Looking for Safe Income Investments? These 2 ETFs Pay More Than Double the S&P 500 Average.

The stock market has been doing well this year. The S&P 500 (^GSPC +0.06%) is up 16.5% as of Tuesday. And that’s with the index generating returns in excess of 20% in each of the past two years. It’s performing far better than normal — its long-run average is an annual return of just 10%.

Its returns have been impressive in recent years, but it leads to the inevitable question of whether the market is overdue for a slowdown. Valuations are high, and there are growing concerns that the hype around artificial intelligence (AI) has created a bubble. That has some investors looking to de-risk their portfolios.

While there are no risk-free investments or ways to definitively avoid losses from a bear market, there are some ways you can reduce your risk and protect your portfolio. This includes investing in exchange-traded funds (ETFs) that can offer some safety through diversification and dividends. Here’s why both the Vanguard High Dividend Yield ETF (VYM +0.56%) and the WisdomTree U.S. High Dividend Fund (DHS +0.28%) can be ideal options for risk-averse investors today. Let’s take a closer look at these two ETFs.

1. Vanguard High Dividend Yield Index ETF

As its name suggests, this Vanguard High Dividend Yield Index fund offers investors a fairly high yield. At around 2.5%, it’s more than twice the rate of the S&P 500 average, which is approximately 1.1%. The fund is also heavily diversified, with 566 stocks in the portfolio as of the end of September.

This diversification can be crucial when relying on dividend income to ensure you aren’t too exposed to just a handful of stocks. This way, if one stock underperforms or ends up cutting its dividend, it may not necessarily have an adverse effect on your portfolio.

The Vanguard fund also has a low expense ratio of just 0.06%, ensuring that fees aren’t getting in the way of you generating strong gains in the long term. Plus, it can offer some valuable safety, as the fund doesn’t have significant exposure to tech — that potentially volatile sector accounts for 13% of its overall holdings. Financials and industrials are the two largest sectors, and they make up around 35% of the ETF’s total portfolio.

Over the past five years, the ETF has averaged a beta of 0.85, indicating it’s less volatile than the overall markets. While this doesn’t guarantee you won’t experience a decline, it’s a good indicator nonetheless that it may be a more suitable option for risk-averse investors. In the past five years, the fund’s share price return has risen by around 68%, and that rises to 96% when including dividend payments.

2. WisdomTree U.S. High Dividend Fund

You can collect an even higher yield with the WisdomTree U.S. High Dividend Fund. At 3.4%, this ETF’s yield pays you more than three times what you would get with the average S&P 500 stock. Its fees are a bit higher, with the expense ratio coming in at 0.38%, but the premium may be well worth it, given the potential to generate far more in dividend income.

There are 365 stocks in this portfolio, and it has much less exposure to the tech sector — just 3% of its holdings fall into that category. Healthcare, financials, and consumer staples each make up more than 19% of its portfolio, and together they account for nearly 60% of all the holdings.

Given its exposure to more stable sectors, it’s perhaps unsurprising that the fund has an even lower beta of 0.74. The trade-off, however, is that it can result in more modest overall returns. Over the past five years, the ETF’s stock price has risen by 56%, and its total returns (including dividends) are up around 89%.

Which ETF is the best option for you?

Ultimately, choosing between these two ETFs may come down to your overall risk tolerance. If you want to minimize your exposure to tech, the WisdomTree fund may be the better option. But if you’re OK with that and want to position yourself for potentially better returns, then the Vanguard fund may be suitable for your investment strategy.

Both funds, however, can make for good investment options if your goals are to generate recurring cash flow and to minimize your risk in the stock market.