Some investors are more naturally risk-averse than others, kind of like how some people are afraid of heights while others will willingly go bungee jumping, skydiving, or roller-coaster riding without giving it a second thought.
If you’re in the risk-averse camp, there’s nothing wrong with you. But while your tendency may be to avoid stocks, doing so could make it very difficult to meet your financial goals.
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Historically, stocks have outperformed many other asset classes over long periods, making them an important part of most people’s retirement and investment portfolios. But those higher returns often come with volatility, which can be very hard to stomach.
Of course, people who are really prone to panic when the stock market loses value take on a different sort of risk by investing — selling assets at a loss instead of riding things out. If that sounds like you, there’s one ETF worth a closer look.
Is the Vanguard U.S. Minimum Volatility ETF right for you?
The Vanguard U.S. Minimum Volatility ETF (NYSEMKT: VFMV) is designed for investors who want exposure to the stock market while potentially experiencing a smoother ride than they would with a traditional fund.
Unlike a standard S&P 500 (SNPINDEX: ^GSPC) index fund that simply tracks the market, the Vanguard U.S. Minimum Volatility ETF uses an active investment strategy to select U.S. stocks that are expected to experience less price volatility than the market on a whole. At the same time, the fund maintains a diverse asset mix, so you’re not overly exposed to a single market sector.
To be clear, the goal of the Vanguard U.S. Minimum Volatility ETF isn’t to eliminate risk. That’s just not feasible when you’re talking about the stock market. Rather, the fund aims to lessen the severity of market swings when they happen.
And that could work to your benefit. If the value of your portfolio doesn’t move so wildly, you may be less likely to panic and make unfavorable decisions that impede your long-term financial goals, like selling shares at a loss.
Plus, like many Vanguard funds, you’re not looking at outrageous fees. The Vanguard U.S. Minimum Volatility ETF has an expense ratio of 0.13%. That’s not as low as some of Vanguard’s passively managed ETFs, but it’s a reasonable fee for an actively managed fund.
