If You Know Where You Want Your Assets To Go See This List Of The Best
This article is part of the Morningstar Retirement Week special report.
Earlier this week, we talked about how, before picking funds, it is important to understand the asset class and its corresponding risk/return profile. Just as important as contributing new assets into the tax shelter, is to review your overall asset mix and ensure that the asset mix is still suitable to your risk profile. There is no one-size-fits-all formula for what the right asset allocation should be, but broadly speaking the older your get the less you have in equities .
So assuming you have a sense of where you want your assets to go, here is a list of some of the best rated ETFs available in Canada, sorted in no particular order aside from the Morningstar Category . The funds displayed here must scored at least three stars in the Morningstar Rating overall and at least a Silver medal based on Morningstars Analyst or Morningstars Quantitative Rating . In the tables below youll see the ratings as well as Morningstars Risk Rating . Important Note: This is a great list of ETFs for you to conduct your own research on but does not constitute financial advice. It is always recommended to speak to an advisor or investment professional before investing.Dividend & Income Equity The funds in this category invest in dividend-paying securities which continues to be a popular style of investment in Canada. To qualify, funds most hold at least 70% in domestic Canadian equities.
The Vanguard Wellington Fund Investor Shares
- Expense Ratio: 0.24%
- Minimum Investment: $3,000
- AUM: $117.9 billion
Most retirees will find that a 90% weighting toward stocks is too high, but theyre likely to have other funds to balance it out. Another of Strattons favorites is the Vanguard Wellington Fund Investor Shares . This is the company’s oldest mutual fund and, according to Vanguard, America’s oldest balanced fund.
Roughly 65% of the portfolio is invested in large-cap value stocks with a median market cap of $184.3 billion. About 34% is in mid-term investment-grade corporate bonds. The remaining holdings are in short-term reserves. The benchmark for this fund is the Wellington Composite Index. The one-year and 10-year returns for the fund were 7.63% and 9.84%, which were just under the index returns at 8.45% and 10.65% for the same periods.
Stratton gives this caution to retirees: Many retirees seek out a fund with the highest yield, but thats often a mistake. Funds with the highest yield are often less diversified and higher risk than funds with a more average yield. In the long run, the highest yielding funds often underperform and frequently have larger losses in bear markets because they tend to be concentrated in just a few sectors.
Total Return Investment Approach
A total return approach provides income from your investment portfolio in the form of interest, dividends, and capital gains. This type of portfolio invests in a balanced and diverse mix of stock and bond funds.
In this context, total return means averaging the annual rate of returns income and appreciation over a longer period , rather than focusing on specific annual return rates. The aim is that this total return meets or exceeds your withdrawal rate.
Related to withdrawal rate, a total return approach follows a systematic withdrawal strategy, in which you take out a certain percentage of your investment each year, generally between 3 and 5 percent. However, this approach can deplete a portfolio quickly if you retire and begin to withdraw from your portfolio in a year with a steep market sell-off.
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Lower Your Spending To Increase Your Retirement Income
The 4% Rule is one guide to understanding how much of your retirement savings you can withdraw each year, but many financial planners see it more as financial folklore than a solid guideline.
Retirees cant really control significant events that impact longevity risk, like property tax increases or serious health issues. But they can control how much they spend, and it might be wise to consider a radical lifestyle change that cuts spending to slow the loss of retirement savings.
Moving to a less expensive area with cheaper entertainment costs and lower property taxes can make a huge difference. So can downsizing a home and pocketing the difference. Its normal to spend more during early retirement years on fun items like travel or a second home, but thatll be a lot less fun if it increases longevity risk anxiety later.
The Best Income Funds For Retirees: Hold Them In Registered Retirement Income Funds To Protect Your Investment
A RRIF is a tax-deferred retirement plan for your Registered Retirement Saving Plan . RRIFs are used by those who dont plan to cash out their RRSP as a lump sum when they retire, and prefer to extend their investment and take smaller withdrawals by converting to a RRIF. Registered Retirement Income Funds offer more flexibility and tax savings than annuities or a lump-sum withdrawal. You dont need to sell your RRSP holdings when you convertyou just transfer them to your RRIF.
The government requires that everyone with a Registered Retirement Savings Plan must convert it into a RRIF by December 31st of the year they turn 71 or earlier. You start making withdrawals from your RRIF in the year following the year in which the RRIF is established.
You can receive RRIF payments on any schedule, though most investors choose to receive them either monthly or yearly. However, unless you need monthly payments to live on, its best to request only one payment per year, near year-end, to prolong your tax deferral.
