Let's first note in this era of very low interest rates and our thinking this period has some years to run, likely more than a decade owning bonds is deadly to principal and certainly income generation. When interest rates do up, which they will at some point, existing bond values go down. Therefore we did not look for anything involving bonds. Thus we settled on a stock and cash portfolio. Below are three options that should suit any retirement investor. We also highly suggest one avoid any fund or ETF that concentrates in any sector or tries to time the market.
For those needing more income and less growth Vanguard's High Dividend ETF suits nicely. VYM is a broad based stock ETF , 407 holdings, with emphasis on large and growing companies who produce a steady stream of growing dividend income. The current yield is just over 3%. These companies rarely reduce their dividend even in recessions and raise them when business is good. Your investment might decrease in value, but recovers nicely in economic expansions. The stocks here are solid large cap companies that have staying power. This is an all in fund for most retirement people if one keeps a cushion of cash on the side. The cash can be invested in the Federal Money Market Fund which offers a current 1.56% yield which is quite good in these times.
For those wanting equal parts growth and yield Vanguard's 500 Index ETF is perfect. VOO includes the largest 500 companies in the US and yields right at 2%. Like the above ETF you get solid and growing yield with more emphasis on growth and less taxable income until you need it. This is the safest ETF out there and combined with the Federal Money Market fund mentioned above will give one steady income and advancing appreciation of assets. Most people need to be here.
For those wanting a more tax efficient ETF Vanguard's Growth ETF is the one. VUG again rests on large cap companies, currently 282, with above average growth prospects and some yield, in this case right at 1%. Combine that with the Vanguard Muni Market Fund currently yielding 1.1% federal tax free and you got long term growth and good tax efficient yield.
No need to select some or part of these portfolios just select one and you have little concern about safety going forward and no real concerns about making changes ever. The only reason to change would be a change in your needs to retirement. Combining one of these ETF's with Social Security and any pension should take care of your income needs and is inflation protected going forward.
