Like all investing strategies, high-yield ETFs are a bit of a balancing act.
On one hand, stocks that deliver tremendous yield can be enticing because of “guaranteed” paydays that are two times, three times or even five times the S&P 500. This is especially true in an environment of extreme market volatility like we’ve witnessed in 2022.
But the truth is there are no guarantees on Wall Street. And amid the rising-rate environment that we entered earlier this year, investors that once saw no alternative to stocks amid a lengthy stretch of low interest rates have been rotating back into the bond market. And why not, considering the S&P 500 yields just under 1.7% at present – and has seen its share price drop significantly over the last 12 months to boot.
However, it’s important to remember that in the long term, the stock market always trends higher. For investors thinking about years and decades instead of just the next few months, high-yield ETFs still have a lot to offer because they give potential upside as well as a modest stream of income.
There’s more risk than U.S. government bonds, to be sure, but there is also much bigger potential for reward. Nonetheless, it’s always important to “pop the hood” and see how these funds fit in with your overall portfolio and your personal risk tolerance.
The following list of nine high-yield ETFs should provide you with a few examples of the alternatives that are out there, and how each strategy balances its risks with potential rewards. With the average yield of the S&P 500 Index at just under 1.7% at present, every one of these funds is well ahead of the game, with yields of at least double that (but many that are much higher).
Data is as of Nov. 29. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.