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7 Best Retirement Funds to Hold Forever

Investors looking for "forever" retirement funds can consider these ETFs and index funds.

By Todd Shriber, InvestorPlace Contributor

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retirement investing

Source: 401(k) 2012 via Flickr

Investing for retirement usually means investing for the long term. While long-term investing should include individual stocks, low-cost exchange-traded funds (ETFs) and index funds should also be part of the equation.

ETFs and index funds can play pivotal roles in retirement planning because these assets can help investors reduce the burden of picking individual stocks, increase portfolio diversification and boost current income and yield, among other positive attributes.

While different investors have different objectives when it comes to retirement and it goes without saying that not all retirement portfolios will look alike, there are some universally sound choices from the world of funds that investors at varying stages of retirement planning should consider.

Here are seven ETFs and index funds that investors can buy-and-hold in self-directed retirement accounts, including individual retirement accounts (IRAs).

Retirement Stocks to Hold: Schwab U.S. Large-Cap Value ETF (SCHV)

Retirement Stocks to Hold: Schwab U.S. Large-Cap Value ETF (SCHV)Expense ratio: 0.04% per year, or $4 on a $10,000 investment.

The Schwab U.S. Large-Cap Value ETF (NYSEARCA:SCHV) merits a place on lists highlighting retirement funds for multiple reasons. First, with its scant annual fee of just 0.04%, SCHV and its index fund equivalent are the least expensive value funds on the market. Additional cost savings can be realized by Schwab clients as they can trade SCHV commission-free.

Second, over the long-term — and that is what we’re talking about when it comes to retirement planning — the value factor is one of the best-performing investment factors. Additionally, value stocks are, on a historical basis, significantly less volatile than their growth and momentum counterparts.

SCHV holds nearly 360 stocks and tracks the Dow Jones U.S. Large-Cap Value Total Stock Market Index. This retirement fund allocates about 20% of its weight to financial services stocks and nearly 29% of its combined weight to technology and consumer staples stocks.

Retirement Stocks to Hold: Vanguard High Dividend Yield ETF (VYM)

Expense ratio: 0.08%

The Vanguard High Dividend Yield ETF (NYSEARCA:VYM) is one of the most venerable names among U.S. dividend ETFs and seems to always have a way of appearing on lists highlighting basic income strategies. However, VYM also merits serious consideration by buy-and-hold retirement planners.

With an annual fee of just 0.08%, VYM is cheaper than 92% of competing strategies. While this retirement fund is positioned as a high-yield play, it has serious dividend growth credentials. Eight of VYM’s top 10 holdings have dividend increases of close to a decade or longer. Plus, VYM devotes nearly 30% of its combined weight to the technology and financial services, two bastions of S&P 500 dividend growth in recent years.

VYM holds around 400 stocks and yields nearly 3% on a trailing 12-month basis.

Retirement Stocks to Hold: Power Shares S&P 500 High Dividend Low Volatility Portfolio (SPHD)

Annual Fee: 0.3%

The Power Shares S&P 500 High Dividend Low Volatility Portfolio (NYSEARCA:SPHD) tap high-yield dividend and low-volatility stocks, two traits that typically serve long-term investors well. In fact, in addition to the value factor, the low-volatility factor is one of the best-performing investment factors over long holding periods.

SPHD holds the 50 S&P 500 members with highest dividend yields and lowest volatility. Not surprisingly, that combination leads to a large combined weight (43%) to real estate and utilities stocks, but there are some sector surprises, including an 11% weight to technology stocks.

SPHD carries a five-star Morningstar ratings and a distribution rate of 3.7%. Another SPHD perk: this retirement ETF pays its dividend monthly, creating a steadier income stream than retirement investors get with quarterly payouts.

Retirement Stocks to Hold: LifePath Index Retirement Fund (LIRAX)

Source: Shutterstock

Expense ratio: 0.41%

The LifePath Index Retirement Fund (MUTF:LIRAX) is a multi-asset index fund issued by BlackRock that is classified as a target-date retirement fund. Target-date funds have expiration dates at which they are liquidated with proceeds returned to investors.

LIRAX is an idea for conservative or older retirement investors because its asset mix skews toward fixed income, with a more than 58% weight to bonds. Nearly 73% of LIRAX’s holdings are in just two securities: a BlackRock aggregate bond index fund and a BlackRock Russell 1000 index fund.

Over the past one, three and five years, LIRAX has bested the average returns of funds in its Morningstar peer group.

Retirement Stocks to Hold: Vanguard Target Retirement Income Fund (VTINX)

Expense ratio: 0.13%

The Vanguard Target Retirement Income Fund (MUTF:VTINX) requires a minimum investment of $1,000. This retirement fund is ideal for extremely conservative investors because it uses five other Vanguard index funds to deliver an asset mix of 70% fixed income and 30% stocks.

Aside from a 16% weight to an international bond, VTINX’s fixed income exposure is mostly conservative, tilting toward U.S. government and mortgage-backed securities (MBS).

VTINX is also a decent idea for cost-conscious retirement planners because its annual fee makes it less expensive than 68% of rival strategies.

Retirement Stocks to Hold: iShares Edge MSCI Min Vol EAFE ETF (EFAV)

Expense ratio: 0.2%

Investing for retirement does not have to mean excluding international stocks. Of course, international stocks are usually more volatile than domestic equities, but the iShares Edge MSCI Min Vol EAFE ETF (BATS:EFAV) helps retirement investors stay involved with ex-U.S. stocks.

The $8.8 billion EFAV tracks the MSCI EAFE Minimum Volatility (USD) Index, the low-volatility equivalent of the widely followed MSCI EAFE Index. Due to its low volatility emphasis, EFAV’s roster is significantly smaller than those on traditional diversified international ETFs as EFAV holds just 274 stocks.

Three sectors — financial services, consumer staples and healthcare — combine for half of this retirement ETF’s weight. EFAV does make good on the low volatility promise as highlighted by a three-year standard deviation of just 9.72% percent.

Retirement Stocks to Hold: VanEck Vectors High-Yield Municipal Index ETF (HYD)

Expense ratio: 0.35%

Municipal bonds are a favored asset class of retirees due to the tax benefits associated with these bonds, usually high credit quality and steady income streams. By taking on just a little more risk with the VanEck Vectors High-Yield Municipal Index ETF (NYSEARCA:HYD), retirees can significantly boost their municipal bond yields as this fund has a 12-month yield of 4.26%.

HYD holds over 1,800 bonds and tracks the Bloomberg Barclays Municipal Custom High Yield Composite Index. The ETF’s effective duration is 7.6 years and its 12-month yield to worst is 4.23%. HYD’s top 10 holdings combine for 29% of the ETF’s roster.

Municipal bonds issued by local and state governments in California, Illinois and New York combine for 37.1% of HYD’s roster. The risk in that trio is Illinois thanks to junk-rated Chicago, but California and New York are highly rated.

As of this writing, Todd Shriber owns shares of SPHD. This article was originally published in Februay 2018. It has since been updated. 


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Article printed from InvestorPlace Media, https://investorplace.com/2018/07/7-best-retirement-funds-to-hold-forever-schv-vym-sphd-lirax-vtinx-efav-hyd/.

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