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401(k) Balances at All-Time Highs: 6 ETFs to Buy

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Retirement account balances, which were hit hard in 2020 due to the pandemic, are now at new highs, according to the latest data from Fidelity Investments, the nation’s largest provider of 401(k) savings plans, as quoted on CNBC.

The overall average 401(k) balance hit $129,300 as of Jun 30, marking a gain of 24% from the same time last year, according to Fidelity. Individual retirement account balances were also higher — reaching $134,900, on average, in the second quarter, up 21% from a year ago.

The number of Fidelity 401(k) plans with a balance of $1 million or more spurted to a record 412,000 in the second quarter of 2021. The number of IRA millionaires increased to 342,000, also an all-time high. This happened due to a rising stock market. The S&P 500 is up 16.7% this year.

With stock markets skyrocketing, the ETF industry is booming, breaching new records in terms of inflows. This is especially true, as investors have poured more than $500 billion into ETFs so far this year, very close to an annual record of $504 inflows seen last year. This suggests a wider adoption of ETFs at a quicker clip (read: 5 Most Loved Funds of the Booming ETF Industry).

Then why not combine the two winning propositions? Investors can choose ETFs for their 401(k) portfolio as investing in this field entails lesser risks. Below we highlight a few ETFs that could be taken in consideration for investors’ 401(k) portfolio for long-term holding.

ETFs in Focus   

Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) ) – Zacks Rank #1 (Strong Buy)

Though growth stocks perform better in a low-rate environment, value stocks tend to outperform growth stocks over the long term as chances of a rise in rates are likely. This is especially true given the Fed is considering a tapering of QE policy, which means rate hikes will also be in the cards sooner or later. With increased optimism on swift economic recovery backed by the wider rollout of COVID-19 vaccines and more stimulus, value stocks have higher chances of outperformance over the long term.

Financial Select Sector SPDR ETF (XLF - Free Report) ) – Zacks Rank #1

This is another product that should win in a rising rate environment, which is inevitable over the long term. If stocks continue to rally and long-term yields rise, the yield curve may steepen ahead. If this happens, financial stocks will perform better due to a higher net interest margin (read: ETFs to Play S&P 500's Fastest Bull Market Rally Since WWII).

Industrial Select Sector SPDR ETF (XLI - Free Report) ) – Zacks Rank #1

Along with the economic recovery, the passage of the $1 trillion infrastructure bill in the Senate on a bipartisan basis (the bill now needs to be passed in the House) is another key tailwind. Senate’s approval of an infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years is a driver for the fund. Total spending may go up to $1.2 trillion if the plan is extended to eight years (read: 4 Sector ETFs to Gain from Infrastructure Bill).

iShares Core Dividend Growth ETF (DGRO - Free Report) ) – Zacks Rank #1

The underlying Morningstar US Dividend Growth Index is composed of U.S. equities with a history of consistently growing dividends. These stocks or dividend aristocrats provide investors with dividend growth opportunities in comparison to the other products in the space but might not necessarily have the highest yields. These are safer investments. Notably, preference toward dividend investing has been rising due to easy monetary policy on the global front, and market uncertainty triggered by the pandemic and deceleration in global growth.

iShares Semiconductor ETF (SOXX - Free Report) ) – Zacks Rank #2

Semiconductor ETFs have been in the sweet spot thanks to surging demand for chips from manufacturers of everything from smartphones to cars, laptops, PCs, video games and data centers. The stay-at-home trend amid the coronavirus outbreak, which has bolstered the demand for gaming chips, cloud computing and data center business, has proven to be a boon for semiconductors. Plus, robust M&A activities have aided the sector in recent times.

Vanguard Health Care ETF (VHT - Free Report) ) – Zacks Rank #1

The broad healthcare sector has been an area to watch lately given the resurgence in COVID-19 infections due to the new Delta variant. This has made investors jittery, compelling them to tilt their portfolio to defensive investments. Additionally, the sector has been benefiting from COVID-19 vaccines or treatment with many more expected to come. Hence, this product deserves a place in a long-term portfolio.