10 ETFs to Avoid a Stock Market Crash (and Maybe Even Profit From It)

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What was supposed to be a shortened week with lower trading volume ahead of Thanksgiving has turned into a serious disappointment. With major selling in the three broad stock market indexes, most investors are now finding themselves where they just cannot wait for 2018 to turn into 2019. That nine-year bull market has run into serious issues twice now in 2018, and the October sell-off has now been followed by serious pressure in November. And that one-day post-election rally fizzled away as quickly as it tried to start.

With the Dow back down at 24,500 and the S&P 500 back at 2,650, there is a serious question investors have to be asking right now — Is now the time to panic? That answer is complicated, but let’s try this on for size: It Depends!

While the stock market has proven over and over that it can bounce back rapidly, the reality is that investors in 2018 have found it less rewarding chasing every market sell-off than in prior years. It is imperative that long-term investors who are staying in the market not look away from their money and investments for very long. Still, don’t let the financial media spook you into selling your lifelong holdings with every sell-off. The financial media will spook even the most resolute of investors into thinking every sell-off is on the verge of turning into an outright stock market crash.

There is another reality outside of market fears: You don’t have to lose your assets during a stock market sell-off or even during a crash. And to make matters even better, even the retail investing community can profit from market volatility and crashes alike.

24/7 Wall St. has gathered a list of 10 exchange-traded funds (ETFs) and exchange-traded notes (ETNs) for investors who want to keep their money invested during periods of uncertainty. These ETFs are simply go-to investment and trading vehicles if it looks like the stock market could tank at any moment. These cover multiple strategies outside of regular equity index investing, and we have included instances in which the ETFs have not performed properly in times. We also have identified some risks and caveats that investors need to consider about each fund.

The next time you see a stock market crash, or just a major market pullback in a short period, be sure to look back at the performance of these specific ETF products. You’ll probably be surprised just much better they do as a whole compared to any index tracking the Dow Jones industrial average, the S&P 500 and the Nasdaq 100. Investors also should consider that there are probably a few options from other ETF issuers that compete against these, almost down to the exact same strategy. Leveraged ETFs and those that are too difficult to easily explain have been left out of this review.

Here are 10 ETFs for investors to seek out of they are worried about a next stock market sell-off or crash right around the corner. And remember, some of these ETFs are built to fly higher during rocky stock markets.

1. Short-Term Treasuries

There’s supposed to be a tug-of-war of some sort between stocks and bonds during periods of volatility and uncertainty. When investors get spooked out of stocks, they often decide to park in short-term and intermediate-term bonds and the funds that track them. The Schwab Short-Term U.S. Treasury ETF (NYSE: SCHO) is probably about as safe as you get because it only invests in short-duration government debt. You’re never going to get rich investing in short-term and money-market funds, but you won’t have to worry about looking away from the ticker tape a couple of days and seeing your investment down 10%, 15% or worse.

There are multiple short-term and money market instruments out there to choose from.

2. Adjustable Treasuries

Another investment in Treasury debt is in the Treasury Inflation-Protected Securities (TIPS). SPDR Bloomberg Barclays TIPS ETF (NYSE: IPE) invests in Treasury debt that has an adjustable yield rather than investing in fixed coupon debt. As Treasury yields and inflation rise, the yield on the TIPS adjusts higher with them. If interest rates go down, the yield goes down here too. You aren’t going to get rich going for adjustable-yields with the government guarantee, but you won’t ever go broke.

One consideration is that some TIPS were constructed at one point in the no-rate and low-rate cycle in a manner that they could actually get negative yields temporarily.

3. Short-Intermediate Corporate Debt

If you want a little extra yield than short-term government debt, there is corporate debt issued by the top companies in America. They almost always have a higher yield than their government counterparts, and almost all the companies are investment grade in the Vanguard Short-Term Corporate Bond ETF (NYSE: VCSH). This ETF goes out a little further on the curve for added yields as it tracks the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index.

The ETF includes dollar-denominated, investment-grade, fixed and taxable debt issued by industrial, utility and financial companies. Just keep in mind that this ETF was created after the Great Recession.

4. Preferreds for Safety

The iShares Preferred Stock ETF (NYSE: PFF) invests in preferred shares rather than common shares. This is a tad more complicated for those new to investing, but they generally come with better safety and higher yields than buying regular stock. During the market crash of 2008 and 2009, many investors wanted to look at preferred securities of major banks and major companies. If things got too bad in the economy, preferred shares, similar to bondholders, are actually senior to the common stockholders. That means if a company folds, the preferred shareholders may still get money back even if the common stockholders get wiped out entirely.

Unfortunately, even this ETF performed poorly during the Great Recession due to a high reliance on financial and other companies that were hurt badly during the stock market sell-off.