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 9 Most Dangerous Countries for Tourists to Visit

Reign of Terror: The 10 Most Ruthless Politicians in History

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

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!