Investing in 2025
What's to Come In 2025?
If you're anything like me you're wondering what the heck is going to happen to the stock market in 2025? Today, at the tail end of 2024, there is no lack of uncertainty when it comes to the policies of the incoming administration. With the seemingly chaotic nature of putting together his cabinet, coupled with the promises and threats regarding taxes, tariffs, and deportations, Trump has made it very clear that there is no clear picture for 2025. Given that sentiment, some of you (I'm looking at the older, closer-to-retirement generation here) may be looking for a low-volatility investment strategy. One ETF stands out as a strong contender for those seeking stability: the Vanguard U.S. Minimum Volatility ETF (VFMV).
Why Consider Low Volatility in 2025?
Presidential transitions can be a time of economic and regulatory flux. New policies on taxes, trade, and regulation can significantly impact different sectors of the economy. This uncertainty often translates to increased market volatility as investors try to anticipate the effects of these changes.
A low-volatility strategy aims to minimize the impact of these market swings on your portfolio. By focusing on stable, established companies, these strategies tend to offer a smoother ride, even during turbulent times. This can be particularly beneficial during a presidential transition, allowing investors to weather the storm and avoid impulsive, emotionally driven investment decisions.
Enter the Vanguard U.S. Minimum Volatility ETF (VFMV)
This ETF is designed to track an index of U.S. stocks with historically lower volatility than the broader market. It does this by focusing on companies with stable earnings, consistent dividends, and less sensitivity to market fluctuations.
What Makes VFMV a Good Choice?
Diversification
VFMV holds a diversified portfolio of over 160 companies, spreading risk across various sectors. No single holding dominates the fund, further reducing the impact of any one company's performance. Top holdings include well-established names like Procter & Gamble, Johnson & Johnson, General Mills, and AT&T – companies known for their steady performance.
Focus on Stability
The fund prioritizes companies with consistent earnings and dividend payouts. These companies are less likely to experience dramatic price swings, providing a buffer against market volatility. They are valued for their current performance rather than speculative future growth.
Not Just a Value Fund
While VFMV leans towards value stocks, it also maintains a significant allocation to the technology sector (around 22.7%). This includes established tech giants like Apple, Microsoft, Texas Instruments, Spotify Technology, and Cisco Systems. However, unlike market-cap-weighted tech ETFs, VFMV gives these companies a more equal weighting, preventing the fund's performance from being overly reliant on a few tech behemoths. This balanced approach provides exposure to the tech sector's potential while mitigating its inherent volatility.
Low Cost
With a low expense ratio of just 0.13%, VFMV is a cost-effective way to gain exposure to a diversified portfolio of low-volatility stocks.
Why This Matters for 2025
With a new president taking office, the potential for policy changes and market uncertainty is elevated. VFMV's focus on stable, established companies can provide a sense of security during this transition period. The fund's diversified holdings and balanced sector allocation can help mitigate the risks associated with potential shifts in economic policy.
In the words of Kenneth Fisher, "Time in the market beats timing the market." If you're looking for a way to stay invested in the market while minimizing risk in 2025 and beyond, VFMV is worth considering.
As always, this is not a recommendation to buy or sell VFMV or any of the stocks mentioned in this article. The information provided regarding investing in any security is for educational and informational purposes only and should not be construed as financial advice. The statements made are not intended to be a recommendation to buy or sell any security or to invest in any specific financial product. Investment decisions should be based on an individual's own financial situation, goals, and risk tolerance. It is recommended to consult with a financial advisor before making any investment decisions.