For example, an investor can build a diversified portfolio of domestic stocks, international stocks and bonds with three ETFs, such as the Vanguard Total Stock Market ETF (NYSEArca: VTI), Vanguard Total International Stock ETF (NYSEArca: VXUS) and Vanguard Total Bond Market ETF (NYSEArca: BND). VTI holds 3,809 U.S. stocks, VXUS includes 5,490 foreign companies and BND includes 16,470 bond securities. [Three Low-Cost ETFs for a Diversified Portfolio]
Liquidity is also a major concern among investors, notably those that dabble with fixed-income securities, which can take days or weeks with high commission charges. Alternatively, ETFs can be bought and sold throughout the day at the same cost as trading individual stocks on a brokerage account – some brokerage platforms even allow commission-free ETF trades as well. [Six Popular Commission-Free ETF Trading Platforms]
Investors will also find that using ETFs makes it easier to manage asset allocation and efficiently gain exposure to broad market segments. In contrast, the added analysis and risk that single securities bring to a portfolio may not be worth the return for most retirees. However, this does not mean that an investor should exclude their favorite stock picks entirely.
For more information on investing toward retirement, visit our retirement category.
Max Chen contributed to this article.