2 ETFs to Weather Market Turbulence

NEW YORK (TheStreet) -- After locking in the worst Thanksgiving week since the 1930s, investors returned from the holiday weekend in a buying mood, pushing the markets to gains, marked by Monday's dramatic 300-point rally. This impressive start to the week may have helped to lift sour spirits. However, I highly encourage investors to avoid getting carried away here.

When preparing a portfolio for the final weeks of 2011, conservative investors will be best off adopting and sticking to a slow, steady game plan.

Historically, December has been a positive month for the stock market. However, the outlook for the days ahead remain far from certain; although we have seen some glimmers of progress, the sovereign debt woes plaguing the European Union continue to command attention. As we have seen in recent months, these developments can cause sentiment to swing with little warning.

This type of wild back-and-forth action has tested the patience and stomachs of even the most risk-tolerant traders. Conservative investors, lacking the time and risk tolerance needed to effectively navigate potentially dramatic day-to-day market fluctuations, will likely find themselves burned if they attempt to game short-term fluctuations.

A smarter, more reliable strategy for this latter group is to refocus their attention towards the long term. Fear and greed often take control in volatile and uncertain markets environments, resulting in detrimental moves. By looking beyond the day-to-day action, this variable can be largely removed from the equation, allowing for more level-headed decision making.

There is a wide collection of ETF products investors can turn to in order to construct a proper long-term investing portfolio for any type of market environment. For example, in this type of choppy scenario, a dividend-paying equity ETF like the iShares Dow Jones Select Dividend Index Fund ( DVY) or the iShares High Yield Equity Fund ( HDV) can help to significantly cushion the impact of market swings.

With portfolios that span the broad market spectrum, these two funds allow investors to take full advantage of upward swings. However at the same time, they have a number of defensive mechanisms in place that will ensure a welcomed level of support in the event that fear makes a comeback and indices turn south.

DVY and HDV both boast heavy weightings towards non-cyclical sectors like utilities, consumer goods and health care. This makes them inherently well-suited to weather market turbulence. In addition, the substantial distributions paid out by these instruments will provide welcomed comfort during duress.

Throughout the past few months, we have seen how the strengths of these dividend-focused funds have shined through. Since the start of August, DVY has remained relatively unchanged, dipping less than 0.5%. HDV, on the other hand has jumped over 1.3%. Comparatively, the SPDR S&P 500 ETF ( SPY) and SPDR Dow Jones Industrial Average Index Fund ( DIA) have slid 6.5% and 4.0% respectively over this perioyd.

It is easy to get caught up in the ongoing sagas taking place across the global marketplace. While exciting to watch, investors must be careful to avoid letting the daily headlines muddle their decision-making abilities. Long-term focused products like DVY or HDV can help investors overcome today's challenges and prepare for the road ahead.

Written by Don Dion in Williamstown, Mass.

RELATED ARTICLES:


At the time of publication, Dion Money Management owned the iShares Dow Jones Select Dividend Index Fund.

More from ETFs

What Bad Weather? Kohl's Shares Spike as Same-Store Sales Jump

What Bad Weather? Kohl's Shares Spike as Same-Store Sales Jump

Listen: Here's What You Need To Know About ETFs Today (Hint: They're on Fire!)

Listen: Here's What You Need To Know About ETFs Today (Hint: They're on Fire!)

Bitcoin Today: Bears Rear Their Heads as Prices Continue Downward Spiral

Bitcoin Today: Bears Rear Their Heads as Prices Continue Downward Spiral

Cannabis Stocks Are Screaming Sells After Seeing This Deal: Doug Kass Insider

Cannabis Stocks Are Screaming Sells After Seeing This Deal: Doug Kass Insider

60 Seconds: What's the Difference Between an ETF and a Mutual Fund?

60 Seconds: What's the Difference Between an ETF and a Mutual Fund?