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Retirement is no longer a time for leisure. If low interests on savings were not enough, higher Medicare premiums will now make life worse. As per an article published on Yahoo Finance, “the standard Medicare Part B monthly premium will be $134 per month in 2018, the same amount as in 2017. But many retirees who have been paying less than the standard rate for the past several years will see a jump in their premiums” (read: Top Sector ETFs of 2017).
So, a smart allocation of assets is needed for retirement. Earlier, retired people used to follow a rule of thumb for asset allocation between stocks and bonds, which said that the stock part of one’s portfolio should equal 100 minus the retiree’s age. For example, if an investor retires at 60, 40% of his total savings would go to stocks and the rest to bonds.
But now, the picture has changed. Interest rates may go up in 2018 as yields could be on an uptrend. So, what one needs is a balanced retirement portfolio made of stocks and bonds so that steady current income can be availed of in a safe manner. While picking stocks, focus on value should be practiced. Below we highlight a few ETF strategies that could be considered in a retirement portfolio with a long-term focus.
Dividend: The First Bet – 20% of the Portfolio
Tapping dividend ETFs, when considering a stock-based ETF for one’s retirement portfolio, is an intriguing idea as dividends ensure steady income. Within the dividend space, honing in on the ‘dividend aristocrats’ could be the most beneficial way to ward off the risks resulting from market volatility. This technique looks upon the fundamental strength of the dividend payers. Dividend Aristocrats are the blue-chip dividend-paying companies that have a long history of hiking dividend payments year over year.
The need for higher yield is also necessary. Investors can have a look PowerShares High Yield Equity Dividend Achievers Portfolio ETF (PEY - Free Report) which gives exposure to stocks that are chosen on the basis of dividend yield and consistent growth in dividends. PEY yields about 3.21% annually. Also, yield-seekers may plant their money in PowerShares S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) . The fund yields 3.15% annually.
A Look at Corporate Bond – 20% Weight
Investors can also consider long-term corporate bond ETFs like iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD - Free Report) for higher yield than treasuries. However, since corporate bonds are riskier in nature, honing in on investment-grade ones is a prerequisite. Investors can also take a look at ProShares Investment Grade-Interest Rate Hedged (IGHG - Free Report) as the fund will give protection from rising rate worries. IGHG and LQD yield about 3.07% and 3.13% annually, respectively (read: Vanguard Launches Investment-Grade Corporate Bond ETF of ETF).
Rely on Wide Moat – 20% Weight
If you are making a portfolio for retirees, companies that last long or have the ‘wide moat’ technique may please you. These stocks have distinguished competitive advantages than those of their peers. These competitive advantages can be of various sorts including brand name, economies of scale and so on. Investors can play this concept via VanEck Vectors Morningstar Wide Moat ETF (MOAT - Free Report) and VanEck VectorsMorningstar International Moat ETF (MOTI - Free Report) (read: Are We Nearing a Bear Market? ETFs to Lean on).
Value Stock ETFs – 10% Weight
After a stellar run in the stock market this year, considering value funds for 2018 may be a nice idea. Cambria Global Value ETF (GVAL - Free Report) tracks the Cambria Global Value Index which consists of stocks with strong value characteristics. In the U.S. arena, Guggenheim S&P 400 Mid-Cap Pure Value (RFV - Free Report) is a good pick.
A Tilt to Risk – 15% Weight
While most of the above-mentioned choices are value-driven, which is normally considered for a retirement portfolio, a certain amount of risk may be tested too, especially given the Trump trade. For that, we choose PowerShares DWA Momentum & Low Volatility Rotation Portfolio .
Diversified Exposure: Go Global – 15% Weight
As several economies are looking up, a play on the global level seems warranted, but with lesser risk, given occasional geopolitical flareups. iShares Edge MSCI Min Vol Global ETF (ACWV - Free Report) is thus our pick for this section (see: all the World ETFs here).
