Stefon Walters, The Motley Fool
4 min read
There’s a saying I always like to keep in mind as I go through life: It’s much better to be overprepared than underprepared. It applies to many areas of life, including your finances and investing. So, while there are no immediate signs of a recession, it’s never too early to begin building your portfolio with investments built to last.
If a recession were on the way, the Vanguard S&P 500 ETF (NYSEMKT: VOO) is an ETF I would continue loading up on without thinking twice. VOO has only been around since September 2010, but the S&P 500 (SNPINDEX: ^GSPC) — which VOO mirrors — has proven to be one of the most resilient and rewarding investments for long-term investors.
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Investing in VOO is akin to investing in the U.S. economy
Since it has 518 holdings representing 500 of the largest public U.S. companies, investing in VOO (and the S&P 500 in general) is one of the best ways to benefit from U.S. economic growth. Economic activity doesn’t directly control stock prices, but when S&P 500 companies are thriving, so is the U.S. economy, and vice versa.
VOO is currently dominated by big tech stocks (tech is 39.7% of the ETF), but it holds stocks from every major sector. So, while it might not be as diversified as it has historically been, it still covers a lot of ground. This diversification is one of the main reasons it can weather recessions. When certain industries are down, others can serve as a crutch.
Down but never out
This may not be music to investors’ ears, but recessions are an inevitable part of the modern economy. Their lengths and severities differ dramatically, but they’re bound to happen eventually. It might not be next week, next month, or in the next few years, but … eventually.
Many businesses don’t survive recessions because they don’t have the resources to stay afloat. That isn’t the case for a broad index like the S&P 500. It has bounced back from every recession that’s ever occurred in the U.S.
Below are the past five recessions and how much the S&P 500 has grown since bottoming out:
