3 safe dividend ETFs to own in a stock market crash (5% yield)
Are we about to see the ‘biggest bubble in human history’ pop and plunge the economy into a brutal recession?
One investor who has made billions calling previous market crashes says we’re headed for disaster — and there’s very little that governments will be able to do about it when it happens.
First I’ll tell you about that, and then we’ll discuss 3 high-yielding dividend ETFs worth exploring as we head into what could be a very dark period for the U.S. economy.
Worse than the Great Recession?
Imagine how long the Great Recession of 2007–2009 would have lasted without massive government bailouts for troubled lenders and widespread economic stimulus.
Well, according to hyper-bearish billionaire Mark Spitznagel, we could be about to find out.
The founder of Universa Investments and reported protege of the man who coined the term “Black Swan Event” told the Wall Street Journal we may be on the precipice of another dot-com style crash.
And he says the U.S. government’s massive $35 trillion debt means nobody is coming to save us this time.
“I think we’re on the way to something really, really bad,” he told the Journal, predicting a 50% haircut for stocks and a recession by the end of the year.
The market, he argues, is currently in a “Goldilocks phase” where inflation is falling and Federal Reserve easing is helping to pump the stock market for perhaps the last time before a major downturn.
Rate cuts, he notes, typically precede big reversals.
So what’s a cautious investor to do?
Seeking safety
When times get tough, investors seek safety.
Recently, I was searching around to try and figure out what stocks typically do well in a recession.
The short answer?
None.
As this great Morningstar analysis notes, there’s just one equity sector that has had, on average, a positive return during recessions.
The stocks that get crushed the hardest, on average, are those belonging to energy companies.
They’ve returned -20% on average.
Health stocks have traditionally done the best, but in this case, ‘best’ is a relative term.
Healthcare is the one thing people can’t really cut back on, and even then those stocks have returned just 4% on average.
So is there anything worth buying if you think a big crash is on the horizon?
Well, yeah, actually there is.
Safety first
Despite that high public indebtedness Spitznagel points out, few investments are as safe as U.S. T-Bills.
And that’s reflected in their average performance during recessions.
According to that same Morningstar analysis, the best return during a recession came from long-term U.S. Treasuries at 10.04%.
In second place?
You guessed it: medium-term U.S. Treasuries at 9.82%
Worried about the economy and interested in bond ETFs?
Here are 3 interesting options for investors seeking safety ahead of a possible crash.
Long-term treasury ETF: TLT
First up is the iShares 20+ Year Treasury Bond ETF.
Currently, it’s yielding 3.86% as interest rates remain high, but that will come down as the Federal Reserve starts cutting rates.
As rates go down, however, the price of bonds goes up.
TLT quickly gained steam at the start of the COVID recession and popped big during the Great Recession as well before settling down again as the markets recovered.
And TLT is already on the move again.
It’s up more than 10% over the past 3 months.
Medium-term treasury ETF: IEI
Same idea here with the iShares 3–7 Year Treasury Bond ETF (IEI).
The shorter timeline means less price volatility, but it also means a smaller dividend yield at 2.88% and a smaller potential capital gain.
Short-term treasury ETF: BIL
The SPDR Bloomberg 1–3 Month T-Bill ETF is the most conservative option and a great one for people who are just looking to park their cash and collect dividends while they wait for everything to shake out.
It’s tied closely to interest rates and is thus yielding above 5% at the time of this writing.
Due to BIL’s the tight 1–3 month Treasuries horizon, the price doesn’t really move around on a day-to-day basis.
In fact, the current price of $91.46 is effectively the same as it was five, 10, and 15 years ago.
The easiest way to protect yourself
Of course, there’s an even easier way to guarantee a large return and prepare for the possibility of a lengthy recession: pay off your high-interest debt now and worry about investing later.
Getting rid of your debt will not only free up extra money to buy stocks at the bottom of any recession (when they’re cheap), it’ll give you priceless peace of mind as we enter potentially tough economic times.
Do you think Spitznagel is right and we’re headed for disaster? If not, why not?
What investments will you be holding if a recession takes hold?
Let me know in the comments!
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Disclaimer: Numbers in this post were accurate at time of writing and will not be accurate at time of reading. The author of this article is not a financial advisor. This commentary is provided for general informational and entertainment purposes only and should not be construed as financial, investment, tax, legal or accounting advice. It does not constitute an offer or solicitation to buy or sell any securities referred to. Consult your financial advisor prior to making financial decisions.