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An ETF Retirement Portfolio for 2018
Retirement is no longer a time for leisure. If low interests on savings were not enough, higher Medicare premiums will now make life worse. As per an article published on Yahoo Finance, “the standard Medicare Part B monthly premium will be $134 per month in 2018, the same amount as in 2017. But many retirees who have been paying less than the standard rate for the past several years will see a jump in their premiums” (read: Top Sector ETFs of 2017).
So, a smart allocation of assets is needed for retirement. Earlier, retired people used to follow a rule of thumb for asset allocation between stocks and bonds, which said that the stock part of one’s portfolio should equal 100 minus the retiree’s age. For example, if an investor retires at 60, 40% of his total savings would go to stocks and the rest to bonds.
But now, the picture has changed. Interest rates may go up in 2018 as yields could be on an uptrend. So, what one needs is a balanced retirement portfolio made of stocks and bonds so that steady current income can be availed of in a safe manner. While picking stocks, focus on value should be practiced. Below we highlight a few ETF strategies that could be considered in a retirement portfolio with a long-term focus.
Dividend: The First Bet – 20% of the Portfolio
Tapping dividend ETFs, when considering a stock-based ETF for one’s retirement portfolio, is an intriguing idea as dividends ensure steady income. Within the dividend space, honing in on the ‘dividend aristocrats’ could be the most beneficial way to ward off the risks resulting from market volatility. This technique looks upon the fundamental strength of the dividend payers. Dividend Aristocrats are the blue-chip dividend-paying companies that have a long history of hiking dividend payments year over year.
The need for higher yield is also necessary. Investors can have a look PowerShares High Yield Equity Dividend Achievers Portfolio ETF (PEY - Free Report) which gives exposure to stocks that are chosen on the basis of dividend yield and consistent growth in dividends. PEY yields about 3.21% annually. Also, yield-seekers may plant their money in PowerShares S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) . The fund yields 3.15% annually.
A Look at Corporate Bond – 20% Weight
Investors can also consider long-term corporate bond ETFs like iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD - Free Report) for higher yield than treasuries. However, since corporate bonds are riskier in nature, honing in on investment-grade ones is a prerequisite. Investors can also take a look at ProShares Investment Grade-Interest Rate Hedged (IGHG - Free Report) as the fund will give protection from rising rate worries. IGHG and LQD yield about 3.07% and 3.13% annually, respectively (read: Vanguard Launches Investment-Grade Corporate Bond ETF of ETF).
Rely on Wide Moat – 20% Weight
If you are making a portfolio for retirees, companies that last long or have the ‘wide moat’ technique may please you. These stocks have distinguished competitive advantages than those of their peers. These competitive advantages can be of various sorts including brand name, economies of scale and so on. Investors can play this concept via VanEck Vectors Morningstar Wide Moat ETF (MOAT - Free Report) and VanEck Vectors Morningstar International Moat ETF (MOTI - Free Report) (read: Are We Nearing a Bear Market? ETFs to Lean on).
Value Stock ETFs – 10% Weight
After a stellar run in the stock market this year, considering value funds for 2018 may be a nice idea. Cambria Global Value ETF (GVAL - Free Report) tracks the Cambria Global Value Index which consists of stocks with strong value characteristics. In the U.S. arena, Guggenheim S&P 400 Mid-Cap Pure Value (RFV - Free Report) is a good pick.
A Tilt to Risk – 15% Weight
While most of the above-mentioned choices are value-driven, which is normally considered for a retirement portfolio, a certain amount of risk may be tested too, especially given the Trump trade. For that, we choose PowerShares DWA Momentum & Low Volatility Rotation Portfolio .
Diversified Exposure: Go Global – 15% Weight
As several economies are looking up, a play on the global level seems warranted, but with lesser risk, given occasional geopolitical flareups. iShares Edge MSCI Min Vol Global ETF (ACWV - Free Report) is thus our pick for this section (see: all the World ETFs here).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>