Conservative Etf Portfolio For Retirees


Invesco S& p Midcap Low Volatility Etf

2 Stable & Conservative ETF Funds for Retirement

Expense Ratio: 0.25%

Investors may be skittish about embracing stocks right now even more so when it comes to small stocks, including mid-caps. But some of the best ETFs to consider in the current environment are those dedicated to reducing volatility. Enter the Invesco S& P MidCap Low Volatility ETF .

XMLV tracks the S& P MidCap 400 Low Volatility Index, the low volatility offshoot of the widely followed S& P MidCap 400 Index.

The Index is compiled, maintained and calculated by Standard & Poors, consisting of 80 out of 400 medium-capitalization securities from the S& P MidCap 400 Index with the lowest realized volatility over the past 12 months,according to Invesco.

Over 50% of XMLVs 80 holdings hail from the financial services and real estate sectors. Meanwhile, the normally docile utilities sectors commands almost 20% of the funds weight.

Best Low Volatility Etfs

iShares MSCI USA Min Vol Factor ETF : This ETF invests in US stocks that experience less volatility than the overall market. It has 174 holdings, most of which are large-cap and blue-chip stocks in resilient industries. In the past, USMV has declined less than the major US stock indices during downturns.

  • Expense ratio: 0.15%
  • 5-year return: 12.45%

Invesco S& P MidCap Low Volatility ETF : This US ETF tracks low volatility mid-cap stocks, and over half of the fund is exposed to the conservative real estate, utilities, and financials industries. The fund also seeks to reduce volatility by holding a selection of 80 stocks to spread out investment risk.

  • Expense ratio: 0.25%
  • 5-year return: 10.33%

The Long Bond Falls Short

One of the most important changes to fixed-income investing at the turn of the 21st century is that the long bond has given up its previously substantial yield benefit.

For example, take a look at the yield curves for the major bond classes as they stood on July 18, 2019:

There are several conclusions that can be reached from a review of these charts:

  • The long bond is not a very attractive investment in the case of Treasuries, the 30-year bond currently yields no more than a six-month Treasury bill.
  • High-grade corporate bonds provide an attractive yield pick-up to Treasuries .
  • In a taxable account, municipal bonds can offer attractive tax-equivalent yields to government and corporate bonds, if not better. This involves an extra calculation to confirm, but a good estimate is to take the coupon yield and divide it by 0.68 to estimate the effects of state and federal tax savings .

With short-term yields so close to those of long-term yields, it simply doesn’t make sense to commit to the long bond anymore. Locking up your money for another 20 years to gain a paltry extra 20 or 30 basis points just doesn’t pay enough to make the investment worthwhile.

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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.

Municipal Bonds And Covid

PortfolioDesignScan: A Model Conservative ETF Portfolio ...

Municipal bonds have long been considered some of the most reliable fixed income options. Enter Covid-19 and a once untouchable space could now be in jeopardy with defaults. Nevertheless, MUB and friends are proving steady amid a spate of new issuance.

The record-setting issuance driven by election uncertainty in October was counterbalanced by a dearth of supply in November. Taxable issuance remained proportionally elevated at 26% of total supply, making traditional tax-exempt issuance even more miniscule. As a result, new issues were oversubscribed by more than 10x on average , according to BlackRock.

Muni demand is holding up and investors arent pulling money from related funds.

Strong demand continued through November albeit amid slightly more volatility than in recent months. After a modest outflow at the start of the month, mutual fund flows reverted to more consistent inflows, with considerable strength in long-term funds, adds BlackRock.

For more on income strategies, visit our Retirement Income Channel.

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Asset Allocation By Age Calculation

There are several quick, oft-cited model calculations used for dynamic asset allocation of a portfolio of stocks and bonds by age, moving more into bonds as time passes because theyre safer. For the sake of clarity and consistency of discussion, were going to assume a retirement age of 60.

  • The first and simplest adage is age in bonds. A 40-year-old would have 40% in bonds. This may indeed be fitting for an investor with a low tolerance for risk, but is too conservative in my opinion. In fact, this conventional wisdom that has been repeated ad nauseam goes against the recommended asset allocations of all the top target date fund managers. This calculation would mean a beginner investor at 20 years old would already have 20% bonds right out of the gate. This would very likely stifle early growth when accumulation is more important at the beginning of the investing horizon.
  • Another general rule of thumb is a more aggressive for bond allocation. This calculation is much more in line with expert recommendations. This means the 40-year-old has 20% in bonds and the young investor has a portfolio of 100% stocks and no bonds at age 20. This also yields the stalwart 60/40 portfolio for a retiree at age 60.
  • Generally speaking, it could be said that these 3 formulas coincide with low, moderate, and high risk tolerances, respectively.

