What is the best dividend ETF for retirees?
A strong choice in that space is the Vanguard Dividend Appreciation ETF. Like most Vanguard offerings, it is very cheap to own, with an expense ratio of just 0.06%. And while the dividend yield is a bit miserly at around 1.8%, that's more than the 1.4% or so you'd get from buying an S&P 500 index fund.
| ETF | Recent Yield | 5-Year Avg. Annual Return |
|---|---|---|
| Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) | 1.8% | 13.6% |
| SPDR S&P Dividend ETF (NYSEMKT: SDY) | 2.6% | 9.7% |
| iShares US Real Estate ETF (NYSEMKT: IYR) | 3.1% | 3.9% |
| Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) | 3.6% | 13.8% |
With investments across asset classes, you can balance your portfolio with risk tolerance and income requirements. Overall, the flexibility, cost efficiency, and diversity of ETFs make them a compelling choice for many retirees.
| Dividend ETFs | Dividend Yield |
|---|---|
| Vanguard International High Dividend Yield ETF (VYMI) | 4.39% |
| Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) | 4.55% |
| WisdomTree U.S. SmallCap Dividend Fund (DES) | 2.92% |
| FCF International Quality ETF (TTAI) | 10.38% |
An upside to adding dividend stocks to your retirement portfolio: they can help lessen the effects of inflation, since many dividend-paying companies (especially blue chip stocks) generally increase their dividends over time. Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.
Experts say retirement-age investors should consider active ETF strategies. Here's why. Investors nearing retirement are looking for ways to earn stable income while still growing their assets long term.
Generally speaking, fewer than 10 ETFs are likely enough to diversify your portfolio, but this will vary depending on your financial goals, ranging from retirement savings to income generation.
Hidden risks
With so many ETFs to choose from, the mix of assets in a single fund can be vast or complex—and some may contain risky securities that might not be so obvious upfront. Additionally, ETFs can be affected by volatility just like any investment.
ETFs are generally highly liquid because they are traded on stock exchanges. You can buy and sell ETFs throughout the trading day at market prices. Unfortunately, this benefit is usually lost among 401(k) investors, who are likelier not to want to trade securities often and throughout the day.
You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.
What is the downside of dividend ETF?
Cons. No guarantee of future dividends. Stock price declines may offset yield. Dividends are taxed in the year they are distributed to shareholders.
Dividend ETFs or Dividend Stocks: Which Is Better? Dividend ETFs can be a good option for investors looking for a low-cost, diversified and reliable source of income from their investments. Dividend stocks may be a better option for investors who prefer to choose their own investments.
In fact, an ETF called the Global X NASDAQ 100 Covered Call ETF (NASDAQ:QYLD), launched in 2013, currently boasts an eye-catching yield of 12%. While the ETF holds appeal for income investors, there are also several things that investors should be aware of before jumping in right after seeing that eye-popping yield.
You would not owe tax on dividends from stocks held in a retirement account, such as a Roth IRA or 401(k), or a college savings plan, such as a 529 plan or Coverdell ESA. There are exceptions to this tax immunity, though.
Depending on how much money you have in those stocks or funds, their growth over time, and how much you reinvest your dividends, you could be generating enough money to live off of each year, without having any other retirement plan.
How Much Money You Need to Retire on Dividends. As a rough rule of thumb, you can multiply the annual dividend income you wish to generate by 22 and by 28 to establish a reasonable range for how much you need to invest to live off dividends.
The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.
Here's a summary of which one to choose:
If you want to own only the biggest and safest stocks, choose VOO. If you want more diversification and exposure to mid-caps and small-caps, choose VTI. If you can't decide, consider simply buying both of them (assuming that commissions are low or free).
SPDR S&P 500 ETF Trust
But, there's a reason the SPDR S&P 500 ETF Trust (SPY -0.15%) continues to top lists of suggested retirement investments. That is, the broad market itself offers highly reliable, solid long-term returns. In this case, the S&P 500 averages gains of about 10% per year.
The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and remove that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.
What is the most profitable ETF?
| Symbol | Name | 5-Year Return |
|---|---|---|
| XHB | SPDR S&P Homebuilders ETF | 23.34% |
| IXN | iShares Global Tech ETF | 23.21% |
| SPUU | Direxion Daily S&P 500 Bull 2x Shares | 22.76% |
| IETC | iShares U.S. Tech Independence Focused ETF | 22.63% |
The largest Aggressive ETF is the iShares Core Aggressive Allocation ETF AOA with $1.82B in assets. In the last trailing year, the best-performing Aggressive ETF was AOA at 18.26%. The most recent ETF launched in the Aggressive space was the iShares ESG Aware Aggressive Allocation ETF EAOA on 06/12/20.
The securities that underlie the funds are held by a custodian, not by Vanguard. Vanguard is paid by the funds to provide administration and other services. If Vanguard ever did go bankrupt, the funds would not be affected and would simply hire another firm to provide these services.
Leveraged and inverse ETFs are designed for short-term trading and use complex strategies. These ETFs amplify market movements and can lead to substantial losses if they do not perform as expected.
An ETF with a low risk rating can still lose money. ETFs do not provide any guarantees of future performance. As with any investment, you might not get back the money you invested.