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Fidelitys Income Replacement Funds
Fidelity has a series of Income Replacement FundsSM that are designed to provide monthly income by paying out principal and earnings over a set amount of time, functioning much like an annuity. One nice feature: the monthly income is intended to keep pace with inflation, and unlike an annuity, you can change your mind, and cash in your investment at any time.
The funds accomplish their goal by gradually liquidating your investment, paying out your entire balance by the time you reach the funds target date.
Depending on how long you want your money to last you can select a fund that will have paid out 100% of your balance by a specific year such as 2020, 2030, or 2042.
The longer the period of time you select, the less you’ll receive each month. The investment mix of each fund will automatically change over time, becoming more conservative as you near the fund’s ending date.
Income and principal are not guaranteed.
Retirement Planning Strategies That Can Provide $100000 Annual Retirement Income
One key question is how to generate $100,000 a year of retirement income without eating into your $1.9 million of retirement savings.
The first part of the answer: remember, some of your income will come from Social Security.
A worker who is 64 years old the average U.S. retirement age earning $136,000 would be entitled to $32,000 in annual Social Security benefits.
That’s if they wait until Social Security’s full retirement age of 66-1/2, according to the Social Security Administration’s quick calculator. $100,000 of annual retirement income would be 74% of the worker’s preretirement income.
That’s one payoff from good retirement planning. Many advisors tell clients they should aim for 70% to 80% of their preretirement income once they stop working.
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Retirement Income Fund Vs Target Date Fund
Target-date funds are designed to make investing for retirement as simple as possible. Generally speaking, target-date funds are constructed around a planned future retirement date, which is most often included in the name of the fund, like the Vanguard Target Retirement 2060 Fund .
This objective defines the important differences between these two types of funds. First, target date funds designed for retirement 20 or more years from now typically have a 90% stock and 10% bond asset allocation. While this aggressive allocation is ideal for long-term investors, its not well suited for retirees.
Second, target date funds change their allocation as the target date approaches. These changes shift the allocation more towards fixed income to reduce the volatility of the portfolio as holders get closer to retirement. These changes in asset allocation are known as a funds glide path. Retirement income funds do not change the asset allocation over time.
Target date funds are designed to offer a single fund solution for retirement planning. These funds invest in domestic and international stocks and bonds in one fund. In contrast, retirement income funds are not necessarily designed to be a retirees sole investment choice. Some on our list might serve that purpose, such as the Wellington fund, but thats the exception, not the norm.
The author held no positions in the securities discussed in the post at the original time of publication.
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Vanguard Dividend Appreciation Etf
For those that want an income fund that also provides payout growth, Vanguard Dividend Appreciation ETF should be near the top of their list.
VIG ETF holds a group of companies known for paying increasing dividends year after year. In particular, it tracks the NASDAQ U.S. Dividend Achievers Select Index, which is comprised of companies with at least 10 consecutive years of annual dividend increases. The funds holdings include many familiar names to dividend growth investors, such as Johnson & Johnson , PepsiCo Inc , and Microsoft Corporation .
The fund pays quarterly dividends with an annual yield of 2.06%. Because it follows a passively managed, full replication approach, VIG ETF has an expense ratio of just 0.08%, which is 92% lower than the average expense ratio of funds with similar holdings.
The Vanguard Wellesley Income Fund Investor Shares
- Expense Ratio: 0.23%
- Minimum Investment: $3,000,
- AUM: $65.4 billion
The Vanguard Wellesley Income Fund Investors Shares is intended for individuals who want the same income-oriented balanced approach but can’t or don’t want to invest a whole $50,000 in one vehicle. It has the same asset weighting as its counterpart.
VWINX also tracks the performance of the Wellesley Income Composite Index. While the benchmark returned 2.11% and 6.38% in one year and 10 years, the fund returned 3.52% and 6.87% during the same periods.
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Best Income Funds For Retirement
- Investing in Mutual Funds
- Mutual Funds
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% Of Funds In The Large
According to the recent S& P Indices Versus Active India Scorecard, around 88% of funds in the large cap segment has underperformed their benchmark indices. The data recorded is for the last 1 year period ending 30 June 2018. The scorecard has also revealed that 83% of government bond funds and 62% of mid/small cap funds have performed lower than their respective indices. The data has been compiled by a joint venture between S& P Dow Jones Index and the BSE Index – Asia Index Private who revealed the results of the SPIVA India mid-year 2018.
