place for many investors. The volatility that continues to weigh on the minds of investors hasn’t gone away. And it’s leaving many out of the opportunities in the market.

If you’re one of these stressed investors, then there is an answer to your woes. Invest in safe exchange-traded funds (ETFs).

ETFs: Safety in volatility

In an interview with Jonathan Needham, vice president and director, and Lead of ETF Distribution at TD Asset Management, the director pointed out that ETFs have remained popular during volatile economic environments. This mainly comes down to the diversification provided by these ETFs, which provide strong, risk-adjusted returns for investors. This allows investors to continue receiving positive returns and reach long-term goals.

And just like stocks, investors have the flexibility to see how their investments are doing in real time, along with the flexibility to trade an ETF at any time of day.

“Most importantly, with ETFs, investors can gain instant diversification to a portfolio of different securities,” Needham said. “And the power of buying a basket of securities versus betting on a single horse is certainly a lot smoother ride for that investor, especially during a volatile economic environment.” 

Getting professional

That diversification certainly counts. But the reason it’s so successful is because there is a team of professionals managing how each ETF invests. Instead of managing a portfolio of equities, an ETF can provide you with the security of knowing that your money is being managed professionally.

This doesn’t mean you don’t have a choice in how you invest in an ETF. Instead, you can look at themes, asset classes, industries, geographic regions, and even highly specialized strategies that can align with an investor’s own beliefs. From there, investors can receive a basket of assets based on what they feel is important to their own personal financial growth. Moreover, it’s far less expensive than going with a broker.

“Compared to other investment funds, ETFs tend to have lower management fees and operating costs. Lower fees mean more of your savings are invested, which — with the benefits of compounding — can improve your return,” Needham said.

Make it easy

As mentioned, choosing an ETF doesn’t mean you have no choice. In fact, there are thousands of ETFs out there to choose from. Yet when it comes to finding the best one, perhaps go with the simplest.

One option to consider is investing in the S&P 500 through a high-yield, low-cost ETF. These types of ETFs are exactly what Warren Buffett, financial guru and billionaire, has long recommended to investors. Over time, returns on the S&P 500 have been enormous, and there are Canadian ETFs that can allow you to get in on that action.

One example is Vanguard S&P 500 Index ETF, with a 1.24% dividend yield and year-to-date returns of 16.25% as of writing. This provides you with the top companies on the S&P 500 today, along with passive income through dividends.

Bottom line

This easy solution is exactly what Needham points to, as ETFs continue to be a strong driver for investors looking for a low cost and easy access to the markets — all while counting on professional help rather than trusting your gut instincts.

“The ease of use is ETF’s biggest draw for consumers — investors can easily build a diverse and robust portfolio with a low cost of entry and transparent reports,” Needham said. “Adjustments, on the margin, depending on the market environment we are in or going into, can also help to improve outcomes for clients, not to mention the experience or better put, emotions or bad behaviours that investors can sometimes display during market volatility.”

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »