If a Stock Market Correction Is Coming, This 1 ETF Could Be the Smartest Buy Right Now
Written by David Dierking for The Motley Fool -> During stock market corrections, investors often become more defensive and seek dividend stocks to provide a downside cushion. The Schwab U.S. Dividend Equity ETF (SCHD) focuses on balance sheet health, dividend history, and high
During stock market corrections, investors often become more defensive and seek dividend stocks to provide a downside cushion.
The Schwab U.S. Dividend Equity ETF (SCHD) focuses on balance sheet health, dividend history, and high yield in its robust stock selection process.
This strategy outperformed the S&P 500 by 15% in 2022 and provided an important passive income stream in the process.
The S&P 500 's Shiller CAPE ratio, which measures the index's current price relative to inflation-adjusted earnings over the past 10 years, just hit 42. The last time it rose that high, the tech collapse in 2000 soon followed.
While strong corporate earnings growth is supporting the market here, stocks could take a hit if the narrative changes. Inflation is well above the Federal Reserve's target. GDP growth has slowed substantially over the past two quarters. President Donald Trump is trying to restart his tariff strategy. Any or all of these factors could be the catalyst to send stock prices sharply lower. With the S&P 500 nearly as expensive as it has ever been, according to the Shiller CAPE ratio, there's little room for error.
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There are ways, however, to protect your portfolio. By pivoting to more defensive equities, investors can mitigate downside risk and maybe even generate a little extra income on the side. That's why the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) becomes really attractive during a correction. Its robust selection strategy produces a portfolio of durable, quality companies with strong dividend yields.
When the S&P 500 turns lower, investors often become risk-averse in a hurry. In the case of equity investors, they may do a 180-degree pivot on their strategy and push entirely into bonds or cash. People who tilt their portfolios more defensively usually target well-established stocks or exchange-traded funds (ETFs) that generate lots of cash and are economically resilient.
