Investing in stocks is the best way for most people to grow long-term wealth for things like retirement, and ETFs are a wonderful tool for many people. But investing shouldn’t stop just because you’ve finally collected that gold pocket watch and moved to Fort Lauderdale (or wherever retirees move to nowadays).
ETFs can be a great way for retirees to generate steady income, and even after retiring, you have to think about growth with at least part of your retirement savings. We asked three of our top retirement planning and investing contributors to weigh in on the subject, and discuss some ETFs that make sense for retirees. Read on for what they had to offer.
ETF for high-yield income
Selena Maranjian: A solid choice for investors looking to remain at least partially invested in the stock market during retirement is the Vanguard High Dividend Yield ETF (NYSEMKT:VYM). It’s an index fund, tracking the FTSE High Dividend Yield Index, which is focused on companies with high-yielding dividends. That’s appealing for retirees who seek income.
The Vanguard High Dividend Yield ETF is also one of Vanguard’s largest ETFs, and like many Vanguard funds, its expense ratio (annual fee) is very low, at 0.10%. (That means it will charge you just $10 on a $10,000 stake in it.) It holds roughly 430 different stocks and its overall yield was recently 3.3%.
Retirees also tend to seek stable investments, and by focusing on dividend payers, this ETF delivers that, to some degree. That’s because companies that pay dividends tend to be established, with their cash flows predictable enough that management is willing to commit to a dividend payout. Better still, healthy and growing companies tend to increase their payouts over time. As of the end of 2015, the Vanguard High Dividend Yield ETF’s holdings tended to be large-cap value stocks, concentrated most in consumer goods, financial, and technology companies. Retirees can secure higher dividend yields through individual stocks, but this ETF offers easy and instant diversification and returns close to those of the overall stock market.
Want your dividends to grow every year? This ETF is for you
Dan Caplinger: One of my favorite ETFs for investors of all ages is the Vanguard Dividend Appreciation ETF (NYSEMKT:VIG), but it’s especially useful for retirees looking to stay invested in the stock market. This Vanguard ETF differs slightly from the Vanguard High Yield Dividend ETF that Selena discusses elsewhere in this article, but both can fit well in a retiree portfolio.