These ETFs build your nest egg.
Saving for retirement isn’t easy, so everyday Americans need all the help they can get. More and more, investors are turning to ETFs and low-cost, passive funds to help them achieve their retirement goals, but there are tons to choose from. Between 2003 and 2016, the number of ETFs soared from 276 to 4,779. More choice is good, but it’s difficult to navigate. With that in mind, here’s a list containing some of the best ETFs for retirees to buy. Each fund has characteristics that many retirees — or soon-to-be retirees — cherish, whether that’s stability, an income stream, intelligent asset allocation or a focus on a specific sector.
Vanguard Utilities ETF (ticker: VPU)
If you’re looking for sectors that are traditionally ideal for retirees, it doesn’t get much better than utilities. Businesses in this sector almost always enjoy a captive customer base, high barriers to entry, reliable and predictable cash flow, and little or no local competition. Utilities aren’t immune to downturns but do tend to be more resistant than other sectors to a sluggish economy, making a low-cost utilities fund like VPU one of the best ETFs for retirees to consider buying. The fund has pre-tax annualized returns of 6.8 percent over the past 10 years and 12.4 percent over the past five.
Expense ratio: 0.1 percent, or $10 per $10,000 invested annually
Dividend yield: 3.2 percent
Vanguard Dividend Appreciation ETF (VIG)
Aside from stability, the one thing retirees most enjoy is a stream of income. To that end, the VIG ETF contains a diversified portfolio of large-cap names known for consistently increasing their dividend payments. Each holding has increased its payout for at least 10 straight years, and excludes dividend stocks that aren’t likely to keep increasing their payouts for one reason or another. The top three sectors represented in VIG are industrials, consumer services and consumer goods, at 31.5 percent, 16 percent and 14.1 percent, respectively.
Expense ratio: 0.08 percent
Dividend yield: 2 percent
SPDR S&P Aerospace & Defense ETF (XAR)
If you’re somebody who believes the government will continue to spend vast sums of money on the military, you might also want to invest in companies that benefit from such spending. If this describes your investment philosophy, XAR is definitely one of the best ETFs to buy now. Rival ETFs from iShares (ITA) and PowerShares (PPA) have both higher expense ratios and more concentrated holdings. Just 41 percent of XAR’s portfolio is in its top 10 holdings, compared to 55 percent and 60 percent for ITA and PPA, respectively. With annualized five-year returns of 19.6 percent, the strategy has fared well recently.
Expense ratio: 0.35 percent
Dividend yield: 1.9 percent
Vanguard Total Stock Market ETF (VTI)
A common trait that the best ETFs to buy always share is low fees. Few fund families are cheaper than Vanguard, and the expense ratio at VTI is unbelievably low at 0.04 percent. For that practically negligible fee, investors gain access to the returns enjoyed by the entire U.S. stock market — from large-cap to small-cap, growth to value stocks and everything in between. As an all-equity fund, VTI will be quite susceptible to downturns, but if you’re looking for a simple way to allocate a portion of your assets toward stocks, this is a fine option.
Expense ratio: 0.04 percent
Dividend yield: 1.9 percent
Vanguard FTSE All-World ex-US ETF (VEU)
The reason this fund is hailed as one of the best ETFs for retirees is simple: true diversification. Keep in mind this fund doesn’t include fixed income, so it carries the typical higher-risk, higher-reward tradeoff inherent to equities. The diversification comes from VEU’s investment only in stocks of companies outside the U.S. Considering Americans are extremely exposed to the U.S. economy — they get paid in dollars, they work in America, they own U.S. stocks — investing overseas is the only way to truly branch out.
Expense ratio: 0.11 percent
Dividend yield: 2.9 percent
iShares Nasdaq Biotechnology Index ETF (IBB)
You might at first be confused by this name’s appearance on a best ETFs list. It doesn’t share the qualities so many of these picks do by having a rock-bottom expense ratio, decent dividend yield and low volatility. Still, retirees should consider carving out a small chunk of their portfolio for IBB, which offers diversified exposure to 162 biotech stocks. Older Americans will be relying on products made by many of these companies to treat their ailments and conditions, so why not own a share of the industry you’ll be bound to spend your money on?
Expense ratio: 0.44 percent
Dividend yield: 0.2 percent
Vanguard Target Retirement 2025 Fund (VTTVX)
Target-date funds are pretty useful, and every investor saving for retirement should know about them. They’re built to be full portfolios that automatically rebalance over time to become more conservative. In this case, the fund is built for people who hope to retire in the year 2025. With target-date funds, it’s vital to read the prospectus to get a feel for the strategy, and to remember that these instruments are designed to function as entire portfolios. Technically VTTVX is a mutual fund, but its low fees and unique objectives shouldn’t ostracize ETF investors.
Expense ratio: 0.14 percent
Dividend yield: 2 percent
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
While also technically a mutual fund, VBIAX has several of the great qualities — low costs and decent yields — that characterize many of the best ETFs. Since retirees should be buying and holding for the long term instead of trading in and out of positions on a daily basis, there’s little practical difference between the two fund types. This fund in particular is a mix of 60 percent stocks and 40 percent bonds, so in great years for the stock market its returns will generally be lower than Wall Street, and in bad years they’ll generally be better.
Expense ratio: 0.07 percent
Dividend yield: 2 percent
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The Best ETFs Retirees Can Buy originally appeared on usnews.com
