5 ETFs that are all you need for retirement | Smart Change: Personal Finances


(Ryan Downie)

If you’re not buying ETFs in your retirement account, you should probably consider it. There are hundreds of popular and reputable ETFs designed to deliver different types of performance. Whether you’re trying to maximize growth in your Roth IRA or trying to limit the volatility of your 401(k), there are ETFs that can provide everything you need to meet your retirement goals.

1. SPDR S&P 500 ETF Trust

The SPDR S&P 500 ETF Trust (NYSEMKT: SPY) is the ultimate index fund in the ETF world. It is one of the oldest, largest and most popular financial products of its kind. The fund doesn’t do anything too crazy — it only holds stocks intended to replicate the performance of the S&P500. This makes this ETF a useful cornerstone for almost any strategy when combined with other more specific investments.

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This passive strategy allows for an extremely slim expense ratio of 0.09%, which means investors’ returns are not eroded year after year. The popularity of the fund leads to a high trading volume, which makes it highly liquid with low trading costs. These are all great features that make it a great part of any retirement ETF strategy.

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2. Vanguard Growth ETF

The Vanguard Growth ETF (NYSEMKT: VUG) is a simple investment vehicle for investors seeking growth above a typical stock market index. The Vanguard Growth fund is passively managed and aims to provide higher upside exposure without excessive risk. His selection criteria include multiple screens for earnings and sales expansion over multiple time periods, so he holds stocks that are steadily growing. It currently has about 250 farms.

Unlike ETFs that track the S&P 500, the Vanguard Growth ETF also holds mid-cap stocks. This helps investors mix up some performance and potentially outpace the market. The ETF’s 0.04% expense ratio is the lowest possible, which is great for net returns. Young investors accumulating assets for retirement in a few decades should consider a high-growth portfolio in their IRA or 401(k).

3. iShares Russell 2000 ETF

The IRussell 2000 Shares ETF (NYSEMKT: IWM) is one of the most effective investments for diversified exposure to small cap stocks. Small caps tend to be more volatile than their larger counterparts, but they can also offer more potential. Many of tomorrow’s dominant industry leaders are currently in their formative stages, and investors who embark today will experience explosive returns. Small caps are also popular among factor investors and the smart beta crowd, with research indicating that smaller companies tend to outperform larger ones over the long term.

iShares Russell 2000 The ETF has a relatively high expense ratio among index funds at 0.19%, so you have to pay a premium for it. This is still well below the usual fees for actively managed funds and niche funds.

4. Schwab US Dividend Equity ETF

The Schwab US Dividend Equity ETF (NYSEMKT: SCHD) is one of the best options available to investors who want dividend income from their portfolio. The fund holds 100 stocks, all of which have at least a 10-year history of distributing money to shareholders. The fund’s selection criteria target financial health, operational efficiency, dividend growth and yield. The resulting portfolio is made up of companies with sustainable and reliable dividends.

It currently has a payout yield of 3.42%, well above the market average. This also comes with an extremely low expense ratio of 0.06% and great liquidity. Dividends are especially important to retired (or nearing retirement) investors, so the Schwab Dividend Equity ETF could be a great option for older households looking to sell off some of their growth assets.

5. iShares MSCI International Quality Factor ETFs

The ETF iShares MSCI International Quality Factor (NYSEMKT: IQLT) is another option for investors who value stability. This fund selects its potential holdings based on return on equity, leverage ratio and earnings variability. He then weighs the portfolio by quality score rather than market capitalization, so his top holdings are the stocks that fit best. The ETF is made up of profitable and consistent stocks. It’s not usually the recipe for the highest growth or dividends, but it can be extremely attractive to retirees and other risk-averse investors.

Although the fund does not specifically target dividend-paying stocks, its selection methodology tends to favor companies that pay dividends. Its distribution yield of 3.57% is high. It is also a global fund, so it offers excellent exposure to economies outside of the United States. Investors probably aren’t thrilled with the 0.3% expense ratio, but it’s still manageable.

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ryan downie holds positions in iShares Edge MSCI Intl Quality Factor ETF. The Motley Fool has positions in and recommends Vanguard Growth ETF. The Motley Fool has a disclosure policy.


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