The performance of the S&P 500 so far in 2025 highlights the uncertainty in the markets. Mixed signals from the Trump administration regarding tariff implementation have triggered significant market losses, with volatility expected to persist in the short term.
The Trump administration's announcement and the subsequent pause in tariffs caused significant market fluctuations, creating a high level of uncertainty for investor portfolios. Since the beginning of this month, the S&P 500 index fell approximately 12% in the first week, only to rebound 9.5% in a single day, on April 9.
Increasing global growth concerns and chaotic U.S. tariff policies, weigh on investor confidence which makes timing the market and active investment strategies increasingly difficult. In such a scenario, adopting a strategy like buy-and-hold to build a resilient investor portfolio is beneficial.
What is Buy and Hold?
Buy-and-hold is a classic strategy offering a passive investment approach, ideal for investors seeking sustainable long-term returns. Buy-and-hold investors stay invested, regardless of bull or bear markets, holding their investments for many years to allow them to compound and grow without being influenced by short-term price fluctuations or technical signals.
For new investors, implementing a buy-and-hold strategy can be a smart choice, as it can help reduce market volatility. Buy and hold can be an ideal strategy for building wealth and managing risk. Additionally, buy and hold is beneficial for long-term investors who are less concerned with short-term market volatility or those who prefer a more hands-off investment approach.
Buy-and-hold reduces the impact of investor emotions. It removes emotional behavior from investing, preventing investors from overtrading and making impulsive decisions like panic selling during downturns or overbuying in a rally, which can harm their portfolio. This is especially relevant in the current economic landscape.
As economies are expected to take countermeasures against the tariffs, the trade war appears far from over. Additionally, the chances of a U.S. recession have increased due to the escalating trade war, making buy-and-hold a smart choice for investors.
Forget Timing, Stay in the Market
Given the current economic landscape, which is marked by an escalating trade war, rising recessionary fears and volatility surrounding tariffs, timing the markets is extremely challenging even for seasoned investors.
In such an environment, adopting a long-term passive investment strategy becomes the go-to approach for investors to weather short-term market storms. Riding out volatility with a buy-and-hold strategy removes the challenges of timing the market.
Market timing means buying or selling investments based on predictions of market movements using fundamental, technical or economic data. Constantly monitoring the movement of securities and funds, can be a time-consuming and exhausting process. To successfully time the market, you need to get it right both when you buy and when you sell.
Even if an investor times the market perfectly, it can lead to higher tax obligations. Additionally, increased transaction costs and commission fees can erode profits, ultimately diminishing the benefits of market timing.
ETFs to Buy and Hold
Using ETFs to implement the strategy gives the additional benefit of instant diversification and tax efficiency. Below, we highlight a few ETFs that investors can buy and hold.
Investors looking to invest in the U.S. stock market over the long haul while aiming to build a more balanced and diversified portfolio should consider funds tracking major indexes like the S&P 500 or broad market funds covering nearly the entire U.S. market.
S&P 500 ETFs
Investors can consider Vanguard S&P 500 ETF VOO, SPDR S&P 500 ETF Trust SPY and iShares CoreS&P 500 ETF IVV, which track the S&P 500. Both VOO and IVV are the cheapest options, charging 0.03%, and sporting a Zacks ETF Rank #1 (Strong Buy).
All three funds are among the largest in the United States, with VOO having the largest asset base of $542.59 billion, followed by SPY and IVV, with an asset base of $526.53 billion and $524.05 billion, respectively.
Total Stock Market ETFs
Vanguard Total Stock Market ETF VTI, iShares Core S&P Total U.S. Stock Market ETF ITOT and Schwab U.S. Broad Market ETF SCHB can be considered. All three funds charge a similar annual fee of 0.03%.
However, VTI has gathered a considerably large asset base of $399.16 billion compared to ITOT and SCHB, with an asset base of $56.72 billion and $27.35 billion, respectively.
Dividend ETFs
Investors can also consider funds with a focus on dividends. Reinvesting dividends can further unlock the full potential of compound returns, enhancing investment growth.
Investors can consider Vanguard Dividend Appreciation ETF VIG and Schwab US Dividend Equity ETF SCHD, which have a dividend yield of 1.90% and 4.02%, respectively. However, VIG is the cheaper option among the two, with an annual fee of 0.05%.
Gold ETFs
Gold, a safe-haven investment during a challenging period, remains a secure choice amid economic and geopolitical instability. Gold preserves its purchasing power, contributing significant diversification to an investment portfolio due to its historical tendency to have a negative correlation with other asset classes.
Investors can consider SPDR Gold Shares GLD, iShares Gold Trust IAU and SPDR Gold MiniSharesTrust GLDM to increase their exposure to the yellow metal.
Regarding annual fees, GLDM is the cheapest option, charging 0.10%, which makes it more suitable for long-term investing.
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