Americans who are retired or nearing retirement and evaluating their investment portfolios can turn to exchange-traded funds (ETFs) which can provide built-in diversification for core securities or exposure to specific sectors.
ETFs are securities that typically track indexes and allow investors to gain exposure to a certain number of companies included in the index. For example, an ETF that tracks the S&P 500 allows an investor to purchase a single share of the ETF that holds shares in all 500 companies in the index, making it easier to gain exposure to a broad range of companies.
Other types of ETFs may focus on providing investors with returns from dividends or bonds, company classifications such as growth or value companies, and specific sectors of the economy. Some ETFs may be actively managed to maximize returns, which typically involves higher expense ratios, while many ETFs are passively managed, which may involve lower expenses.
Retirees consider investing ETF investors will want to consider their risk tolerance, as well as a given ETF’s diversification, expense ratios, trading volumes and liquidity, as well as other factors such as tax efficiency when weighing an investment.
WHAT ARE ACTIVE ETFS AND HOW ARE THEY REFORMING HOW AMERICANS INVEST?
Investors should consider their retirement needs and risk tolerance when evaluating ETF investment options. (Michael M. Santiago/Getty Images)
“In retirement, simplicity and discipline often matter more than complexity and ETFs can help deliver both when used thoughtfully,” Carole Okigbo, global head of ETF capital markets and broker-dealer and index relations at Vanguard, told FOX Business.
“Retirees should start with their goals, including the amount of income they need, their time horizon and their comfort level with market fluctuations. ETFs can be very effective building blocks, but it is important to focus on total return, not just yield, and ensure that each investment plays a clear role in supporting long-term retirement income needs,” Okigbo added.
US ETF ASSETS UNDER MANAGEMENT COULD MORE THAN DOUBLE TO $25 TRILLION BY 2030, SAYS CITIGROUP
Inga Rachwald, senior investment strategist at Schwab Asset Management, told FOX Business that “the selection of Highly Liquid ETFs would be of great importance to a retiree so that they can easily access their money when needed.
“Many ETFs track broad asset classes or indices so you get the advantage of diversification. Potential tax efficiency is another likely important consideration for retirees,” Rachwald added.
ETFs can track broad indices or focus on specific sectors or asset classes. (Reuters/Jeenah Moon)
IS IT SMARTER TO BUY A SINGLE INDEX ETF THAN SELECTING INDIVIDUAL STOCKS?
Examples of ETFsSchwab’s Rachwald cited several examples of ETFs his firm offers, such as SCHD provides dividend income and focuses on companies growing their dividends.
“SCHZ could serve as the core of a fixed income portfolio, providing high-quality income with intermediate-duration exposure. SCCR is an alternative to SCHZ if investors want to take an active strategy in the high-quality, intermediate-duration core bond space,” Rachwald said.
“SCHI would similarly provide some additional yield from investment-grade companies that have strengthened their balance sheets throughout the economic cycle,” she added.
Vanguard’s Okigbo also noted that his company’s ETF offerings include broad market ETFs as well as Bond ETFs which can serve as essential elements of a retirement portfolio.
“Many retirees benefit from starting with inexpensive, broadly diversified ETFs like Vanguard Total Stock Market (VTI) and Vanguard Core Bond (VCRB) and building from there,” Okigbo said.
Teleprinter Security Last Change Change % VTI VANGUARD TOTAL STOCK MARKET ETF – USD DIS 371.66 +2.30 +0.62% VCRB VANGUARD MALVERN FUNDS CORE BD ETF USD 77.24 +0.16 +0.20% SCHD SCHWAB STRATEGIC TR US DIVIDEND EQUITY ETF 32.63 +0.08 +0.25% SCHS SCHWAB STRATEGIC TR US AGGREGATE BD ETF 11:15 p.m. +0.04 +0.17% SCCR SCHWAB STRATEGIC TR CORE BOND ETF 25.62 +0.04 +0.18% SKI SCHWAB STRATEGIC TR 5-10 YEARS CORPORATE BOND AND 22.68 +0.05 +0.22% GET FOX BUSINESS ON THE GO BY CLICKING HERE