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All Contents © 2019The Kiplinger Washington Editors
By Aaron Levitt
| July 24, 2017
We all know there are some pretty great exchange-traded funds out there. The ability to access unique or specialized asset classes or strategies with low costs and vast intraday tradability are some of the hallmarks of these great ETFs. But there are some ETFs that just scream “retirement!”
That’s because the indexes they track are must-haves for almost every investor in or near retirement.
Targeting income, hedging or other conservative tactics, these great ETFs are just what the doctor ordered to help investors in or near retirement build a better portfolio. But with the number of retirement-investor-focused ETFs surging over the last few years, how do you separate the wheat from the chaff?
Luckily, we here at InvestorPlace have done the work for you and found several great ETFs that should be in every retirement investor’s portfolio.
Without further ado, here are three funds made for retirement.
Prices and data are from the original InvestorPlace story published on July 20, 2017. Click on ticker-symbol links in each slide for current prices and more.
Expenses: 0.59%, or $59 per $10,000 invested annually.
Dividend Yield: 4.4%
If there is one thing that all retirement investors crave, it is income. There is a real need to turn savings into a steady stream of cash flows in order to fund a lifestyle. But with interest rates still low, finding all the right asset classes to provide a decent yield can be a daunting task. Fortunately, one of the best retirement ETFs happens to do it all for you.
The iShares Morningstar Multi-Asset Income ETF (IYLD) owns a variety of asset classes that historically have been a great place to find bigger yields. This includes emerging-market and high-yield bonds, REITs and dividend-paying stocks as well as other alternative income sources such as preferred stocks. The idea is to create an all-in-one stop for those investors seeking high income and potential for capital appreciation.
With a 30-day SEC yield of 4.44%, IYLD certainly delivers on the income front.
The real beauty for the ETF is that is considered a “fund of funds.” that means instead of reaching and buying individual stocks or bonds, it owns other ETFs to get its exposure to its various asset classes. For example, IYLD holds the iShares IBOXX High Yield Corp Bond (ETF) (HYG) for its junk bond exposure and the iShares Core High Dividend ETF (HDV) for U.S. dividend stocks. What this does is help reduce costs. IYLD only charges 0.59% or $59 per $10,000 invested to own.
That low all-in-one cost as well its ability to generate meaningful income makes IYLD a great ETF for retirement investors.
Dividend Yield: 2%
Today’s longer lifespans mean that most investors in retirement will still need a lot of growth to keep their portfolios going. And that means a fair amount of stock exposure. The conundrum here is that any bouts of big time volatility can wreck that exposure. That can be a dire proposition for someone in retirement and withdrawing funds for living expenses.
That’s why the PowerShares S&P 500 Low Volatility Portfolio (SPLV) is among the great ETFs for retired folks.
SPLV combs the S&P 500 for those 100 stocks from the index that exhibit the lowest realized volatility over the past 12 months. Volatility is a measurement of the magnitude of price fluctuations over time. Basically, you’re looking at how far a stock will move in either direction. By betting on the least-volatile stocks, investors are able to capture plenty of upside while limiting the drawdowns. SPLV smooths out the ride for retirees.
With a four-star rating, low 0.25% expense ratio and 2% dividend yield, SPLV is one of the best retirement ETFs.
Dividend Yield: 1.8%
As the old adage goes, “Nothing is certain except death and taxes.” For retirees, managing taxes is very critical. One of the best ways to minimize Uncle Sam's take is still through municipal bonds. Munis are issued by local and state governments and agencies in order to help fund their daily activities or a special project. They’re great investments for higher earners because they offer investors tax-free income at the federal and sometimes state level. In fact, in some cases, a boring muni bond can be worth more than other exotic and higher-yield bonds when taxes are taken into effect.
And when it comes to great ETFs in the muni bond sector, the Vanguard Tax-Exempt Bond ETF (VTEB) takes the cake.
VTEB tracks the S&P National AMT-Free Municipal Bond Index. This benchmark follows the broad spectrum of investment-grade municipal bonds and excludes those issued by U.S. territories. So, no troublesome Puerto Rico debt in VTEB. Currently, the fund holds more than 3,200 different muni bonds. That’s plenty of diversification.
The real benefit for VTEB is cost. As a Vanguard ETF, VTEB only charges a measly $9 per year to own it. That low expense ratio boosts gains and the fund’s yield. When it comes to munis, every penny counts. VTEB currently pays out 1.8%, or about 3% for someone is the highest tax bracket.
This article is from Aaron Levitt of InvestorPlace. As of this writing, he held none of the aforementioned securities.
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