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You have many options for preparing for a potential stock market downturn without sacrificing your long-term financial goals.
As of May 23, the Dow Jones, Nasdaq, and S&P 500 all hit record highs, with the Dow reaching a historic milestone of 40,000 in its remarkable 125-year history.
The stock market has struggled over the last six years because of the U.S.-China trade war, the COVID-19 pandemic, the unpredictability surrounding the election, supply chain problems, and inflation.
Walmart surpassed earnings expectations on May 23 despite concerns about declining consumer spending. It shows that top retailers still do great things, even when customers have struggled with capital.
Many problems haven’t been fixed yet, so many investors may look at the current stock market conditions and think something massive is about to happen. Long-term investors know that trying to time the market is not prudent.
The main focus should be on companies with solid foundations that bear market volatility. Learn about why, in a depressed market, buying Microsoft Corp (NASDAQ:MSFT), Coca-Cola Co. (NYSE:KO), and the Vanguard Value Index Fund ETF (NYSE:VTV) might be prudent.
Vanguard Value ETF
The Vanguard Value ETF is an excellent choice if you want to invest new capital without taking on too much risk. It highlights companies that make substantial profits now more than those that might do so in the future.
By contrast, the “Magnificent Seven” stocks seven of the best-performing growth firms in their respective industries are included in the Vanguard Growth ETF. Neither of the Magnificent Seven stocks is included in the Vanguard Value ETF. The fund’s portfolio includes prominent names like Berkshire Hathaway, Broadcom, JPMorgan Chase, UnitedHealth, and ExxonMobil. The value and income components receive most of the attention.
The fund yields 2.5%, and its P/E ratio is 18.3. These numbers indicate a substantial discount from the S&P 500’s 27.5 P/E ratio. Because of its meager expense ratio of 0.04%, the fund is a terrific choice for investors, even those with significant money.
This is a dependable way to diversify by concentrating on well-established, steady market sectors rather than fast-growing businesses.
Coca-Cola
Investors looking for a top dividend stock should trust Coca-Cola, particularly during a market downturn. Its dividend is large and it has a track record of making payments on schedule. Coke’s yield is 3.1% greater than 1.3% of the S&P 500. The yield differential produces a notably higher level of passive income.
Being a conservative sector with little room for growth, Coca-Cola has not done as well as the market recently. Still, the reputable business is showing signs of a comeback with noteworthy increases in both sales and profit. The remarkable record of Coca-Cola raising dividends for 62 years has earned it the title of Dividend King. A 5.4% increase announced in February translated into a $0.485 quarterly dividend per share.
Considering the nature of its business strategy, Coke will not outperform the larger market over time. Nevertheless, Coke has avoided serious mistakes and stays composed when given a chance. Its primary concentration on nonalcoholic beverages distinguishes it from PepsiCo, which is involved in the beverage and snack sectors.
It takes skill to reach a certain degree of mediocrity, and Coke has mastered it. Though it is now at an all-time high, the stock is reasonably priced with a P/E ratio 25.4. This is a good and safe stock to consider including in your portfolio if you want to continue investing in the stock market and put capital preservation ahead of capital appreciation.
Microsoft
If one is expecting a stock market downturn, Microsoft may seem odd. Currently, just marginally behind its record high, the stock has risen 240% in the last five years.
Several things can cause the stock market to go downward. However, unclear information and slowing earnings growth, which can sometimes even go negative, often affect these factors. During downturns, it’s better to focus on how well the company is doing than on how much the stock is worth.
Even though among the “Magnificent Seven” stocks, Microsoft might not be the most economical, most people agree that it is in a strong position to increase market share even in periods of industry downturn. Its solid balance sheet and varied business strategy are to credit for this.
Among the several high-margin business divisions from which Microsoft makes money are:
Microsoft Cloud, Azure, GitHub, and many other cloud services are among the many potent components that make up Microsoft Intelligent Cloud.
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AI products like LinkedIn, Office services, Microsoft Co-pilot subscriptions, and dynamic business solutions can also be purchased.
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More Personal Computing includes the Windows operating system, Xbox gaming consoles, and original content from Activision Blizzard. It also provides search engines and news ads, such as Microsoft Edge, Bing, and Microsoft News.
Microsoft shines in various domains. Examining the figures for the nine months that concluded on March 31, revenue increased 15.8%, and operating income increased 26.8% over the nine months that ended on March 31, 2023.
Even in a stock market downturn, you should consider your risk tolerance before investing in ultra-safe equities. Those who view things long-term must be exposed to businesses that can benefit from economic expansion.
Simply put, too-conservative investing can yield lower returns than expected because low-growth companies frequently outperform the S&P 500 during protracted times of market expansion.
It is wise to invest in and hold onto companies that can survive a slump, even if they experience temporary losses during periods of market uncertainty.
Consider These High-Yield Alternatives
While these three options offer a mix of yield and stability, investors should also consider alternative investments that can provide high returns and diversification. Two such opportunities are the Ascent Income Fund from EquityMultiple and the Arrived Private Credit Fund.
The Ascent Income Fund targets stable income from senior commercial real estate debt positions, offering a historical distribution yield of 12.1% backed by real assets. With payment priority and flexible liquidity options, the Ascent Income Fund is a cornerstone investment vehicle for income-focused investors. First-time investors with EquityMultiple can now invest in the Ascent Income Fund with a reduced minimum of just $5,000.
The Arrived Private Credit Fund simplifies investing in short-term financing for real estate projects, providing attractive yields secured by quality residential real estate. With target annualized dividends of 7-9%, quarterly liquidity, and a diversified pool of real estate-backed loans, this fund is an excellent complement to equity investing.
This article Market Volatility Ahead? Protect Your Wealth With 1 ETF, 1 Dividend King, and 1 ‘Magnificent Seven’ Stock originally appeared on Benzinga.com
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