No one knows when or why the next stock market sell-off will occur. But we do know that market declines are part of the price of admission to unlocking the long-term gains of the stock market.
A correction, defined as a decline of at least 10% from a high, occurs approximately every 1.85 years. A bear market, which means a drop of at least 20%, happens about every 3.6 years. This means that about half of all corrections end in a bear market. Investors with a time horizon of at least three to five years should therefore be prepared for a bear market.
Investing in companies with strong business models and reasonable valuations can position your portfolio to survive a bear market. Exchange-traded funds (ETFs) invest in dozens, if not hundreds, of companies at a time, further reducing volatility.
This is why the Vanguard S&P 500 Value ETF(NYSEMKT: VOOV)the Vanguard Russell 2000 Value ETF (NASDAQ: VTWV)and the Vanguard Consumer Staples ETF(NYSEMKT: VDC) are all worth buying in 2025, even if there is a stock market sell-off.
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The fund focuses on value-oriented companies such as Berkshire Hathaway, JPMorgan Chase, ExxonMobil, Walmartand more. Many top fund holdings are known for returning value to shareholders through dividends or buybacks. For example, Berkshire Hathaway is known to not pay dividends, but to regularly buy back shares to reduce its share count and grow earnings per share.
By not investing in high-flying growth stocks, the Vanguard S&P 500 Value ETF achieves a lower valuation and a higher return than the S&P500. The ETF has a price-to-earnings ratio (P/E) of 20.3 and a dividend yield of 1.9%, compared to a yield of 27.6 P/E and 1.2% for the ETF. Vanguard S&P 500 ETFwhich tracks the performance of the index.
Compared to the S&P 500, the Vanguard S&P 500 Value ETF is more concentrated in lower growth, lower valuation sectors such as utilities, healthcare and financial services.
By not owning top tech stocks, such as Apple, Microsoftor Nvidiasuch as consumer goods leaders Amazon or Teslaor communications giants such as Alphabet And Metaplatformsthe Vanguard S&P 500 Value ETF is significantly underweight technology, consumer discretionary and communications compared to the S&P 500.
Value stocks are typically priced based on solid existing earnings growth rather than potential growth. These are the types of companies that have already weathered recessions and economic cycles and are well positioned to do so again. That’s why investors in the Vanguard S&P 500 Value ETF can rest easy knowing they’re putting their hard-earned savings to work in quality companies.
The Vanguard Russell 2000 Value ETF is as diversified as they come when it comes to low-cost funds. This ETF has 1,446 holdings and no single stock makes up more than 0.6% of the fund. The top positions are probably unrecognizable to most investors. Rather than focusing on flashy names, the fund invests in value stocks of various sizes in the US stock market.
The fund is similar to the Vanguard Russell 2000 ETFwhich tracks the equity-focused Russell 2000 small-cap index. The Vanguard Russell 2000 Value ETF has fewer positions because it filters out more than 500 small-cap growth stocks.
The Vanguard Russell 2000 Value ETF is suitable for people who want to put capital to work in the markets without focusing on a particular investment thesis. Unlike other Vanguard ETFs that are heavily concentrated in a handful of names, the Vanguard Russell 2000 Value ETF is so diversified that it lacks clear leadership.
Sometimes too much diversification can be a bad thing, as exceptional outperformance from one stock can get lost in the wash. For example, the highest weighted stock in the Vanguard Russell 2000 Value ETF could triple in one year and not even move the index 2%.
However, the fund could be a great fit for those looking for an overall basket of value stocks and passive income. The ETF has a price/earnings ratio of just 14.2 and a yield of 1.7%. The Vanguard Russell 2000 Value ETF’s diversification and value focus make it suitable for those concerned about a stock market sell-off.
This ETF reflects the performance of the consumer staples sector. Unlike the highly diversified Vanguard Russell 2000 Value ETF, the Vanguard Consumer Staples ETF is centered around just a handful of holdings, with 46% of the fund invested in Costco Wholesale, Procter & GambleWalmart, and Coca-cola.
Overall, the consumer staples sector is relatively recession-proof compared to other more cyclical sectors that are vulnerable to economic cycles. Demand for goods sold at retailers like Costco or Walmart or produced by P&G or Coke is in constant demand no matter what the economy is doing. This dynamic is in stark contrast to sectors such as consumer discretionary and manufacturing, which are benefiting from an influx of capital and consumer spending.
The consumer staples sector is unlikely to keep pace with a growth-driven rally in the broader market, but could perform well during a stock market sell-off. Even if there is an economic slowdown, the leading companies in the consumer goods sector should still be able to keep their profits stable or even achieve modest growth, while other sectors may experience drastic swings in corporate profits.
The Vanguard Consumer Staples ETF has a price-to-earnings ratio that is lower than the S&P 500 (24.8) and a yield that is 2.5% higher than the S&P 500. Add it all up and this fund is a good way for value investors to earn passive income from a diversified portfolio of companies.
Consider the following before buying shares in Vanguard Admiral Funds – Vanguard S&P 500 Value ETF:
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JPMorgan Chase is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Costco Wholesale, JPMorgan Chase, Microsoft, Nvidia, Tesla, Vanguard S&P 500 ETF, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
3 Ultra-Safe Vanguard ETFs to Buy Even If There’s a Stock Market Selloff in 2025 Originally published by The Motley Fool
