So far this week, we've discussed how to navigate short-term volatility, especially if a bear market follows the current declines in broader indices. Now, we'll pause to remind ourselves why most retail investors buy stocks—to grow their capital for the long run.
As scary as volatile times and bear markets may feel, they can also provide significant buying opportunities. Short-term price corrections in robust companies mean investors have a chance to pick them up at a discount. After all, if we liked a company last month for fundamental reasons, we should probably like it even more now when its share price is lower.
Earlier in the month, we looked at how investing even modest sums regularly over several decades could add up to a significant amount of savings for retirement years. Many people, no matter their age, are concerned about having enough savings or income in retirement to continue their standard of living. Therefore, saving and investing early is crucial.
In addition to stocks, exchange-traded funds (ETFs) can also have a place in such buy-and-forget portfolios, where investments are expected to appreciate over the long-term.
Building a robust portfolio requires clarifying investment objectives and knowing your timeline in the markets as well as your risk tolerance. Then, identifying appropriate funds to include in a long-term portfolio becomes relatively easy. A buy-and-forget strategy would also benefit from investing in relatively low-cost funds. Here are two ETFs that may pique readers' interest.
1. SPDR Portfolio S&P 500 High Dividend ETF
Current Price:$27.23
52-Week Range: $20.79 - $39.98
Dividend Yield: 7.14%
Expense Ratio: 0.07%
The SPDR® Portfolio S&P 500 High Dividend ETF (NYSE:SPYD) aims to provide a high level of dividend income and the opportunity for capital appreciation. In general, firms either retain profits to put back into growing the business or pay them out to shareholders as dividends. Without future profits, dividends can neither be sustained nor grow.
SPYD, which has 79 holdings, tracks the S&P 500 High Dividend Index, which measures the performance of the top 80 high dividend-yielding companies in the S&P 500 index, based on dividend yield. No company has a weighting of over 1.6%. Therefore, the performance of one stock does not have the ability to move the fund by itself.
The top 10 firms make up about 15% of net assets, which stand at $2 billion. Media conglomerate ViacomCBS (NASDAQ:VIAC), self-storage business Public Storage (NYSE:PSA), semiconductor firm Broadcom (NASDAQ:AVGO), real estate investment trust Ventas (NYSE:VTR) and digital-document company Xerox (NYSE:XRX) lead the list of holdings.
In terms of sectoral breakdown, financials (23.45%) and real estate (18.69%) have the top two spots. Next in line are utilities (11.45%), energy (10.83%) and information technology (9.40%).
Year-to-date, SPYD is down about 30%. As a result of the decline, the dividend yield (7.14%), trailing P/E (12.66) and P/B ratio (1.13) are likely to catch the attention of value investors. Investors who want to add yield to their portfolios may consider buying the dips.
2. JPMorgan U.S. Momentum Factor ETF
Current Price: $34.48
52-Week Range: $21.07 - $36.27
Dividend Yield: 1.13%
Expense Ratio: 0.12%
The JPMorgan U.S. Momentum Factor ETF (NYSE:JMOM) provides exposure to U.S. shares that show strong momentum and the potential for enhanced returns. The fund, launched in 2017, has around $135 million under management.
JMOM, which has 273 holdings, follows the JP Morgan U.S. Momentum Factor index. No company has a weighting of more than 2%. Technology is the top industry represented in the fund (close to 30%). Financials and consumer services are next in line (each account for about 15%), followed by health care (13.1%) and industrials (11.5%).
The top 10 businesses make up about 18% of the fund. Microsoft (NASDAQ:MSFT), NVIDIA (NASDAQ:NVDA), Amazon (NASDAQ:AMZN), Visa (NYSE:V) and Apple (NASDAQ:AAPL) lead the list of holdings. In recent years, they have been favorites among most growth investors. Despite potential short-term declines in their share prices, these names are likely to have many quarters of revenue growth, improving operating margins and rising return on equity. We can expect them to stay as cornerstones of many long-term portfolios.
In 2020, the fund is up about 13%, hitting an all-time high in early September. In the case of short-term profit-taking in momentum names, the fund is likely to come under pressure in the final quarter of the year. Any decline toward the $30-level would improve the margin of safety.