When entering retirement, your investment strategies typically undergo a significant transformation. The goal shifts from accumulating wealth to generating a sustainable income stream. For many retirees, dividend-paying exchange-traded funds (ETFs) become essential tools in achieving this objective. If you prefer a straightforward approach that maximizes your time for leisure activities like travel and family bonding, consider these two highly effective ETFs for a robust, balanced portfolio.
Prioritizing the Equity Component: Schwab U.S. Dividend Equity ETF
Establishing a well-rounded retirement portfolio necessitates careful attention to the equity segment. Ideally, this should account for at least 60% of your asset allocation in the early years of retirement—possibly increasing to 80% for those with a more aggressive stance. Growth-oriented equities are crucial for maintaining your portfolio’s purchasing power against inflation over time.
The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) stands out as an excellent choice. Focusing on companies that have consistently increased their dividends for a decade or more, this ETF prioritizes high-quality, reliable entities while deliberately excluding real estate investment trusts (REITs).
Once a list of these dependable dividend payers is compiled, Schwab creates a composite score that ranks these stocks based on several factors: cash flow relative to total debt, return on equity—which reflects a company’s profitability—dividend yield, and the five-year dividend growth rate. The top 100 companies, based on this scoring system, are ultimately chosen for the fund.
With a remarkably low expense ratio of just 0.06%, SCHD offers a dividend yield near 3.5%. While this might not seem extravagant compared to other investments, it is significantly higher than the mere 1.2% yield from the S&P 500. Moreover, the ETF presents a well-diversified portfolio, allowing retirees not only to enjoy regular income but also to explore additional higher-yield equity investments like REITs or utilities.
Balancing Growth with Bonds: Vanguard Intermediate-Term Bond ETF
Equities provide both growth and income; however, they can introduce volatility to your portfolio. Hence, incorporating bonds is essential for achieving stability. If you prefer a conservative approach, a short-term bond fund may be suitable. However, if you’re willing to endure slightly more risk for additional returns, an intermediate-term bond fund such as the Vanguard Intermediate-Term Bond ETF (NYSEMKT: BIV) is an excellent pick, boasting an ultra-low expense ratio of 0.04%.
This ETF features a well-diversified selection of high-quality bonds with maturities ranging from five to ten years. Its portfolio encompasses U.S. government bonds, investment-grade corporate bonds, and investment-grade international bonds denominated in U.S. dollars, incorporating over 2,200 bonds to promote comprehensive market coverage. Notably, U.S. government bonds comprise around 55% of the assets.
Vanguard’s intermediate-term bond ETF also yields roughly 3.5%, surpassing the yield offered by more conservative short-term investments. The potential for slightly higher returns from this risk tier makes it a compelling option for retirees looking to optimize their income while maintaining some exposure to equities.
Creating a Cohesive Financial Strategy with Just Two ETFs
By integrating the Schwab U.S. Dividend Equity ETF and the Vanguard Intermediate-Term Bond ETF, retirees can cultivate a diversified, high-quality, income-generating portfolio with minimal complexity. This combination provides ample flexibility for retirees to enhance their investments further by incorporating additional higher-yielding securities if they desire.
To maintain your desired balance, consider rebalancing your asset allocation annually. With just two well-chosen ETFs, you can confidently secure a strong financial foundation while freeing up your time for the experiences you treasure most.
In the ever-evolving financial landscape, seizing the opportunity to invest wisely is crucial. As market dynamics shift, tapping into the potential of dividend ETFs could position your retirement portfolio for long-term success. Whether you seek reliable income or growth, these selections are a smart way to navigate the complexities of retirement investing.