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ETFs to Calm the Nerves

Nervous investors have a range of ETFs to choose from to diversify their portfolios.
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NEW YORK (TheStreet) -- The bulls have managed to pull off some wins recently. However, the back-and-forth market in recent weeks is doing little to instill investor confidence.

Given the swings, it is no surprise that investors are cautious about placing their hard earned money in long-term investments. Uncertainty is the investor's worst enemy and this uncertainty is magnified with the government pushing sweeping health care and financial regulation, debt issues facing Europe, and general concern for the strength of the global economic recovery.

Despite trying times, there are still pockets of the market which investors can turn for some diversification to their portfolio.

Precious Metal ETFs

When fears are stoked, investors often turn to precious metals such as gold and silver for sanctuary. Shiny metals provide protection in times of market tension and I have often urged investors take on such exposure for the long run.

Since the

SPDR Gold Shares

(GLD) - Get SPDR Gold Shares Report

first came onto the scene in 2004, precious metals have grown significantly in popularity, becoming an entirely new asset class of its own. Today, investors can tap into various metals through a plethora of products aimed at tracking the physical stockpiles, futures contracts, or miners.

My favorite gold-based ETFs are

iShares COMEX Gold Trust

(IAU) - Get iShares Gold Trust Report


Market Vectors Gold Miners ETF

(GDX) - Get VanEck Gold Miners ETF Report


High-Yield Bond ETFs

The high-yield bond market is another area that I feel will provide investors with protection for the foreseeable future.

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High-yield corporate bonds are typically considered risky investments. However, given the strength from the most recent earnings season, I do not foresee a spike in defaults occurring in the near future.

Using a fund like the

iShares $ iBoxx High Yield Corporate Bond Fund

(HYG) - Get iShares iBoxx $ High Yield Corporate Bond ETF Report

investors can gain exposure to the safety of bonds while earning a welcomed yield.

Dividend ETFs

Another market area investors can turn to in order to avoid market squalls is dividend-paying ETFs. The

iShares Dow Jones Select Dividend Index Fund

(DVY) - Get iShares Select Dividend ETF Report

provides investors with exposure to companies which have consistently paid out comfortable yields to investors.

The current market environment is promising for dividend investors. As evidenced by the recent flurry of mergers and acquisitions activity, big firms continue to sit on massive stockpiles of cash. While buying up smaller firms is always one option for chipping away at these reserves, another way these cash-laden firms can cut back on their excess reserves is through dividends.

The future of the Bush-era tax cuts is still up in the air. Therefore companies may turn to dividends or even "special dividends" to in order to protect against a hit in the event that they are allowed to expire.


While inflation does not appear to be posing an immediate threat, it is expected to accelerate moving forward, and Treasury Inflation Protection Securities, or TIPS, still may prove to be a welcomed area of protection for investors.

Designed with safety in mind, ETF investors looking for a taste of TIPS should consider

iShares Barclays TIPS Bond Fund

(TIP) - Get iShares TIPS Bond ETF Report


Although it may not be as thrilling as holding a gold fund like IAU or pay as much income as DVY and HYG, TIP has still managed to handedly outperform the broad market indices throughout 2010. This will certainly continue as investors stand by their cautious approach to the markets.

As I've explained, times like these are challenging to long- term investors. However, with a level head and a well thought out investment strategy, it is possible to navigate market turmoil in a safe and lucrative manner.

-- Written by Don Dion in Williamstown, Mass.

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At the time of publication, Dion Money Management iShares COMEX Gold Trust, Market Vectors Gold Miners, iShares Dow Jones Select Dividend Index Fund, iBoxx High Yield Corporate Bond Fund and iShares Barclays TIPS Bond Fund.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.