Saving and investing for retirement doesn't have to be complicated. With just a few index funds, investors can have a well-rounded, diversified portfolio poised to put them in a good position to be financially comfortable by retirement. Here are four exchange-traded funds (ETFs) that can carry you to retirement.
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Include an S&P 500 index fund
There's a reason the S&P 500 index, which tracks the 500 largest American companies, is one of the more popular indexes in investing. Consisting of large-cap companies spanning any industry you can imagine, an investment in the is one surefire way to achieve instant diversification within your portfolio. And due to the size of the companies within the S&P 500, they're generally more financially stable than smaller companies.
An S&P 500 exchange-traded fund like the Vanguard S&P 500 Index Fund ETF (VOO -0.09%) is a good choice because of its low expense ratio of 0.03%.
Give yourself a chance for high growth
Unlike large-cap companies, which tend to have more stability, investing in small-cap companies is about the chance for high growth potential. As companies grow and mature, the room for exponential growth becomes limited. So, for investors interested in that type of growth potential, they should look into small-cap companies.
With this potential for high growth comes higher risks. Small companies are more prone to high volatility and much more likely to run into financial trouble than a company worth tens of billions. Because of the risk involved with small-cap stocks, you should consider a small-cap index fund that will spread out your risks. The Vanguard Small-Cap ETF (VB -0.05%) consists of over 1540 companies, ensuring you get diversified holdings.
Include a mid-cap ETF
Mid-cap companies are a good mix of just small enough for good growth potential but also big enough to have a bit more financial resources than some younger companies. You don't get all the risks involved with small-cap companies, but you also don't get the large upside; you don't get the stability of large-cap companies, but you also have more room for growth. It's a happy medium for many people.
The Vanguard Mid-Cap ETF (VO -0.10%) has a cheap expense ratio of 0.04% and consists of 380 mid-cap companies. It is also spread out among many industries. The top five includes the following:
- Technology (16.4%)
- Industrials (14.2%)
- Consumer Discretionary (13.8%)
- Financials (11.5%)
- Health Care (11%)
Don't focus solely on U.S. companies
A well-rounded investment portfolio should generally consist of international companies. You're limiting yourself as an investor if you only look into investing in American companies because there are great companies worldwide that make for solid investments. Instead of researching different regions and thriving companies within those regions, a solid ETF like the Vanguard Total International Stock ETF (VXUS -0.26%) can do a lot of the heavy lifting for you.
VXUS consists of 7,896 companies in the following regions:
- Europe: 39.5%
- Pacific: 26.8%
- North America: 8%
- Emerging Markets: 25.2%
- Middle East: 0.5%
The top 10 holdings in the fund make up 9.2% of all assets and include some familiar household names like Samsung, Toyota, and Nestle. International markets are generally categorized as developed or emerging. The Vanguard Total International Stock ETF gives investors exposure to both market types, and with an 0.07% expense ratio, it's much cheaper than similar funds of its type.
Let your investments grow tax free
In a regular brokerage account, you'll owe capital gains taxes whenever you sell an investment for a profit (how much depends on how long you held the investment). The same goes for retirement accounts like a 401(k) and traditional IRA; you receive your tax breaks up front and have to pay taxes on withdrawals you make in retirement.
A Roth IRA, however, operates differently. You contribute after-tax money into your Roth IRA, and your investments and earnings get to grow and compound tax free. Since you paid your taxes on the front end, you can withdraw your money without worrying about owing taxes on it whenever you're in retirement. Taking advantage of a Roth IRA can easily save you tens of thousands of dollars in taxes in retirement. If you're eligible to contribute to a Roth IRA, you won't regret utilizing it.
Stefon Walters has positions in Vanguard Mid-Cap ETF, Vanguard S&P 500 ETF, Vanguard Small-Cap ETF, and Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Vanguard Mid-Cap ETF, Vanguard S&P 500 ETF, Vanguard Small-Cap ETF, and Vanguard Total International Stock ETF. The Motley Fool has a disclosure policy.
FAQs
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.
Is 4 ETFs enough? ›
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.
