7 Best ETFs for Investors Nearing Retirement

These retirement ETFs offer income and reduced risk profiles for retirement planners

By Todd Shriber, InvestorPlace Contributor

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As is the case with life in general, investing life moves in cycles. Younger investors enjoy at least two valuable luxuries: time and the ability to take on more risk with retirement funds than their older counterparts. Investors nearing retirement face entirely different circumstances than those youngsters that are new to the workforce.

Additionally, “nearing retirement” is different ballgame than retirement itself. Investors still working but nearing retirement have a lot of portfolio decisions to mull, but funds, including mutual funds and exchange traded funds (ETFs) can ease some of that burden.

Essential elements of the nearing retirement investment equation are reducing risk and seeking avenues for increasing income. Conventional wisdom dictates that the avenues for achieving those outcomes are reduced exposure to equities and increased fixed income exposure. Some of the best retirement ETFs help investors achiever higher income while reducing portfolio risk.

Here some solid retirement ETFs for late-career investors knocking on the door of retirement.

Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)

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Expense ratio: 0.30% per year, or $30 on a $10,000 investment.

Near-retirement investors looking to maintain some equity exposure while boosting their income profiles ought to consider the Invesco S&P 500 High Dividend Low Volatility ETF (NYSEARCA:SPHD).

As its name implies, SPHD is high dividend, low volatility fund. This retirement ETF’s holdings are the 50 S&P 500 stocks with the lowest trailing 12-month volatility and highest dividend yields. Not surprisingly, SPHD is conservatively positioned at the sector level. The utilities, real estate and consumer staples sectors combine for over 52% of this retirement fund’s weight.

Due in part to its heavy allocations to sectors sensitive to rising interest rates, SPHD’s one-year returns are modest. However, the fund is helpful before and during retirement because it pays a monthly dividend, a plus for investors seeking steady income.

iShares Core Conservative Allocation ETF (AOK)

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Expense ratio: 0.25% per year, or $25 on a $10,000 investment.

“Conservative” in the name of a retirement fund would seem like a good place to start. The iShares Core Conservative Allocation ETF (NYSEARCA:AOK) is an efficient retirement ETF for investors looking for multi-asset exposure under the umbrella of a single fund.

AOK holds nine other ETFs, all of which are iShares funds, providing investors with equity and fixed income exposure. As a conservative fund, AOK tilts toward bond exposure at 69.65%.

Keeping with the conservative theme, AOK’s three-year standard deviation is just 3.53%, making this an ideal retirement fund for skittish investors.

Nuveen Bloomberg Barclays Municipal Bond ETF (TFI)

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Expense ratio: 0.23% per year, or $23 on a $10,000 investment.

Municipal bonds are a beloved asset class by retirees and those nearing retirement should consider this corner of the bond market as well. The SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (NYSEARCA:TFI) is a retirement ETF to consider because it offers a decent income stream with relatively low risk along with some tax advantages.

TFI — which holds 3,667 bonds — has an option-adjusted duration of 6.89 years with a 30-day SEC yield of 2.45%. This retirement fund “seeks to provide exposure to the publicly traded municipal bonds that cover the U.S. dollar denominated long term tax exempt bond market, including state and local general obligation bonds, revenue bonds, pre-refunded bonds, and insured bonds,” according to the issuer.

Credit risk is not an issue with TFI as over 98% of this retirement fund’s holdings are rated AAA or AA.

Vanguard Mega-Cap Value ETF (MGV)

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Expense ratio: 0.07% per year, or $7 on a $10,000 investment.

One thing investors in or planning for retirement should never do is embrace high-fee funds. Of course, Vanguard makes it easy to find low-fee retirement funds as the issuer is one of the kings of the cheap ETF space.

Investors looking to maintain some equity exposure as retirement nears would do well to tilt toward larger stocks and the value factor. A retirement fund such as the Vanguard Mega-Cap Value ETF (NYSEARCA:MGV) could be a solid bet for investors shopping for retirement ETFs right now because value stocks have been lagging growth equivalents for several years, indicating there is value to be had with the value factor.

MGV holds 151 stocks with a median market value of $179.3 billion. This inexpensive retirement fund allocates 41.50% of its combined weight to the financial services and healthcare sectors. MGV’s sector weights do not overlap significantly with the aforementioned SPHD, so these two retirement funds can be paired together in a portfolio.

Vanguard Total Corporate Bond ETF (VTC)

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Expense ratio: 0.07% per year, or $7 on a $10,000 investment.

Investment-grade corporate bonds can play pivotal roles in the income-seeking portion of retirement portfolios. As is the case with other fixed income instruments, corporate bonds are influenced by domestic monetary policy, but the Vanguard Total Corporate Bond ETF (NASDAQ:VTC) eliminates the need for investors to move in and out of corporate bond funds of varying durations as the Federal Reserve’s policies shift.

This retirement fund uses the ETF of ETFs structure to provide exposure to a massive number of investment-grade corporates of the short-, intermediate- and long-term varieties. VCT accomplishes that objective by holding Vanguard’s three other corporate bond ETFs.

For a modest fee of 0.07% — making it cheaper than 91% of rival funds — VTC features over 3,600 corporate bonds with an average duration of 7.3 years. The Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH) is VTC’s largest holding at a weight of 38.60%.

 iShares Edge MSCI Min Vol EAFE ETF (EFAV)

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Expense ratio: 0.20% per year, or $20 on a $10,000 investment.

Investors should not conflate the idea of reducing risk in retirement with the outright elimination of international stocks from their portfolios. A variety of international equity ETFs are suitable as retirement funds because they offer investors lower risk avenues to ex-U.S. equities. That group includes the  iShares Edge MSCI Min Vol EAFE ETF (CBOE:EFAV).

The $8.86 billion EFAV “seeks to track the investment results of an index composed of developed market equities that, in the aggregate, have lower volatility characteristics relative to the broader developed equity markets, excluding the U.S. and Canada,” according to iShares.

EFAV’s three-year standard deviation of 8.75% is actually lower than what is found on some broad-based domestic equity benchmarks. This retirement ETF allocates nearly 41.50% of its geographic weight to Japan and Switzerland.

Xtrackers Low Beta High Yield Bond ETF (HYDW)

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Expense ratio: 0.25% per year, or $25 on a $10,000 investment.

Yes, junk bonds are riskier than their investment-grade counterparts, but no, that does not mean high-yield corporate debt should be entirely eliminated from retirement portfolios. Income-minded investors looking for a less risky approach to junk debt can consider the Xtrackers Low Beta High Yield Bond ETF (NYSEARCA:HYDW).

HYDW, which launched early this year, targets the Solactive USD High Yield Corporates Total Market Low Beta Index. The aim of that index is to track bonds that exhibit favorable volatility traits relative to the broader high-yield bond market.

HYDW holds 439 bonds, over 97% of which are rated BB or B. The fund’s modified duration to worst is 3.36 years.

Todd Shriber owns shares of SPHD.


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/7-best-retirement-etfs-for-investors-nearing-retirement/.

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