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ETF Talk: Seeking Safety in America

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12/14/2011

With the markets more interconnected than ever before, it is understandable if you feel threatened by the negative headlines coming out of Europe. While the U.S. market is hurt by what is happening in Europe, there still are sound reasons to like the U.S. market’s prospects. Despite volatility, the U.S. market offers more stability than the markets in Europe and many other places. One way to invest in U.S. stocks with a single purchase is through the SPDR Dow Jones Total Market ETF (TMW).
 
The SPDR Dow Jones Total Market ETF, before expenses, seeks to match the returns and characteristics of the Dow Jones U.S. Total Stock Market Index. This exchange-traded fund’s (ETF) approach is designed to provide low portfolio turnover, accurate tracking and low costs.
 
A key incentive to buy TMW is to collect income from its quarterly dividend payments. For example, TMW paid a $.42 dividend in September and it currently provides a 2.08% dividend yield. The fund’s top 10 holdings are well-established American companies that many investors know and love, including Exxon Mobil, Apple, IBM, Chevron, Microsoft, Procter & Gamble, GE, AT&T, Johnson & Johnson and Pfizer.
 
 
 
From my perspective, the prospects for a U.S. market turnaround in the coming months are good. With Europe dealing with declining Gross Domestic Product (GDP) for the foreseeable future, along with economy-crippling debt issues, the United States is poised to lead a recovery in the developed economies. For that reason, sticking with proven, blue-chip stocks through a fund that provides a solid, quarterly dividend should help you to weather any storms overseas.
 
Without question, any exposure to European stocks at this point in time is a big risk. You may prefer to invest more cautiously by purchasing TMW to ride a market turnaround in America. If the volatility of recent months persists for awhile, you still collect a quarterly dividend. When a recovery occurs, you are positioned for capital appreciation gains to supplement your dividend income from the fund.
 
One note of caution is that the troubles in Europe could affect U.S. corporate earnings. This situation is a risk that you will want to keep in mind when making your investment decision. However, TMW’s focus on major U.S. companies that operate globally reduces this fund’s risk, compared to many other investments.
 
If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my ETF Trader service. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.
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