How many ETFs should you have in a retirement portfolio? ›
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.
What is a balanced portfolio for a 65 year old? ›
In your later years, a conservative allocation of 30% cash, 20% bonds and 50% stocks might be appropriate. Diversified portfolios typically include a core of at least 50% stocks in part because equities alone offer the potential to generate long-term returns exceeding inflation.
Is Voo a good retirement investment? ›
Conversely, VOO appeals to those prioritizing cost efficiency, with its lower expense ratios potentially offering greater net returns over the long haul. Its slightly higher dividend yield makes it attractive for retirees relying on investment income.
What are the 4 Vanguard ETFs that could help you retire a millionaire? ›
Getting down to business. You can build a powerful, global portfolio with these four Vanguard ETFs: Vanguard Total Stock Market ETF (NYSEMKT: VTI), Vanguard Total International Stock ETF (NASDAQ: VXUS), Vanguard Total Bond Market ETF (NASDAQ: BND), and Vanguard Total International Bond ETF (NASDAQ: BNDX).
What is the 4% rule ETF? ›
Known as the 4% rule, Bengen argued that investors could safely set their annual withdrawal rate to 4% of their initial retirement pot and adjust it for inflation without running out of money over a 30-year time horizon.
What is the best ETF for retirees? ›
Download Forbes' most popular report, 12 Stocks To Buy Now.
- 7 Best Vanguard ETFs To Buy For Retirement Investing. ...
- Vanguard Growth ETF VUG +0.1% ...
- Vanguard Extended Market ETF VXF +0.1% ...
- Vanguard Dividend Appreciation ETF VIG +0.2% ...
- Vanguard S&P 500 ETF VOO +0.1% ...
- Vanguard Mega Cap Value ETF MGV +0.3%
Investing in the stock market is one of the most effective ways to generate long-term wealth, and you don't need to be an experienced investor to make a lot of money. In fact, it's possible to retire a millionaire with next to no effort through exchange-traded funds (ETFs).
What is a good portfolio mix in retirement? ›
At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).
Conventional wisdom holds that when you hit your 70s, you should adjust your investment portfolio so it leans heavily toward low-risk bonds and cash accounts and away from higher-risk stocks and mutual funds. That strategy still has merit, according to many financial advisors.
How much money do I need to invest to make $1000 a month? ›
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
What should a 70 year old retiree asset allocation be? ›
While, again, this depends entirely on your individual needs, many retirement advisors recommend higher-growth assets around the following proportions: Age 65 – 70: 50% to 60% of your portfolio. Age 70 – 75: 40% to 50% of your portfolio, with fewer individual stocks and more funds to mitigate some risk.
Why is VOO so popular? ›
Investing in VOO comes with risks, such as missed opportunities for higher returns and potential periods of decline. VOO is preferred over other index funds due to its low expense ratio and higher dividend yield, making it more aligned with shareholders' interests.
Is QQQ better than VOO? ›
Average Return
In the past year, QQQ returned a total of 35.87%, which is significantly higher than VOO's 28.51% return. Over the past 10 years, QQQ has had annualized average returns of 18.69% , compared to 12.90% for VOO. These numbers are adjusted for stock splits and include dividends.
Which is better long-term VTI or VOO? ›
Or, you could also invest in both, for example, by putting half in VOO and half in VTI. 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.
How many S&P 500 ETFs should I buy? ›
SPY, VOO and IVV are among the most popular S&P 500 ETFs. These three S&P 500 ETFs are quite similar, but may sometimes diverge in terms of costs or daily returns. Investors generally only need one S&P 500 ETF.
How much of your money should be in ETFs? ›
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. Consider the two funds below.
How many Vanguard ETFs should I own? ›
Build a fully diversified portfolio with just 4 ETFs
This level of diversification can help reduce your overall investment risk while making it easier to manage your portfolio.
How often should I invest in ETFs? ›
One way to think about it is every three months taking whatever excess income you can afford to invest – money that you will never need to touch again – and buy ETFs! Buy ETFs when the market is up. Buy ETFs when the market is down.
