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 (NYSEMKT: VOO).
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Down, but never out
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:
|
Recession End Date |
Gains Since Recession End |
|---|---|
|
November 1982 |
5,390% |
|
March 1991 |
1,930% |
|
November 2001 |
567% |
|
June 2009 |
727% |
|
April 2020 |
161% |
Sources: YCharts and NBER. Gains are as of market close on June 2. The start date is the last date of each month.
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.
Is VOO worth buying?
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).