    Dividend Etf: Ishares High Dividend Etf

    Because I have a lot of exposure to real estate through my REIT and my direct real estate holdings, I feel it is important to diversify a little into different asset classes. I still like yield and income so a Dividend ETF is appealing to me. I also think a dividend ETFs would be appealing for those that are retired, looking for ways to create a retirement portfolio for income.

    When it comes to Dividend ETFs, there is a lot more variety than in the REIT category. With more choice, its can also be a little more difficult to choose a clear winner. When selecting a dividend ETF, I looked at a number of different things but my priority was to look for a competitive yield and low MERs.

    • Asset, Geographical and Sector Allocation
    • 100% Canadian
    • 30% exposure to energy and financial sector
    • 10% exposure to Utilities, Real Estate and Telecommunications
    • 90% of the portfolio is in 5 sectors
  • MER = 0.2%
  • One of the lowest in the category
  • MERs in this category range from 0.18% to as high as 0.6%
  • NAV
  • When I look at XEI, I think of the average price at about $20 per share. There have been times where its higher and times when its lower
  • Highest price = $24.05
  • Lowest price = $16.41
  • The NAV is definitely a little more volatile than the BMO REIT in terms of the highs and lows but that is because stocks are more volatile than real estate.
  • Distribution
  • Although Yield is not the end all be all, one of the features I like about this ETF is the yield has been consistently over 4%
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    Is It Good To Invest In Only One Mutual Fund

    If you are playing the long game and trying to invest conservatively, there is nothing wrong with investing in only one mutual fund. You may wonder whether you need to add more diversity by having multiple mutual funds, but one fund should have enough variety to offer safety and gains simultaneously.

    Creating Retirement Income With 3 Income Etfs

    Benz: 5 Fund Picks for Conservative Retirees

    When you work with people who are retired or about to retire, one of the most popular questions I hear over and over again is HOW CAN I CREATE MORE INCOME from my investments?

    Its a big challenge today for retirees to invest money in such a way that they can achieve decent returns, create regular income without taking a lot of risk. With interest rates as low as they are, almost every retiree I meet is trying to find ways to increase yield and returns with the least amount of risk possible.

    Although I am not personally retired myself, I am a fan of investments that create income. When I look for investments, I am part of the camp that believes in low cost, passive indexing with the occasional rebalancing mechanisms. If I can find investments that also produce income or yield, I tend to be attracted to investments like REITs, Dividends or Income producing options.

    In the past, I have been pretty candid in sharing some of the investments that I own because it is a question I get all the time . Because I am not licensed to sell investment securities or ETFs, I will simply share with you the 3 ETFs that I own to create monthly passive income and why I own them.

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    Stability And Preserving Purchasing Power Are Key Goals

    Note: This article is part of Morningstar’s March 2015 ETF Investing Week special report.

    ETFs have many features that make them ideal for retired savers. Many ETFs have very low costs — a particularly important attribute for investors who are devoting a sizable share of their portfolios to cash and fixed-income investments. Given that these asset classes’ long-term absolute returns may be lower than that of stocks, keeping expenses down can significantly improve your take-home return.

    And though transaction costs can be an Achilles’ heel for active ETF traders, they’re apt to be less of an issue for retirees. That’s because many retirees are investing large sums all at once–via company retirement-plan rollovers–and don’t plan to make substantial additional contributions to their accounts. Of course, retirees may pay commissions when they need to sell shares to cover living expenses, but many of the major brokerages are offering commission-free ETF trades on many funds in their line-ups.

    There’s also performance to consider while some active fund managers have done a superb job of limiting downside volatility over time, active funds in aggregate haven’t made a compelling case for themselves, particularly on a risk-adjusted basis.

    A total return approach

    This conservative retiree portfolio stakes just 20% of its assets in stocks and holds the rest in a combination of bond funds.

    The role of cash

    No such thing as “one-size-fits-all”

    Value Stock Etfs 20% Weight

    Given the dirt-cheap valuation at the current level, a retirement portfolio should have value picks in it. For the U.S. market, a middle-of-the-road approach with Invesco S& P MidCap Low Volatility ETF XMLV and Invesco Russell MidCap Pure Value ETF should prove gainful. For the international market, investors can take note of Legg Mason International Low Volatility High Dividend ETF LVHI. LVHI yields 4.20% annually.

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    Seek Retirement And Investment Advice

    You can still possibly self-direct your investments in the end if you have the knowledge and you understand your risk tolerance level. But Id suggest that you contact an experienced fee-for-service financial planner who has expertise in the retirement arena. With a fee-for-service advisor you will pay as you go. You can pay by the hour, or perhaps pay a flat fee for the evaluation and plan. You might then set off on your own to build the portfolio with all the right pieces in the right place.

    Id also suggest that you read my review ofRetirement Income For Life: Spending More Without Saving More. Thats a wonderful staple read for retirees and retirement planners. The author, Frederick Vettese, was the chief actuary at Morneau Shepell.

