Burned By Tech Stocks? Try These 3 ETFs Instead

They may be the most profitable long-term names in the market. But let's face it, tech stocks are also volatile and can put you out of business at the worst possible time. Looking ahead , the S&P 500 IT Index is currently 27% below its 2021 high, underperforming the S&P 500 this year. That decline followed a 140% rise from the technology index's low in early 2020, but that low was the result of a 28% drop linked to the start of the COVID-19 pandemic. If you didn't have nerves of steel, chances are you didn't make it to the bottom. It is also possible that you did not save at the peak of the industry at the end of last year.

And this is only the effect of the technological indicator. Some tech stocks swung even more, unnerving investors looking to realize their upside potential while avoiding the downside. If you're done jumping in, there are plenty of alternatives to smart exchange-traded funds (ETFs) that offer many advantages but far fewer disadvantages. Here's a closer look at the top three options.

Invesco S&P 500 Low Volatility ETF

This seems too obvious to suggest to investors who specifically want to avoid the volatility that comes with tech stocks. But there's no denying that the Invesco S&P 500 Low Volatility ETF (NYSEMKT: SPLV ) fits the bill .

As the name suggests, this fund is designed for less chaotic movements than the overall market and certainly less chaotic than most technology stocks. It contains the 100 least volatile S&P 500 indices over the past 12 months and is rebalanced every three months. Its current major businesses include Johnson & Johnson , DTE Energy and PepsiCo . None of these companies are subject to surprises. To that end, the fund reflects only about 70% of the average daily movement of the S&P 500, up or down.

Exchange is performance. With a large portfolio of utilities, healthcare and consumer staples stocks, the Invesco S&P 500 Low Volatility ETF simply doesn't offer the same returns as technology stocks or the market as a whole. The fund has consistently outperformed the S&P 500 over the past 10 years, with an average annual return of 11.3%, compared to the overall market's typical annual return of 13%.

However, another trade-off may be worth it - you'll get a good night's sleep.

SPDR S&P 500 ETF Trust

If owning the low-volatility Invesco S&P 500 ETF is a smart but obvious alternative to tech stocks, then getting into the SPDR S&P 500 ETF Trust (NYSEMKT: SPY ) is a cliché for the same reason. However, this is a fund that more investors should own.

It's hard to beat the market. In fact, it's so difficult that most professional stock pickers can't do it. The latest analysis of the problem by S&P Global found that more than half of large-cap funds offered to US investors underperformed the S&P 500 last year, by more than 84% over the past five years. Over the past decade, 90% of large-cap funds available to US investors have underperformed the S&P 500.

Think about that for a moment. Highly skilled and well-paid fund managers who had access to more tools and data than the average investor were still unable to do what most of them were paid to do.

This should not prevent you from owning individual titles. As a small investor, you really have an advantage. You don't have to worry about the stock price moving inconsistently when you buy and sell. This is done by fund managers. Plus, you don't have a boss waiting for you, perhaps even looking for an immediate increase in profits. This pressure can eventually lead to hasty decisions.

However, if your ultimate goal is to get good long-term returns to match the market's long-term performance, investing a significant portion of your portfolio in a market fund is the best option.

Invesco S&P 500 Equal Weight Technology ETF

In general, don't conclude that you should avoid tech stocks entirely. After all, they still boast the best long-term returns on the market. The trick is how you invest in this industry.

If you are "burnt" in the technical name (or not only the technical name), remember how it all happened. Are you really an investor? Or were you actually more of a marketer, only finding out after the fact that the prevailing rhetoric about the company at the time was wrong? Names like Netflix , Walt Disney and Shopify come to mind. Just when it seemed just a few months ago that the background of these companies was about to take over, the proverbial rug was pulled out from under them. However, in retrospect, most of the people burning with these names at the time were more concerned about the stock price and its behavior than the company's long-term prospects. If they had done the latter, these buyers could have avoided heartache and headache.

However, what if you could take the timing aspect of tech stock trading out of the equation? That's exactly what the Invesco S&P 500 Equal Weight Technology ETF (NYSEMKT: RYT) does .

Simply put, this fund tracks the equally weighted S&P 500 Information Technology Index . The bottom line is that, unlike most market cap-weighted indexes, which are heavily influenced by mega-companies like Apple and Microsoft , this fund has equal stakes in the 76 technology stocks it owns. The end result is less volatility.

However, the real benefit for investors is that owning an ETF like the Invesco S&P 500 Equal Weight Technology ETF avoids short-term trades in technology stocks, which often do more harm than good. However, it still provides access to one of the most reliable sectors in the market.

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James Brumley has no positions in any of the titles mentioned. The Motley Fool holds positions in and advises Apple, Microsoft, Netflix, S&P Global, Shopify and Walt Disney. The Motley Fool recommends Johnson & Johnson and recommends the following: Long $1,140 calls on Shopify Jan 2023 Long $145 calls on Walt Disney Mar 2023 Long $120 calls on Apple Short calls from $1,160 Jan 2023 Short calls Shopify Jan 2023 short calls on Shopify Jan 5, 2024 short calls $15 Disney Apple calls March 2023 The Motley Fool has a disclosure policy.

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