3 Defensive Sector ETFs a Retiree Can Buy and Hold for Decades

Groceries, prescriptions, and electricity are the bills families keep paying in a recession. Vanguard runs a low-cost index fund for each one: the Vanguard Consumer Staples ETF (NYSEARCA:VDC), the Vanguard Health Care ETF (NYSEARCA:VHT), and the Vanguard Utilities ETF (NYSEARCA:VPU). Each one charges 0.09% a year.

Why Groceries, Medicine, and Power Hold Up When Paychecks Shrink

People don’t stop buying toothpaste, insulin, or electricity when the economy turns down. That gives these businesses steadier revenue than the broad market, and steady revenue is what pays for steady dividends.

Each fund tracks an MSCI US Investable Market 25/50 index. The index covers large, mid-size, and small U.S. companies in one GICS sector, which is the standard system for sorting stocks by industry (per Vanguard’s prospectus). The 25/50 rule caps how much weight the biggest stocks can carry.

Steadier sales still leave each sector exposed to something. Utilities are sensitive to interest rates. Health care faces policy and drug-pricing risk. Consumer staples deal with rising costs and slow growth.

VDC: Steady Checks From the Checkout Aisle

The staples fund holds food, beverage, tobacco, and household-products manufacturers, plus supercenters and drug retailers (per the prospectus). Walmart, Costco, Procter & Gamble, and Coca-Cola lead the portfolio. Vanguard calls the fund nondiversified, so a few large positions can drive results. In practice, two big retailers have a heavy say in how the fund does.

The yield is 2.1%. Total returns were 12% over one year, 44% over five years, and 123% over ten, the lowest ten-year figure of the three. That trailing result is what slow growth looks like over time.

The payouts have risen over the long run, though not every year. Quarterly payments in 2016 ran from $0.634 to $0.968.

This year’s three came in at $1.2169, $1.2239, and $1.2112.

A $1.7916 payout in December 2023 was followed by $0.862 the next quarter.

VHT: The Low-Yield Pick With the Best Ten-Year Return

An income screen would cut this fund first. It yields just 1.4%, the lowest of the three. Even so, it posted the best one-year return at 24% and the best ten-year return at 211%. Over five years, it finished last at 41%.

Health care plays two roles. Demand holds up in any economy, and an aging population adds to that demand over time. The fund covers drugmakers, biotech, medical equipment, providers, and health care technology (per the prospectus), with Eli Lilly, Johnson & Johnson, AbbVie, and Merck at the top. That spread means a poor stretch for drug stocks doesn’t sink the whole portfolio.

Quarterly payouts in 2017 ran from $0.443 to $0.5667.

This year’s have been $0.994, $0.9868, and $0.9685. A $1.6654 payment in December 2025 was a one-off, so it does not reflect the regular payout level. The main risk here is Washington. Drug-pricing rules and changes to reimbursement can reset profits across the sector.

VPU: The Biggest Checks Come With the Most Rate Risk

The utilities fund pays the most, at 2.8%. Regulated utilities earn a set return on the infrastructure they build, so their cash flow acts somewhat like bond interest. The fund holds electric, gas, and water utilities as well as independent power producers (per the prospectus). Its top names include NextEra, Duke, Southern, and Constellation. Growing electricity demand from electrification and data centers gives this normally slow sector a long-term growth driver.

The returns have swung the most. The fund led over five years with 47% and returned 138% over ten. Over the past year, it lost 4%, the only negative one-year result on this list. When interest rates rise, safer income options become more competitive, and borrowing gets more expensive for these capital-heavy companies.

This fund has the longest quarterly payment record of the three. In 2006, the quarterly payouts ran from $0.483 to $0.600.

This year, they have been $1.2769, $1.3009, and $1.258.

What 2008, 2020 and 2022 Reveal About These Funds

The table below shows total returns during three selloffs, based on dividend-adjusted month-end prices.

All three lost money in 2008, and utilities gave up more than a quarter of their value. In each selloff, the losses were smaller than the market’s, but they were still significant. In 2022, the market fell sharply while all three funds stayed close to flat, which is the protection retirees are paying for.

What a Multi-Decade Hold Actually Demands

1. The funds have to keep running. Fund companies can change an index, merge a fund, or close it. Low costs and large sector popularity help, but nothing ensures these funds will exist unchanged for three decades.
2. Drops test the strategy. A retiree who sold the utilities fund after its 2008 loss turned a temporary drop into a permanent one. The rankings also keep changing. Health care led over one and ten years, while utilities led over five years and then lost money over the last twelve months. Picking a fund based on one recent year means chasing whatever just worked.
3. You need other sources of income. With yields between 1.4% and 2.8%, these funds produce only a small income on their own. They fit best next to Social Security, a pension, or bonds, as the part of the plan that keeps the stock allocation steady and the dividends rising (a free guide here explains how to turn a lump sum into a monthly paycheck, with the mix and the payout calendar).

Choosing Among the Three

This approach fits retirees whose basic expenses are already covered and who want stock exposure that has held up better than the market in past selloffs. If income comes first, the utilities fund pays the most, but you have to accept the interest-rate swings. Staples have had the smallest drawdowns, and health care has the best long-term growth record despite its small yield. Because the leader has changed in every time period, picking a single fund has depended on guessing which sector will lead next.

Contact [email protected] for any questions or corrections.