Consumer staples/Consumer defensive stocks are a sector that is exactly what the name suggests. They are products and services that no matter the situation consumers are unable or unwilling to go without. Examples include, Walmart, Costco, Coca-Cola, Colgate-Palmolive, etc. These big name household staples are unlikely to give you the astronomic growth of the newest tech startup or revolutionize their industry but they do have some very appealing attributes that may make investors want to include them in their portfolio.
1) They Don't go Backwards: Too often investors are focused on the upside and not enough on the downside. Just like that new technology company experienced huge growth by replacing the technology before it so to will it eventually be replaced. Consumer staples do not suffer from this need to constantly innovate, they exist to provide goods and services that are generally essential for our continued existence and so consumers are are unable to easily replace them with a new product. Of course no business is immune to failure but generally the companies that exist in the consumer staples sector will retain their value over time.
2) Safety During Economic Downturns: During periods of economic hardship consumers may decide to completely abandon purchasing anything except the essentials needed for everyday existence. This will inevitably result in decreased profits for most businesses in the economy but not so much the consumer staples. While they may also experience decreased profits, the decrease in revenue is capped for consumer staples by the fact that people still have to eat, brush their teeth, and clothe themselves, this results in businesses in the consumer staples sector generally outperforming during economic downturns.
3) Inflation Resistant: Businesses in the consumer staples sector are able to effectively price higher inflation into their products and services. When high inflation puts excessive upwards pressure on prices consumers will start to taper their purchases of luxury and non-essential items, this generally means these businesses have to reduce prices to maintain sales or accept a decrease in revenue. Businesses who offer staple goods and services are not as prone to suffering from this phenomenon and can more easily price inflation into their products. This makes consumer staples an excellent hedge against inflation.
The easiest way for new or "lazy" investors to gain exposure to the consumer staples sector is to use an ETF. I recommend using the Vanguard Consumer Staples ETF (VDC). This ETF has 97 holdings diversified across the consumer staples sector, its top 10 holdings are:
1 Procter & Gamble Co.
2 Walmart Inc.
3 Coca-Cola Co.
4 PepsiCo Inc.
5 Costco Wholesale Corp.
6 Philip Morris International Inc.
7 Mondelez International Inc.
8 Altria Group Inc.
9 Estee Lauder Cos. Inc.
10 Colgate-Palmolive Co.
With the multiple headwinds currently facing the markets including, out of control inflation, China's property market collapsing, irresponsibly loose monetary policy, and record high valuations across every asset class, now is a good time to make sure you have exposure to an ETF like VDC that can help you weather an impending financial disturbance.
*Not a recommendation to buy or sell*
1) They Don't go Backwards: Too often investors are focused on the upside and not enough on the downside. Just like that new technology company experienced huge growth by replacing the technology before it so to will it eventually be replaced. Consumer staples do not suffer from this need to constantly innovate, they exist to provide goods and services that are generally essential for our continued existence and so consumers are are unable to easily replace them with a new product. Of course no business is immune to failure but generally the companies that exist in the consumer staples sector will retain their value over time.
2) Safety During Economic Downturns: During periods of economic hardship consumers may decide to completely abandon purchasing anything except the essentials needed for everyday existence. This will inevitably result in decreased profits for most businesses in the economy but not so much the consumer staples. While they may also experience decreased profits, the decrease in revenue is capped for consumer staples by the fact that people still have to eat, brush their teeth, and clothe themselves, this results in businesses in the consumer staples sector generally outperforming during economic downturns.
3) Inflation Resistant: Businesses in the consumer staples sector are able to effectively price higher inflation into their products and services. When high inflation puts excessive upwards pressure on prices consumers will start to taper their purchases of luxury and non-essential items, this generally means these businesses have to reduce prices to maintain sales or accept a decrease in revenue. Businesses who offer staple goods and services are not as prone to suffering from this phenomenon and can more easily price inflation into their products. This makes consumer staples an excellent hedge against inflation.
The easiest way for new or "lazy" investors to gain exposure to the consumer staples sector is to use an ETF. I recommend using the Vanguard Consumer Staples ETF (VDC). This ETF has 97 holdings diversified across the consumer staples sector, its top 10 holdings are:
1 Procter & Gamble Co.
2 Walmart Inc.
3 Coca-Cola Co.
4 PepsiCo Inc.
5 Costco Wholesale Corp.
6 Philip Morris International Inc.
7 Mondelez International Inc.
8 Altria Group Inc.
9 Estee Lauder Cos. Inc.
10 Colgate-Palmolive Co.
With the multiple headwinds currently facing the markets including, out of control inflation, China's property market collapsing, irresponsibly loose monetary policy, and record high valuations across every asset class, now is a good time to make sure you have exposure to an ETF like VDC that can help you weather an impending financial disturbance.
*Not a recommendation to buy or sell*