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Best ETF Strategies for Your Retirement Portfolio

Neena Mishra
Smart Beta ETF report for FDD
  • (1:10) - What Investments Should Go In A Tax Sheltered Account?
  • (5:30) - Should You Be Trying To Time The Market?
  • (7:25) - Ultra Short Term ETFs and Cash Investment Trend
  • (9:40) - How Could An Economic Downturn Impact The Leveraged Loan Market?
  • (11:20) - The Disappearance Of Defined Benefit Plans
  • (14:15) - Expense ETFs vs Free ETFs
  •                 Podcast@Zacks.com

In this episode of ETF Spotlight, I talk with Dr. Derek Horstmeyer, assistant professor at George Mason University School of Business. Dr. Horstmeyer is also a regular contributor to the Wall Street Journal. His research focus areas include ETF & mutual fund performance.

We discuss retirement investing strategies as the start of a new year is the perfect time to review your portfolio. First of all, investors should have a plan for saving for retirement. And this plan should also consider opportunities to manage taxes, while not basing decisions solely on taxes.

Tax efficient investing can significantly enhance returns in the long term. We start off by discussing how investors should decide which investments should be put in tax-sheltered accounts and which in taxable accounts.

“The conventional wisdom is that older investors should have a lot of bonds in their IRAs and 401(k)s, but that may not be the smartest move,” Dr. Horstmeyer wrote in a recent WSJ article.

We discuss popular ETFs like the SPDR S&P 500 ETF SPY, the iShares Core U.S. Aggregate Bond ETF AGG, the Vanguard Real Estate ETF VNQ, the iShares Russell 2000 ETF IWM and the Vanguard Value ETF VTV that are frequently used in retirement portfolios.

Which of these would benefit the most from tax sheltering? Find out on the podcast.

We then talk about the market gyrations that are making many investors very nervous but nervous investors often make bad investing decisions.

We discuss why investors should not try to time the market.

We have seen a lot of inflows into ultra short-term bond ETFs like the JPMorgan Ultra-Short Income ETF JPST and the PIMCO Enhanced Short Maturity Active ETF MINT this year as a flat yield curve discourages investors from taking on too much interest rate risk. Further, ultra-short-term government bond ETFs benefit from investor preference for safety.

Individual investors’ exposure to cash rose to its highest level in nearly three years according to AAII’s Asset Allocation Survey for the month of November.

Are these ultra short-term bond ETFs and cash viable options for investors in this market environment?

Investors should also be aware of rising risks in the bond market. The amount of debt rated in the lowest tier of investment grade has soared recently. In the event of a downturn in the economy, we could see a wave of downgrades to junk status from the lowest investment grade.

Ultra-popular investment grade bond ETFs like the iShares IBoxx $ Investment Grade Corporate Bond ETF LQD that are widely held in retirement accounts, could be impacted.

Another area of concern is the leveraged loan market where issuance of “covenant-light” loans has been rising.

What do investors need to know?

Finally, we talk about the disappearance of defined benefit plans and how that has affected demand for annuity type products.

Please visit https://www.derekhorstmeyer.com/ to learn more about Dr. Horstmeyer’s research.

Make sure to be on the lookout for the next edition of ETF Spotlight and remember to subscribe! If you have any comments or questions, please email podcast@zacks.com.

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