Are You In The Right ETFs For Retirement? - InvestingChannel

Are You In The Right ETFs For Retirement?

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Are You In The Right ETFs For Retirement?

If you pay attention to investing-focused financial media, you might have realized two themes dominating the landscape: ETF investing and retirement with a focus on tying the two areas together. 

We’ll pat ourselves on the back and say The Juice has been going hard on both for roughly two years now with a renewed focus here in 2024. 

Today, a few ETF-related developments you need to know and how they might apply to your general and retirement investing plans. 

But first …

We’re building a sample retirement portfolio composed of ETFs and individual stocks. We’ll get back to that next week after Easter so bookmark these links and give them a read when you have time if you haven’t already. 

5 Stocks And ETFs For A Diversified Retirement Portfolio

Building A Diversified Retirement Portfolio With Stocks And ETFs

While we include some stocks, this is an ETF-heavy approach. We like to take a relatively conservative approach to ETF investing, which is kind of a funny thing to hear ourselves say. 

The broad market ETFs we favor are overweight some of the biggest tech stocks in the world. If they stumble hard, the bottom potentially falls out of the stock market and these passive ETFs. But, because they’re passive, index-tracking ETFs, the approach (we guess?) is conservative, at least relative to the emergence of active ETFs. We’ll gladly take the label as we consider ETF news and numbers The Juice thinks you should be aware of. 

  • 18% of net new money invested in US ETFs went to active ETFs

From the if it ain’t broke and there’s no need to reinvent the wheel departments. 

There continues to be a good bit of money headed into active ETFs. While passive ETFs still dominate, we have to think at least some of that active ETF money is coming from passive products. 

As we’ll show in point #2, we’re not 100% against active ETF investing. We believe in a variety of investment approaches to create a diversified portfolio. 

That said, the Financial Times (which is where we saw the 18% statistic) interviewed the head of Pacer ETFs, who said “We didn’t want to be the same kind of ETF company as the State Streets and Vanguards of the world …” He knew they couldn’t compete even if they wanted to. So, they had to find ways to differentiate. 

We have written about Pacer before (here and here) so we’re not critiquing their approach, other than to say, this isn’t a restaurant. A space where you look for something to make yourself distinct from the leaders and, however it shakes out, there’s no harm, no foul for the consumer. This is investing with serious and potentially long-term implications. 

Pacer aside, there’s a reason why “the State Streets and Vanguards of the world” are the leaders. Because they offer low-cost ETFs that are absolutely ideal for a vast majority of investors. Just because others are coming out of boardrooms with cute ideas doesn’t mean you need to send your money into active ETFs. 

That said … 

  • Mutual fund company Capital Group has collected roughly $21 billion in ETF assets since 2022

And, as told to the FT, they’re “focusing fund launches on categories such as core bonds, income and dividend yield.. 

If you really want to be someplace specific — and we’re thinking more along the lines of investment approach rather than hot sector — going active can make sense. 

For example, the Capital Group Dividend Growers ETF (CGDG) “Invests in companies worldwide with the potential to provide attractive yield and dividend growth over the long term.” Set the slightly high, but still below average 0.47% expense ratio aside and we like this type of active ETF. The fund yields just over 3% and gives you exposure to a broad slate (81 holdings) of companies growing their dividends without being overweight in popular sectors and stocks like so many ETFs

  •  Merrill just released retirement income portfolios

So they’re not target date funds. But they’re an option Merrill offers with its robo-advisory services (which you can combine with personal financial advice). 

Basically, you’ll invest in passive ETF portfolios determined by your time horizon and risk profile. Then, over a 25-year period, Merrill will make distributions into a Bank of America (BofA owns Merrill) for you to live off of in retirement. The product comes in response to a big retirement worry — outliving your money. 


The Bottom Line: Back to the original question — are you in the right ETFs for retirement? 

It’s less about passive or active or the specific stocks and sectors you’re exposed to and more about the approach. If an active ETF makes sense for your strategy-related goals, by all means, go for it. Just do it in moderation with other proven strategies, such as market-tracking, passive investing. If you want reliable income in retirement, a robo-advisor portfolio with distribution options in retirement, like the one Merrill/BofA just released, can also make sense. 

Ultimately, it’s about having a well-thought out plan and picking investment products to execute that plan more than it is about jumping into whatever’s making headlines today.

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