If a Bear Market Is Coming in 2026, History Says This 1 Investment Is the Safest Place to Park Your Money

We've been lucky over the past 17 years.

Since the subprime mortgage crisis bottomed out the stock market in March 2009, the U.S. stock market has experienced an unprecedented bull market streak, with only a handful of mostly brief bear market sessions.

Next time, though, we might not be so lucky. It took the S&P 500 (SNPINDEX: ^GSPC) much longer to recover from the Great Recession and the dot-com bubble than from the COVID-19 crash or the 2022 bear market. The next bear market could be a rough one.

If a bear market does materialize in 2026, history says this one investment is the safest place to park your money. However, it comes with a big asterisk that investors should know about.

Image source: Getty Images.

A safer ride in troubled markets

When the entire market is in free fall, even the safest investments will probably decline in value. But one investment has historically outperformed during the worst bear markets: the Vanguard High Dividend Yield Index Fund ETF (NYSEMKT: VYM).

Dividend-paying companies tend to be larger and more stable than average, and they usually keep paying their dividends during bear markets. So their stocks tend to fare better than those of smaller growth companies. The Vanguard High Dividend Yield Index Fund also offers built-in diversification to protect your investment even if one or more of its component companies don't fare so well.

At the beginning of the Great Recession, for example, between Jan. 1, 2008, and Jan. 1, 2009, the Vanguard High Dividend Yield Index Fund ETF dropped 31.9%, compared with the S&P 500's 37% drop. By the end of the Great Recession on June 1, 2009, it was still 0.5 percentage points ahead of the S&P 500.

During the 2022 bear market, the difference was even starker. The Vanguard High Dividend Yield Index Fund ETF finished 2022 down just 0.5%, handily beating the S&P 500's drop of 18.1%.

The flip side

Although the Vanguard High Dividend Yield Index Fund ETF tends to outperform during recessions and bear markets, the reverse is unfortunately also true. It tends to underperform during bull markets. For example, if we look at overall performance over the last five years, starting before the 2022 recession began, the ETF's performance is less than 2 percentage points behind the S&P 500's.

But if we look only at performance from January 2023, the Vanguard High Dividend Yield Index Fund ETF is up only 65.5%, compared to the S&P 500's 102.8% gain. Similar performance gaps appear over most long-term stretches. Because the U.S. stock market is more often in a bull market than a bear market, for a long-term investor, a fund that outperforms during bull markets -- like the Vanguard 500 Index Fund ETF (NYSEMKT: VOO) -- will generally give you a better long-term return.

If what you're looking for is safety during a bear market, history shows that the Vanguard High Dividend Yield Index Fund ETF is a top choice.

John Bromels has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard High Dividend Yield ETF and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.