Investors who look for the best defensive ETFs often want to invest in funds that have less volatility.
In many cases, the best defensive ETFs will include consumer sector companies. The top companies in this sector benefit from consumers consistently and habitually using their products. Often the companies in the consumer sector produce household staples like soap or canned foods. In other words, products that sell regardless of what is going on in the general economy. But the consumer sector isn’t the only place to find defensive ETFs.
There’s more than one defensive sector
Beyond the consumer sector, you can find some of the best defensive ETFs in commodities, fixed-income investments, equities, and reserve currencies. The financial sector, the utilities sector, and the healthcare sector may also benefit investors here.
Similarly, you can find additional defensive markets, especially when market fears are high. Gold, in particular, has always served as a hedge against inflation. In fear-driven markets, gold is a safe haven for investors.
Investing in the federal government is also an option for greater levels of security during uncertain markets. The U.S. government bond market is a place you can invest in through ETFs. Investments in these types of ETFs can lead investors to passive, broad exposure to U.S. treasury bonds. Treasury bonds have been historically known as extremely safe investments because the U.S. government backs the principal investment. There are no maintenance fees associated with these investments, and there is a guarantee of return, although it may be smaller than other investments. ETFs in U.S. treasury bonds are subject to federal tax, but you don’t need to pay local or state tax on them. These investments are best for long-term investors as the maturity date on some U.S. treasury bonds can be many years. Moreover, there are often penalties involved if an investor attempts to redeem a treasury bond before its maturity date.
Using the best defensive ETFs in a diversified portfolio for growth
Many investors will diversify their portfolios by making sure they don’t load up on investments in just one industry or sector. Even though many of the best defense ETFs focus on low rates or consumer companies, it is not necessarily worth only investing in consumer-sector stocks or ETFs.
Savvy investors turn to ETFs for various reasons, including the ability for these investments to provide diversification and low management fees. The passive investing style of traditional ETFs eliminates the need for high fees and frequent trading.
Risk-averse investors will also consider the best defensive ETFs for safety reasons. The best funds for these investors will provide safe, stable returns. However, not all ETFs offer that. It is important to find traditional ETFs composed of the types of industries and sectors mentioned above. It is best to stay away from “new” ETFs that are actively managed because the rates will be much higher than traditional, passively-managed ETFs.
What kinds of ETFs do you feel safe investing in?