ETF Trends
ETF Trends

Retirement planning requires careful investing, complete with the right tools and strategy. Exchange traded funds are catching investors’ attention as an efficient way to start saving and investing for the future.

Investors have grown frustrated by the volatility in U.S. stocks over the past decade. After two vicious bear markets, stocks are sitting about where they were 10 years ago.

The best way to go about saving for retirement is to make sure one’s portfolio is properly diversified, reports Nancy Wood for Global and Mail. Passively managed ETFs can be a perfect investment tool because one fund can expose an investor to a large basket of stocks in one trade, like an index fund.

Financial experts say that the more stocks one owns, the more diversified a portfolio is and this lowers risk and volatility. A broad-based index ETF such as the SPDR S&P 500 (NYSEArca: SPY) is a good way to start the core of an ETF portfolio. There are plenty of other ETFs available to enhance a strategy, such as dividend ETFs and even fixed income. [Growing Demand for ETF-Based 401(k)’s]

Global diversification is also important, and ETFs can give the needed exposure to several overseas companies, while mitigating the risk of single stock picking, in an especially uncertain market. The iShares MSCi Emerging Markets (NYSEArca: EEM) is a good place to start to gain exposure to developing economies. [Vanguard, BlackRock Dominate ETFs in Retirement Plans: Report]

ETFs are also known for their tax efficiency. Additionally, the overall cost to keep a retirement portfolio is also a factor. ETFs generally have lower expense ratios, compared to the cost of mutual fund management. [Retirement Investors Focusing More on Fees]

Tisha Guerrero 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.