Worried About a Stock Market Crash? Buy This Low-Risk, High-Yield Index Fund.

The S&P 500 (^GSPC +0.08%) is currently down 5% from its high, but some Wall Street analysts think the index could fall much further in the coming months if the Iran conflict keeps oil prices elevated.

In March, Kriti Gupta and Joe Seydl at JPMorgan Chase warned the S&P 500 could drop as much as 15% if oil prices stay above $90 per barrel for an extended period, and Ben Snider at Goldman Sachs warned the index could fall more than 20% in a severe scenario.

For investors concerned about a market crash, the iShares 0-3 Month Treasury Bond ETF (SGOV +0.01%) is a smart fund to buy. Shareholders are exposed to very little risk and they are compensated with monthly income. Here are the important details.

The iShares 0-3 Month Treasury Bond ETF has historically been very stable

The iShares 0-3 Month Treasury Bond ETF holds debt securities that mature in no more than three months. Compared to funds that own bonds with longer maturities, such as 20-year Treasuries, this fund is far less sensitive to interest rates. That means it should neither appreciate nor depreciate significantly in the future.

Why is that? The iShares 0-3 Month Treasury Bond ETF benefits from rapid turnover. The T-bills in the portfolio mature quickly, at which point they are replaced by new T-bills. That means any changes in interest rates are promptly reflected in the fund’s portfolio, which keeps its price very stable. The iShares 0-3 Month Treasury Bond ETF has never fallen more than 0.7% since its inception in 2020.

The iShares 0-3 Month Treasury Bond ETF currently pays 3.55% annually

The iShares 0-3 Month Treasury Bond ETF pays a monthly dividend, which represents the interest earned on the T-bills. The SEC yield is currently 3.55%, meaning every $10,000 invested would generate $355 in passive income over the next year. But the yield would decrease if the Federal Reserve cut interest rates and it would increase if policymakers raised interest rates.

Here’s the big picture: The iShares 0-3 Month Treasury Bond ETF is a very safe investment for two reasons. First, it holds Treasury bills, which are considered safe-haven assets because the U.S. government has never defaulted on its debt. Second, those T-bills have very short maturities, which means the fund’s price should remain roughly constant whether the Federal Reserve is cutting or hiking interest rates.

The iShares 0-3 Month Treasury Bond ETF is a great option for risk-averse investors who simply want to earn passive income no matter what the stock market does next.