The S& P BSE 100 Index returned 12.94% with 88% of the schemes underperforming their benchmarks causing the 1-year period to end in black. Over the 3-year and 10-year period ending June 2018, the percentage of large cap funds underperforming their indices touched 78% and 63% respectively. A 42% low style consistency was witnessed by large cap funds over the 1 year period while over the 10-year period a low survivorship rate of 68% was noticed.
25 October 2018
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Mistake #: Buying A Variable Annuity
Variable annuities are a type of annuity that provides returns dependent upon the underlying investments. These underlying investments are usually mutual funds tied to different stock market indexes. Variable annuities are generally used to generate income during retirement.
However, variable annuities tend to be complex, expensive products. Fees can include mortality and expense fees, mutual fund account management, contract maintenance fees, transactions and other costs that can range as high as 4% a year. Variable annuities also charge back-end surrender fees that go into effect if you cash out of your annuity before 10 years or longer, in certain cases after you purchase it.
These riders can seem very attractive. However, they can come at a steep cost. Thats because you will have to spend more to get the same amount of income or accept reduced income in exchange for the benefits you want.
Theres no way to know when you purchase an annuity if you will actually use the riders that you buy. That means you may spend money or pay additional fees for features that you ultimately dont use. Rider fees typically are not refundable.
Retirement Planning Protection Against Rising Rates
SPDR Blackstone Senior Loan ETF : This ETF invests in senior secured first lien floating rate loans. Their interest is variable. It is often the Libor benchmark interest rate plus a specified spread. Their payouts rise if their benchmark rates climb. And the “loans typically have minimum floors to protect investors from rates falling much lower than anticipated,” said Bryan Lee, chief investment officer, Blue Zone Wealth Advisors.
Lee likes the fund’s managers. “Blackstone managing the underlying portfolio of 273 credits gives you access to one of the best liquid credit managers on Wall Street,” he said.
Still, one risk is that if rates rise faster than expected, the underlying borrowers can get hit with higher interest expenses. That can hurt credit ratings. Another drawback: the 0.7% expense ratio is relatively high for a fixed-income ETF, Lee says.
- 12-month yield: 4.68%
- Yield in dollars on a $1.9 million balance : $88,920
- Trailing 1-year total return: 10.04%
- 3-year avg. ann. return: 4.43%
- 3-year standard deviation: 7.76
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Basics Of The Income Replacement Fundssm
- Minimum investment: $25,000
- Expense ratios: .50% – .70%
- No front-end sales charge or surrender charges
Payout rates will vary, with the 2020 fund paying out perhaps as much as 16% a year, while the 2041 fund may payout 4% a year. Check Fidelity’s website for details on the funds and their current distribution schedules.
Funds That Let You Retire On Dividends Alone
Senior farmer smiling outdoors
Today were going to build a portfolio that can make us totally financially independent with just $500K invested. And well do it on dividends alonewithout having to touch our principal.
Now I know that sounds outlandish in todays low-yield world. Heres how well make it happen.
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How To Buy These Investments
If you want to structure a similar portfolio, my suggestion is to as they allow you to buy ETFs commission-free. You will still pay commissions when you sell, but not paying commissions when you purchase ETFs allows you to make regular contributions without the drag of fees on your portfolio.
What do you invest in to create income from your investment portfolio?
Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.
For more information you can follow him on Twitter or visit his other websites JimYih.com and Clearpoint Benefit Solutions.
When Should I Start A Retirement Portfolio
- Early in your career as you begin saving for retirement, you may want to accumulate as high a balance as possible. A growth portfolio is a good option for investors with a longer term horizon.
- As you mature in your career, a balanced portfolio can help retain a moderate amount of growth, but with less allocation towards stocks to help protect against market volatility.
- Closer to and in retirement, an income portfolio can provide long-term sustainability with a greater allocation towards bonds.
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Vanguard Total Bond Market Index Fund Investor Shares
- Risk: low
- Total net assets: $204 billion
- Asset allocation: 65% in U.S. government bonds
- Average annual returns since inception: 5.75%
- Benchmark annual returns since inception: 6.02%
The Vanguard total bond market index fund investor shares give broad exposure to the United States bond market. About 65% of the assets are allocated with U.S. government bonds, which keeps the risk of the fund relatively low not as good as with VFSTX but still as low as 2 out of 5
The expense ratio of the VBMFX fund is in the middle compared to the other two funds of our choice 0.15%. Yet, this is one of the lowest expense ratios on the market.
Considering the low risk, the returns from the fund are decent, 5.75% per year on average since inception.
On the left figure, we see a high correlation of the fund with the benchmark index. The funds relation to the market speaks of higher reliability and dependence on the global market conditions.