Smooth-Ride Investments: The Home Depot, Inc. (HD), Amgen, Inc. (AMGN), Johnson & Johnson (JNJ)

Page 1 of 2

After the stomach-churning market drop of several years ago and the equally impressive climb back from 2009′s lows, many investors are feeling a bit exhausted. After all, how much whipsawing back and forth can folks take? Judging by the way investors have abandoned stocks in recent years, the answer may be “not as much as we thought.” And while keeping your eyes on the long-term picture will help keep shorter-term events in perspective, there are a few adjustments you can make within your portfolio that may help ease those temporary bumps in the road.

The Home Depot, Inc. (NYSE:HD)Smoothing the bumps
Investors who are sick of the equity market’s roller-coaster ride have some new tools to help manage volatility in their portfolios. In recent years, a number of “low-volatility” exchange-traded funds have been introduced. These funds focus on stocks that tend not to experience wide price swings but that exhibit more stable price behavior over time. For instance, the PowerShares S&P 500 Low Volatility Portfolio ETF (NYSEMKT:SPLV) tracks the performance of the 100 least volatile stocks in the S&P 500 Index over the prior 12 months (as measured by standard deviation). These stocks are weighted by volatility, with the more volatile names getting a smaller weighting in the portfolio. This ETF has a reasonable 0.25% expense ratio and is a decent choice for folks who want exposure to lower-risk stocks.

Besides the benefit of avoiding hefty market drops, there is some evidence that lower-volatility stocks may have a slight return advantage. A study in the Journal of Portfolio Management found that from 1968 through 2005, among a universe of 1,000 stocks, the least volatile constituents had a 1% greater annualized return and 25% less volatility than that of the entire sample group. But if you don’t want to buy an ETF like the PowerShares fund mentioned above or any of the other dedicated low-volatility ETFs on the market, there are other options, including some funds you may already own.

Stability and yield
Vanguard Dividend Growth
(VDIGX) is a study in moderation and stability, making it an excellent choice for investors who want to dampen volatility as well as capture some extra yield. Manager Don Kilbride of Wellington Management looks for companies with long histories of generating ample cash flows that can fund rising dividend payouts. The resulting portfolio tends to focus on top-quality blue-chip names like Johnson & Johnson (NYSE:JNJ) and Microsoft Corporation (NASDAQ:MSFT), which earned a spot in the portfolio thanks to their strong balance sheets, reliable cash flows, and above-average returns on equity.

Because the average company in the portfolio tends to have a more stable financial profile, volatility is kept in check here. Over the past decade, Vanguard Dividend Growth has measured in with a standard deviation of 12.2, compared with 14.8 for the S&P 500 Index and 15.5 for the average large-cap blend fund. The lower a fund’s standard deviation, the less variation in returns (or lower volatility) it experiences. With a low 0.31% price point and a 10-year annualized return that puts it in the top 5% of its peer group, Vanguard Dividend Growth is a fine choice for investors who want high-quality stocks without a lot of volatility.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!