Key insights
- The article discusses the historical resilience of the S&P 500, represented by the Vanguard S&P 500 ETF (VOO), through past recessions. It highlights the index's consistent upward trajectory and advocates for its inclusion in average investor portfolios due to diversification and low costs. However, it notes the increasing concentration in the technology sector as a potential source of future volatility. The piece offers a long-term perspective on investing through economic cycles, suggesting VOO as a reliable, albeit potentially more volatile, holding.
Recessions are a natural part of the economic cycle, but that doesn't make them any easier to deal with when they happen. And while it isn't time to ring the alarm on a recession, it's never a bad idea to be overprepared rather than underprepared.
Part of being overprepared in investing is owning stocks you know can survive through recessions. That doesn't mean they won't face hiccups and go through rough patches, but you know that when the dust settles, they'll be good in the long term. The first stock that comes to mind for me is actually an exchange-traded fund (ETF): The Vanguard S&P 500 ETF (VOO 1.71%).
They aren't directly tied, but investing in an S&P 500 ETF like VOO is akin to investing in the broader U.S. economy. And that's been one of the best investments the average person could have made over time, given how resilient both have proven to be.
The S&P 500, as we know it today, has been around since 1957 and has survived some of the worst recessions the country has seen. By staying the course and not abandoning investing during downturns, investors have been able to thrive despite them. Here is how the S&P 500 has performed since the end of the past five recessions:
There have undoubtedly been ups and downs, but the overall trajectory for the S&P 500 has always been up. Past performance doesn't guarantee the future, and we can't predict how it will play out, but this is a trend I wholeheartedly expect to continue.
One key difference with the S&P 500 now, though, is how concentrated it has become in the tech sector (35% of VOO). This has been good for its growth over the past few years, but it could also make the index more volatile, as that's par for the course with tech stocks.
I'm a firm believer that the average investor should always invest in the S&P 500. It's instant diversification, led by some of the world's top blue chip companies, and it's cheap (VOO has a 0.03% expense ratio).
My approach has always been to consistently invest in VOO (it's my largest holding) through dollar-cost averaging and to trust its long-term trajectory. Nothing is ever guaranteed in the stock market, but it's one of the more surefire long-term investments you'll find.
You don't have to take on company-specific issues during a recession; just invest in the S&P 500 and trust its resilience.