The S&P 500 (SNPINDEX: ^GSPC) recently hit a new high, building on its 78% returns over the past five years. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the Nasdaq Composite (NASDAQINDEX: ^IXIC) have seen impressive returns over this period too, rising 48% and 88%.
Bull markets tend to last about five or six years, on average, and the current one is already in its fourth year, which means that a bear market will show up eventually.
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So, what’s the best way to prepare for one? You probably already know the answer, since it’s a time-tested strategy for buying stocks: diversify.
One of the easiest ways to ensure your portfolio is instantly diversified is to buy an exchange-traded fund (ETF) with broad exposure to many stocks. And one of the best ones to own is the Vanguard Morningstar Total Stock Market ETF (NYSEMKT: VTI). Here’s why it’s worth buying now.
Diversify your portfolio with a good exchange-traded fund
Diversifying your portfolio can be hard when a bull market is underway. For example, selling booming artificial intelligence (AI) stocks right now could result in you leaving a lot of money on the table.
What’s great about owning the Vanguard Morningstar Total Stock Market ETF is that your portfolio has exposure to all areas of the market — technology, industrials, consumer goods, energy, etc. — and across a wide range of companies.
This Vanguard ETF tracks about 3,500 stocks spread across 11 sectors of the U.S. economy, including everything from large-cap tech companies like Nvidia to small-cap consumer goods companies, including Crocs.
This broad diversification is important because during a bear market, you never know which companies will fall the furthest or rebound the fastest.
You can’t avoid bear markets
Unfortunately, there’s no avoiding a bear market. The only thing you can be sure of is that there will be significant declines, especially considering that the average bear market downturn results in a 38% drop and typically lasts about 15 months.
Owning the Vanguard Morningstar Total Stock Market ETF won’t shield you from the bear market’s declines, but it will spread your risk around. And the added benefit of owning this Vanguard ETF during a bear market is that you won’t miss out on the market’s eventual rebound.