    Bond Bull Market Likely To Continue 20% Focus

    The Simple 7 ETF Portfolio for Canadian Retirees.

    With grave concerns about receding global growth still at the forefront, investors can expect the current trend of a subdued long-term U.S. treasury yields to remain in 2021. This should be a great scenario for bond investing. Though the global economies will rebound in 2021 with vaccine hopes, the central banks are less likely to raise rates. Moreover, a recovering economy would support risk-on sentiments for some more time.

    To do so, investors can tap investment-grade funds like iShares Short-Term Corporate Bond ETF . FlexShares High Yield ValueScored Bond ETF , which yields 6.16% annually, can be an option to play in the junk-bond space.

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    Unsung Heroes Of Canadian Portfolios

    Asset-allocation ETFs arent flashy or headline-grabbing, but they deliver consistent performance

    • 00:08

    Asset allocation ETFs are the unsung heroes of Canadas ETF world. They represent one of the fastest-growing categories of ETFs and have not experienced a monthly outflow of assets since the first was launched in 2018.

    But lets face it: theyre boring.

    Theyre not flashy and are never going to have headline-grabbing short-term performance, Steven Leong, vice-president and head of iShares Product with BlackRock Asset Management Canada Ltd., said of asset allocation ETFs.

    In fact, these ETFs never seek to hit home runs. They do not strive to generate alpha, so they do not hold any tactical positions, Leong said. They simply seek to deliver high batting averages through consistent performance which is exactly what long-term investors seek. In fact, he added, they are an efficient way of harnessing market returns in a low-cost and convenient way.

    Raes added, The primary benefit of asset allocation ETFs is that they are all-in-one solutions. They can represent an entire portfolio or represent the core to be surrounded by other ETFs, funds or direct securities.

    Asset allocation ETFs, also known as balanced ETFs, provide broad market exposure so that investors are diversified across not only stocks and bonds, but also geography and market capitalization, according to Raes.

    Leong said asset allocation ETFs are a natural fit for fee-based advisors.

    Why Invest In Conservative Mutual Funds

    Conservative investments have low relative risk, which means they will generally have low exposure to stocks. Conservative allocation mutual funds typically hold about 20% to 50% stocks and 50% to 80% bonds.

    The stock and bond balance in conservative mutual funds allows for low relative risk investing with enough exposure to stocks for long-term capital growth.

    Here some of the main reasons investors buy conservative mutual funds:

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    Tip : Consider All Your Income Sources

    As you put together your retirement portfolio, you also need to think about the role your savings will play in your overall income plan. For example, how much income do you expect from guaranteed sources like annuities, pensions, and Social Security?

    If these guaranteed income streams will generate enough income to cover the majority of your expenses, you might be able to maintain a more aggressive stance with your portfolio well into retirement, Rob says. Conversely, if youll rely on your portfolio for the majority of your income, youll need to take a more balanced approach with your investments.

    Asset Allocation Mutual Funds And Etfs

    Introducing the Vanguard Retirement Income ETF Portfolio (VRIF)

    In case you didnt know, a target date fund does all this asset allocation stuff for you behind the scenes. This is a type of mutual fund that you select based on your intended retirement year the target date and it shifts away from stocks into bonds as you age and near retirement, just like weve discussed. Youll typically have a range of these to choose from in your 401k from your employer. Read the details on these mutual funds to make sure they match your risk tolerance. It may not immediately be clear when or how quickly the shift from stocks to bonds occurs.

    In the interest of full disclosure, I usually find target date funds to be too conservative and suboptimal in their attempted one-size-fits-most approach. You also typically pay a bit extra in fees for their convenience. That said, target date funds are great for someone wanting to be completely hands-off theyre as simple as it gets.

    Then there are some slightly more advanced, exotic products that use leverage to provide enhanced exposure to a diversified mix of assets. Their details are beyond the scope of this article, but Ill mention them briefly. NTSX is 90/60 and SWAN is 70/90.

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    Dividend: The First Bet 30% Of The Portfolio

    Be it a bull or a bear market, investors mostly love dividend-paying stocks. After all, who doesnt like a steady stream of current income along with capital appreciation?

    Dividend-paying companies are usually good for value investing and are in demand when volatility flares up. Investors have two options in this field one with steady dividend growth and the other with high yield. Companies that raise dividend regularly appear steadier than those that offer higher yields. But then high-yielding ones also make up for the capital losses to a large-extent, if there is any.

    So, investors can park 15% of their money into dividend aristocrat ETFs like Vanguard Dividend Appreciation ETF and ProShares S& P 500 Dividend Aristocrats and 15% in high-yield ETFs like Vanguard High Dividend Yield Index Fund ETF Shares and Invesco High Yield Equity Dividend Achievers ETF .

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