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8 Best Vanguard ETFs for Retirees

Barbara Friedberg

Vanguard ETFs are among the lowest-cost options in most categories.

Retirement is that time when life becomes simpler. Investing in retirement is no exception. One way to streamline your investment management responsibilities is to choose low-fee index funds from a trusted company. Vanguard, the premier index fund investment firm, offers numerous commission-free exchange-traded funds. In fact, the only funds that aren't commission-free at Vanguard are the leveraged and inverse ETFs. But before choosing a top Vanguard ETF, take a moment and review your investing goals, risk tolerance and asset allocation. Here are seven ETFs to consider for your retirement portfolio.

Vanguard Total World Stock ETF (ticker: VT)

For one-stop stock market investing, this fund is spot on. "The Vanguard Total World Stock ETF is a great option for retirees who need equity exposure but don't have enough money or financial knowledge to create a globally diversified stock portfolio themselves," says Daniel Ruedi, a financial advisor in Plano, Texas. Within one fund, you own stocks from these regions: North America, Europe, Pacific, Middle East and emerging markets. With over 8,000 stocks and a low 0.09% expense ratio, VT allows investors to own the top companies in the U.S. and abroad. With a current 2.36% yield, retirees can enjoy cash flow, too. The five- and 10-year returns are 5.45% and 9.54%, respectively.

Vanguard Total Stock Market Index Fund (VTI)

With about $759 billion assets under management, this comprehensive U.S. stock market fund spans the large- to micro-cap universe. Unlike the Vanguard Total World Stock fund, this investment predominantly includes U.S. firms. The fund owns nearly 3,600 stocks from the largest companies like Microsoft Corp. (MSFT), Apple (AAPL) and Amazon.com (AMZN) to small firms such as Dean Foods Co. (DF). For investors seeking vast U.S. stock market exposure, the 0.03% management fee is tiny. VTI offers a reasonable 2% yield, better than most savings accounts, along with the opportunity for long-term capital growth. The five- and 10-year returns are 9.25% and 13.98%, respectively.

Vanguard REIT Index (VNQ)

Real estate offers a diversification bonus to a stock and bond portfolio. REITs invest in stocks issued by real estate investment trusts that own office buildings, hotels, residential realty, retail and other real property. With nearly 190 stocks, VNQ is an easy way to gain access to a broad swath of the real estate market. The low 0.12% expense ratio means that most of your investing dollars are going into the market, not the fund management. The 3.96% yield provides cash flow along with appreciation potential. Expect the high yield to continue as the IRS requires REITs to pay out 90% of their income as dividends. The REITs five- and 10-year returns are 7.58% and 14.92%, respectively.

Vanguard Total Bond Market ETF (BND)

For investors seeking a broadly diversified U.S. bond fund to add to their REIT and stock funds, the Vanguard total bond ETF does the job. Recommended by David John Marotta, president of Marotta Wealth Management, BND is included in his firms' Vanguard index fund 60% stock an 40% bond "gone-fishing" portfolio. Most BND holdings are AAA-rated bonds with additional representation from lower investment grade debt. The higher rated bonds minimize default risk, while the addition of BBB bonds boost the fund's yield. The ultra-low 0.03% expense ratio is among the lowest in the category. BND currently yields 2.78%. The robust 5.44% one-year total return reflects the benefit of both dividend payments and price appreciation.

Vanguard Short-Term Treasury Index Fund ETF (VGSH)

Two experts recommended this ultra-save U.S. Treasury index fund. Kirk Chisholm, a wealth manager at Innovative Advisory Group in Lexington, Massachusetts, reminds investors that we're in the ninth inning of this bull market and that capital preservation is important. "When you are in retirement, the last thing you need is to lose 30% to 50% of your retirement nest egg by trying to squeeze out an extra 2% to 3%. It just isn't worth it," Chisholm says. Steven Jon Kaplan, CEO of True Contrarian Investments, likes the safety of Treasurys, with its added benefit of interest payments exempt from state and local income taxes. The low 0.7% expense ratio is another draw, he says.

Vanguard Total World Bond ETF (BNDW)

The Total World Bond ETF owns investment, fixed-rate U.S. and international debt. This expansive bond fund allocates 47% to North American bonds and the remaining investments span the globe. The fund owns approximately 32% European bonds, 15% from the Pacific regions and more than 2% in other international markets. BNDW offers a 1.89% yield, and should interest rates drop, investors will realize capital appreciation as well. The bond fund enjoys an 0.09% management fee. This year, the 5.83% year-to-date return afforded retirees a generous income stream. For the simplest diversified investing, pair BNDW, with a diversified international stock index fund like VTI for a complete portfolio.

Vanguard Emerging Markets Government Bond ETF (VWOB)

Now that the basic asset classes are covered, investors seeking higher yields might consider VWOB, which invests in U.S. dollar-denominated bonds issued by government and related entities in emerging market countries. The bonds, bought and sold with U.S. dollars, eliminate uncertain currency risk. The top 10 emerging markets represented within the fund are Mexico, Indonesia, Brazil, Saudi Arabia, Russia, United Arab Emirates, Turkey, Qatar and Argentina. The government-backed debt makes this international bond fund somewhat safer than other emerging market debt. The fund's 0.3% expense ratio is significantly lower than the 1.2% peer average. For retirement cash flow, the current 4.5% yield is tough to beat.

Vanguard Tax-Exempt Bond ETF (VTEB)

For retirees in higher tax brackets, a municipal bond ETF offers federal tax-free income. The after-tax returns of VTEB can trump those of a comparable taxable ETF, depending on your tax bracket. The fund is safe from default risk as the majority of bonds are AAA, AA or A rated. True to Vanguard's mission, the VTEB expense ratio is a low 0.08%. Presently, the fund invests in more than 4,000 bonds and yields 2.27% tax free. The year-to-date return is 5.03%.

Consider these Vanguard ETFs for your retirement portfolio.

-- Vanguard Total World Stock ETF (VT)

-- Vanguard Total Stock Market Index Fund (VTI)

-- Vanguard REIT Index (VNQ)

-- Vanguard Total Bond Market ETF (BND)

-- Vanguard Short-Term Treasury Index Fund ETF (VGSH)

-- Vanguard Total World Bond ETF (BNDW)

-- Vanguard Emerging Markets Government Bond ETF (VWOB)

-- Vanguard Tax-Exempt Bond ETF (VTEB)

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