The benefits of exchange traded funds (ETFs) make them an ideal fit for any retirement plan, but there are some finer points to be aware of.
If you’re nearing or in retirement and plan to use ETFs, you will want to consider some general information on how ETFs are traded and the costs that come with these securities. Because principal protection is paramount in retirement, a portfolio must be carefully put together.
- ETFs in 401(k)s? First, find out whether your employer’s 401(k) plan offers ETFs as an option. Many don’t yet, but ask the human resource or retirement office if ETF services may be available. And if not, express your interest in having them added. [Why 401(k)s and ETFs Can Work Together.]
- ETFs for the Long-Term. ETFs investors may want include those that require minimal management, low cost and post long-term gains. For starters, consider ETFs that follow major indexes. Potential investors may also search for both low-cost and high-yielding ETFs on our ETF Analyzer search tool. Additionally, we have model portfolios that may fit with your retirement horizons.
- Diversify. Look for ETFs that are uncorrelated so that if one area of the market tanks, some other areas are still helping to maintain returns.
- Keep Saving. Make regular contributions to your ETF retirement portfolio. Since you may be adding money frequently, look at places that offer free commissions on ETF trades, such as Charles Schwab, Vanguard or TD Ameritrade.
- Stay Up-to-Date. Invest n Retire, Advisors Capital Resource and Fulcrum Financial Inquiry are developing programs that simulate ETF market conditions and aid investors in utilizing ETFs in their retirement plans. [The All-ETF 401(k): It’s Happening Now.]
ETFs help reduce overall risk, provide dividends and also offer capital appreciation, which make them attractive investments for a retirement portfolio, writes Roger Nachman for Benzinga. Bonds are a main staple in any retirement plan and there are plenty of ETFs that track the various bonds available. In fact, you can find and sort them all in our Analyzer. Furthermore, there are also inflation-protected bond ETFs that help mitigate the risk of rising inflation over the years. [ETF Portfolios: The Important Step You Shouldn’t Miss.]
For more information on ETFs in retirement plans, visit our retirement category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.