Worried About the Markets? Buy This ETF for Safety

The markets continue to be hot despite a slight scare last week when the S&P 500 had its worst day in months. But if you're concerned about a market crash being around the corner, there are ways to protect your portfolio, and to at least minimize your potential losses. One good idea is to avoid a high-priced tech sector where many stocks are trading at inflated valuations.

Another good option is to hold shares of an exchange-traded fund (ETF) that gives you exposure to defensive stocks, which can offer lots of safety. That's precisely what you'll get with the Consumer Staples Select Sector SPDR Fund (NYSE Arca: XLP). Almost all of its holdings are in the consumer defensive category. Procter & Gamble (NYSE:PG) accounts for over 15% of the fund's weight.

The next three largest stocks, all at more than 9%, are Coca-Cola (NYSE:KO), PepsiCo (NASDAQ:PEP), and Walmart (NYSE:WMT). No other stock accounts for more than 5%. While those percentages might seem high for an ETF, those businesses are generally some of the safest and most recession-proof investments you can hold.

Many of those stable stocks also pay dividends and the ETF yields around 2.5%. It charges just a minor expense ratio of 0.12%, ensuring that you'll keep nearly all of your returns from the investment.

Year to date, the ETF is up just 5% while the S&P 500 has risen by more than 18%. However, in a bear market, the fund's losses may be smaller. This can be a good way to diversify your portfolio and minimize your overall risk.