This article was written by Brian Spero, a regular contributor for the financial resource, Money Crashers, where he shares his tips for investing and smart money management.
Exchange-traded funds (ETFs) have often been ignored when it comes to investing for retirement, but the latest trends suggest a growing number of investors are quickly warming to the idea. Previously believed to be too risky for long-term strategies, ETFs are gaining ground, and some experts suggest they're just as good as managed mutual funds.
ETFs have become increasingly attractive for those struggling to ramp up their retirement savings due to their low fees, relative simplicity, tax advantages, and dynamic growth potential. Even big corporations are starting to see their promise, and some have even transferred assets to exchange-traded funds for retirement portfolios.
In the coming years, more company-sponsored retirement and 401k plans will likely follow suit. If you're considering adding ETFs to your retirement portfolio, it's time to speak to your financial advisor and take a look at these solid picks:
1. iShares Barclays TIPS Bond Fund (TIP)
Bonds traditionally bring stability to a stock portfolio, and ETFs such as the iShares Barclays TIPS Bond Fund provide a more cost-efficient and simple way to accomplish this than populating your portfolio with individual bond holdings or a managed bond mutual fund.
This ETF has primary holdings in treasury inflation-protected securities (TIPS), and currently has total net assets of $21.8 billion. It has returned 6.30% since its inception in December 2003. If you're looking for an effective way to protect your savings against inflation, this is a steady pick.
2. Vanguard REIT Index ETF (VNQ)
A peak performer over the last few years, the Vanguard REIT Index ETF attempts to mirror the returns of the MSCI US REIT (real estate investment trust) index. By investing broadly in real estate investment trusts, this riskier fund serves to diversify a portfolio that's heavy on stocks and bonds by offering the potential for income, as well as growth.
Launched in September 2004, this Vanguard ETF has total net assets of $29.7 billion spread across 118 stocks. It has returned a solid 8.96% since inception, but has delivered a strong +22.22% over the last three years. For the investor ready to add more risk to his or her retirement portfolio, this Vanguard fund is a top option in real estate investment trusts.
3. Global X Silver Miners ETF (SIL)
Precious metals have long been a method to bring balance to a portfolio during unpredictable economic times, and an ETF provides affordable, lower-risk entry into this challenging investment category.
The Global X Silver Miners ETF employs a strategy meant to correspond to the performance of the Solactive Global Silver Miners Index, and was a standout fund over the past year, posting a 14.7% return.
The ETF has a market cap of $321 million, and directs in excess of 80% of its assets to securities in the silver mining industry, with top holdings in Silver Wheaton Corp. (SLW), Industrias Penoles CP (IPOAF), and Fresnillo plc (:FRES).
As a long-term strategy, this fund removes the risk of investing in a single company, is diversified geographically, and seeks to provide a hedge against inflation with potential for higher dividends by capitalizing on silver's consistent attractiveness as an asset and growing prominence for use in industrial applications.
4. Vanguard Russell 1000 ETF (VONE)
If you see value in investing in some of the most dynamic publicly traded companies, the Vanguard Russell 1000 Growth Index fund is highly rated in its class. A candidate for 401k managers diversifying with ETFs, this fund focuses on large-cap growth stocks, featuring allocations in blue chips including Exxon Mobil (XOM), General Electric (GE), and Microsoft (MSFT).
More than 44% of its investments are centered in technology, financials, and consumer services. This ETF is a solution for results-driven investors eager to gain access to the long-term growth potential of the largest U.S. companies, and willing to take on the associated risk.
5. iShares Dow Jones Select Dividend Index Fund (DVY)
Many tout value in the low-cost, high-dividend yield of the iShares Dow Jones Select Dividend Index Fund, which has come alive over the past three years posting a favorable 13.32% market price returns over the period. Started in November 2003, the fund focuses on investing in U.S. stocks with the most consistent positive dividend results, and diversifies its $10.9 billion in total net assets across 101 holdings.
This ETF is tilted heavily to the utilities sector, which comprises more than 30% of the fund, and has top holdings in Lorillard (LO), Lockheed Martin (LMT), and Chevron (CVX). This fund seeks to provide a steady income stream.
If you're looking for a solution to inject some energy and innovation into your retirement investment strategy, ETFs may be the answer. By researching the various types of ETFs available, identifying those that compliment your portfolio, and picking stand-out performers from specific categories, you have the opportunity to accelerate your retirement savings by limiting your expenses.
Which other ETFs would you suggest?