Right now may not seem like the ideal time to invest in the stock market, given that the S&P 500 remains around record highs. You may also be worried about economic conditions weighing on the market this year.
These are valid concerns, but there have been times in the past when I, like many investors, have been convinced the stock market was due for a crash because of high valuations, only to see it continue rising higher. Inevitably, you end up sitting on the sidelines watching others rake in the gains from remaining invested.
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That’s why timing the market doesn’t work, and it can be a costly and frustrating strategy. There’s a better alternative to consider if you want to reduce risk, which involves simply pivoting to safer investments, ones that also pay dividends. A great option is an exchange-traded fund (ETF) that tracks these types of stocks: the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD).
The Schwab fund provides investors with a great mix of quality dividend stocks
Investing in the Schwab fund can be a great way to reduce risk in the stock market. This ETF focuses on high-quality dividend stocks, with strong fundamentals and fairly low risk. That’s why, unsurprisingly, this has been a low-volatility investment over the years. In the past five years, its gains have admittedly been a bit modest at 26% when excluding dividends, which is nowhere near the S&P 500’s impressive gains of about 76%.
You inevitably sacrifice some gains in exchange for safety. The good news, however, is that with a yield of about 3.3%, you can also generate a fair bit more dividend income with this investment, as that payout is far higher than the S&P 500’s average yield of just over 1%. And a big reason why it’s a fairly safe and solid option for income investors is that it focuses on many blue chip stocks, including Coca-Cola, Procter & Gamble, and Verizon Communications. The ETF isn’t chasing risky, high-yielding investments and instead prioritizes safe and quality stocks. At a time when the market may look particularly frothy, that can be music to the ears of risk-averse investors.
This ETF can be a suitable no-nonsense buy for any investor
Year to date, the ETF is up around 17% as investors have piled money into the fund for its dividend income and stability. By comparison, the S&P 500 is up around just 8%. It hasn’t been a typical year by any stretch for the Schwab fund. But if your focus is on dividend income and long-term stability, investing in the fund can be an effective way to reduce your portfolio’s overall risk. It can also be a great pillar for any investor to build their portfolio around.
