Uncertain About Single Stock Pick? Play S&P 500 ETFs

Wall Street appears to be returning on its normal course with the reopening of economies after the coronavirus-led stay-at-home mandate. Although an improving trend is palpable, uncertainty is far from over.

Huge jobless claims in the United States, fear factor in human minds in socializing and uncertainty about the return of corporate health may be unnerving some investors about where to park money in such a record-low yield environment.

Bonds have seen their share of highs this year thanks coronavirus worries. But with the reopening of global economies, bonds are losing their sheen on falling safe-haven status. iShares 20+ Year Treasury Bond ETF (TLT - Free Report) (which yields about 1.94% annually) has lost 4.6% against 9.5% gains offered by the S&P 500 past month.

Why to Bet on Index Funds?

Against the above-mentioned backdrop, investors can find index funds as good bets. This is a passive investment strategy that allows investors to take advantage of major corporations at one go and minimizes stock-specific risks. Warren Buffett is also a proponent of investing in index funds. “A low-cost index fund is the most sensible equity investment for the great majority of investors,” per Warren Buffett.

In this regard, the S&P 500-based ETFs look to be safe bets. These are way broader than the Dow Jones, which has a concentrated approach with specific blue-chip stocks. Plus, about 51% of global CFOs surveyed by CNBC expect the Dow to slip back below 19,000 before it could spring higher.

The Nasdaq is also a good bet given its broad-based approach, but this index is tech-heavy and has rallied a lot amid lockdowns driven by the work-and-learn-from-home culture. So, further rally may be out of gas.

Meanwhile, the average annualized total return for the S&P 500 index over the past 90 years is around 10% before adjusting for inflation. With S&P 500 stocks, one can own about “80% of the market capitalization of the entire United States,” per certified financial planner Peter Mallouk. After all, American businesses will rise over the long term, as will the S&P 500, if we go by Buffett’s conviction (read: Don't "Bet Against the American Economy:" ETF Areas to Win).

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any specific ...

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