Patience Pays Off: How to Play ETFs With Long-Term Goals

The tariffs imposed by the Trump administration have been anything but consistent, marked by a confusing mix of introductions and delays. The S&P 500 has been navigating choppier waters in 2025, and legal challenges to the tariffs will only add uncertainty in the markets. However, the legal roadblock to the tariffs was welcomed by the markets.

Still, the recent postponement of tariffs on the EU only underscores the chaotic rollout of the overall tariff policy. Additionally, per the minutes from the Fed’s meeting in early May, inflation can be seen as a long-term buffer to the economy’s growth prospects.

In such an environment, adopting a long-term investment strategy becomes the go-to approach for investors to weather short-term market storms. The optimism may prove to be short-lived once the reality of ongoing economic headwinds begins to surface.

Lingering Trade Tensions

The legal obstacle to President Trump’s reciprocal tariffs sparked concerns over prolonged policy uncertainty. Per Reuters, according to David Chao, Invesco’s global market strategist for Asia Pacific, the prolonged uncertainty following the recent court ruling regarding the tariffs is expected to take a long-term economic toll on businesses.

As per Kei Okamura, a portfolio manager for Neuberger Berman in Tokyo, as quoted on Reuters, the ongoing trade uncertainty impairs investment and hampers economic growth, leading businesses and policymakers to postpone critical decisions.

Fed Signals Prolonged Inflation Watch

According to the minutes from the Fed’s meeting in early May, as quoted on MarketWatch, Fed officials were concerned that inflation could be a long-term challenge for the economy driven by the White House’s trade policies.

Expectations of persistent inflation levels and growing forecasts of a U.S. economic slowdown have led the Fed to take a cautious stand on interest rates, which may keep interest rates elevated for a longer period.

Additionally, Fed staff revised their inflation forecast upward and projected a significant weakening of the labor market, with the unemployment rate expected to rise sharply by the year-end and remain elevated through 2027.

According to Fed staff, as quoted on the New York Times, a recession was nearly as likely as their outlook for subdued economic growth and higher unemployment. Fed officials also increased their inflation forecast from the March forecast.

Debt Crisis Looming Large for the Economy

Uncertainty and volatility surrounding the U.S. economy continue to grow, fueled by mounting concerns over U.S. debt levels. Citing concerns over the country’s soaring $36 trillion debt burden, the recent downgrade of the U.S. sovereign credit rating by Moody’s, has heightened investor nervousness over the economy’s long-term fiscal sustainability.

Investors’ anxiety regarding the ability of the United States to repay its debt has been increasing, as highlighted by rising spreads on U.S. 1-year credit default swaps. According to LSEG data, as quoted on CNBC, the spreads on the credit default swaps increased to 52 bps on Wednesday from 16 bps.

ETFs to Consider

While market volatility remains high in the short term, expectations for greater policy clarity and a more stable market environment over the long term make long-term investing an attractive option. Investors can turn to strategies like buy-and-hold and dollar-cost averaging.

Below, we have highlighted a few ETF areas to which investors may consider expanding their exposure for the long term.

Investing in these sectors not only shields investor portfolios from downside risks and safeguards investments during market distress but also offers gains when the broader market trends upward. These sectors provide dual benefits, protecting portfolios during market downturns and offering gains when the market trends upward.

Value ETFs

Value stocks have a track of long-term outperformance and resilience against market trends. They offer the potential for higher returns and lower volatility compared with growth and blend stocks. Value stocks, often dividend-paying, typically outperform growth stocks in high-rate environments.

Vanguard Value ETF VTV, iShares Russell 1000 Value ETF IWD and iShares S&P 500 Value ETF IVE, having a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), could be appealing options.

Quality ETFs

Amid market uncertainty, quality investing emerges as a strategic response, providing a potential buffer against the potential headwinds. This approach prioritizes identifying firms with robust fundamentals, consistent earnings and lasting competitive strengths. Investing in such high-quality companies can mitigate volatility for investors.

Investors can look at funds like iShares MSCI USA Quality Factor ETF QUAL, Invesco S&P 500 Quality ETF SPHQ and JPMorgan U.S. Quality Factor ETF JQUA. Charging an annual fee of 0.12%, JQUA remains the cheapest option out of the three funds.

S&P 500 ETFs

Investors can also consider increasing their exposure to funds tracking major indexes like the S&P 500, providing them with the growth potential of the market, as well as diversifying their portfolio.

Some good investment options are Vanguard S&P 500 ETF VOO, SPDR S&P 500 ETF Trust SPY and iShares Core S&P 500 ETF IVV, which track the S&P 500. Both VOO and IVV are cheapest, charging 0.03%, and sporting a Zacks ETF Rank #1 (Strong Buy).

The three funds are among the largest in the United States, with VOO having the largest asset base of $657.82 billion, followed by SPY and IVV, with an asset base of $607.87 billion and $583.68 billion, respectively.

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This article originally published on Zacks Investment Research (zacks.com).

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