5 ETFs That Are Everything You Need for Retirement | Smart Switch: Personal Finance

(Selena Marajin)

When investing for retirement, you may not have the same energy and interest to study stocks and other investments, carefully deciding what to buy and when, and then when to sell. Your abilities could also decrease over time. So consider investing in exchange-traded funds (ETFs) with some or most of your retirement money.

Really, just one ETF, like the first one below, might be all you need for retirement, but here are a few to consider.

Image source: Getty Images.

1. An S&P 500 index fund

the Vanguard S&P 500 ETF (NYSEMKT: FLIGHT), with its extremely low annual fee (aka expense ratio) of 0.03%, is a great place to start and could be all you need. First, though, understand that an ETF is essentially a fund that trades like a stock. So you can easily buy as little as a single stock through your brokerage and can sell it at any time, although holding on for decades is a good way to aim for long-term financial security.

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Buying shares will spread your dollars over the majority of the 500 or more shares in the S&P 500 index, which focuses on the largest American companies. The index only contains 500 of the thousands of US stocks, but together they account for about 80% of the total value of the stock market. Many people see the S&P 500 as a benchmark for the US stock market, or more accurately, for large-cap US stocks.

With this and other funds you consider, do some research on them to see what exactly they own and what they charge in fees, etc. (In general, index funds, funds that track multiple indices, have very low fees.)

One thing you’ll notice about a standard S&P 500 index fund, like this one, is that while it has hundreds of companies, some of them are so big that they dominate it. The top 10 index holdings, for example, which include Apple, Microsoftand Amazon, represent about 29% of its total value. This is because the index is market capitalization weighted, which means that the companies with the highest market value have a huge influence on the value of the index. You can imagine that the last 100 or even 200 holdings make up a small part of the value of the index.

You can remedy this by investing in an equally weighted S&P 500 fund instead, such as the Invesco S&P 500 Equal Weight ETF — although its long-term performance has lagged that of the Vanguard S&P 500 ETF.

2. A total US stock market fund.

An S&P 500 index fund is great, but it doesn’t exclude America’s many smaller companies, such as Kohl’s, Mattel, The New York Times, harley-davidsonand home builder toll brothers. If you want your financial fortune to be tied to almost everyone companies on major US stock exchanges, consider investing in a US Stock Market Total ETF, such as the Vanguard Total Stock Market ETF (NYSEMKT: VTI).

This ETF has a rock-bottom annual fee of 0.03%, which is not surprising since it is a Vanguard fund, and Vanguard is known for its low fees.

Image source: Getty Images.

3. A global stock market total fund

You can go even further and spread your money across the world’s stock markets, with a Total World Stock Market ETF like the Vanguard Total World Stock ETF (NYSEMKT: VT). Their top positions look a lot like the top two ETF top positions above, but among them you’ll also find companies like Taiwan SemiconductorsChina Tencent Holdingsand toyota engine.

Like another Vanguard fund, it has a very low annual fee of just 0.07%.

4. A fund focused on dividends

As a retiree, you may especially appreciate an index fund that pays dividends. The above yes, but you’ll get a higher payout from an ETF that focuses specifically on dividends, like the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG). While the Vanguard S&P 500 ETF recently posted a dividend yield of 1.34%, the Vanguard Dividend Appreciation Fund returned 1.74%. (Their annual fee was also only 0.06%.)

companies that pay dividends they are fantastic wealth creators for younger investors and fantastic income generators for older ones. One advantage of dividends is that they tend to be paid faithfully no matter what the stock market is doing, and healthy and growing dividend payers will increase their payouts regularly.

This ETF aims to replicate the performance of the S&P Dividend Producers Index — minus their small fees, of course. That index focuses on companies that have been consistently paying dividends, usually for at least 10 consecutive years. Interestingly, it excludes the top 25% of companies with the highest dividend yields, as ultra-high performance is often linked to a struggling company. It also excludes real estate investment trusts (REITs).

Some of its major holdings include Microsoft, United Health Group, johnson and Johnson, Visa, Coca Colaand Costco.

5. A real estate fund

Speaking of real estate, that’s not a bad category of stock to invest in, and it can be easily done through REITs. REITs are required to pay out at least 90% of their earnings as dividends, making it an advantage for retirees. One of the many REIT-focused funds to consider is the Vanguard Real Estate Index Fund ETF (NYSEMKT: VNQ)with its annual fee of 0.12%.

Some of its main holdings are american tower, public storage, Real estate Entryand Digital Real Estate Trust. Since the returns of such companies tend to fluctuate with their fortunes (whereas standard common stock dividends tend to remain flat until increased or, in hard times, decreased or eliminated), Vanguard notes that it cannot offer a payout amount. definite. . But on the ETF’s website, Vanguard notes recent effective returns of 1.8% and 2.6%, depending on whether the number has been adjusted (for capital gains distributions and returns on capital).

These are just a few funds that retirees and near-retirees might consider for their portfolios. Don’t think that once you retire you shouldn’t invest in stocks, because many of us will have retirements of several decades. The portion of your savings that you won’t need for about 10 years might be mostly or partly in stocks.

On the other hand, even those who are far from retirement could do well with any of these funds.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. selena maranjian owns Amazon, Apple, Costco Wholesale, Johnson & Johnson, Microsoft, and Realty Income. The Motley Fool owns and recommends Amazon, American Tower, Apple, Costco Wholesale, Digital Realty Trust, Microsoft, Taiwan Semiconductor Manufacturing, Tencent Holdings, The New York Times, Vanguard Dividend Appreciation ETF, Vanguard Real Estate ETF, Vanguard S&P 500 ETF, Vanguard Total Stock Exchange ETF, and Visa. The Motley Fool recommends Johnson & Johnson and UnitedHealth Group and recommends the following options: $120 March 2023 Long Calls at Apple and $130 March 2023 Short Calls at Apple. The Motley Fool has a disclosure policy.

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