Synopsis
If you’re saving for retirement, you for sure will want to consider making an investment in ETF’s. While mutual funds have long been the staple of long-term investing, exchange-traded funds have the advantage of offering lower expense ratios. This in turn makes them cheaper to own, even though they usually hold similar assets. In particular, the following 5 ETF’s have good ratings and may achieve above-average growth in the near future.
SPDR Dow Jones Industrial Average ETF (NYSE:DIA)
Some of America’s most well-known and largest corporations can be found in the Dow Jones Industrial Average. These 30 companies have long histories of outperformance, and together have trillions of dollars in assets and market caps. As a result, they tend to be safer than other equity investments.
DIA, an ETF that passively follows the Dow index, is composed of these 30 stocks. Because the fund is passively managed, it does not try to beat the Dow; rather, it simply attempts to replicate its performance. The fund charges 17 basis points per year for its passive management, which is much lower than the 100+ basis points a mutual fund typically charges.
Although most ETF’s pay dividends every three months, DIA distributes its income once per month. If you’re looking for an investment that will pay income more frequently than quarterly, DIA would be a wise choice. The monthly income stream could help to pay bills during retirement. The fund’s annual yield is currently 2.06%.
DIA has received excellent grades from Morningstar, a well-known stock analyst. The fund has five stars out of five over 3-year, 5-year, and 10-year periods. Morningstar considers DIA’s risk profile to be below average, while its return potential is considered high.
Fidelity Core High Dividend ETF (NYSE:FDVV)
Fidelity has a similar fund in FDVV. However, this ETF holds over 100 stocks, and some of these are mid-cap firms, meaning that their market capitalizations are smaller than the 30 stocks in DIA. Because these businesses are smaller, they generally have greater upside potential. In order for a stock to be included in Fidelity’s fund, it has to be expected to increase its payout in the future.
The types of companies in FDVV are mostly American firms. About 4% of the corporations are headquartered outside the US The fund has lots of REIT’s, but only a few consumer defensive stocks, compared to similar funds.
FDVV is a rather new security. It was set up in 2017, so there’s not much return history to speak of. It returned nearly 14% in that year. Because the ETF is so new, Morningstar has not yet rated it. Its expense ratio is a very low 29 basis points.
Vanguard FTSE Developed Markets (NYSE:VEA)
It’s always a good idea to bring some diversification to your portfolio in order to capture return potential in other markets. That’s exactly what VEA tries to do. Launched by Vanguard in 2008 (not the best year to start an investment), the fund has delivered nearly 7% annually over the past five years.
Over 95% of the fund’s holdings are in non-US equities. Countries that have a large presence in VEA include Germany and the United Kingdom. Companies include Royal Dutch Shell, Allianz, Nestle, and Samsung.
Vanguard is known to build funds with low expense ratios, and it certainly doesn’t fail here. The fund charges just 0.07% per year, which is a tremendous bargain. VEA has over $70 billion in assets, which makes it a very large fund.
Vanguard’s ETF distributes earnings every three months. Its current yield is about 2.8%. Morningstar rates the fund’s return potential higher than its risk, a good sign.
iShares Core US Aggregate Bond (NYSE:AGG)
Stocks are generally more volatile than bonds, so if you’re concerned about price fluctuations, or simply want a shorter-term investment, you might want to consider purchasing fixed-income assets. In particular, iShares’ bond fund AGG has a very stable price history. Its worst year is only 1.98% in 2018. In one of the worst years in recent memory, 2008, AGG actually went up 7.9%.
The iShares fund holds cash and bonds. Most of these instruments are rated AAA, the highest possible bond rating. There are many US Treasury bonds in the portfolio, but there is also some agency debt. There is a smaller holding in corporate bonds. The typical coupon rate in the fund is 3.19%.
Although Vanguard’s fund was impressive at just 7 basis points, iShares has thrown down the gauntlet by charging just 0.05% per year. How it can afford to do that is anyone’s guess. AGG does have over $54 billion in assets. It pays distributions monthly.
iShares US Real Estate (NYSE:IYR)
Last, but definitely not least, in our survey is a REIT fund from iShares. IYR invests in real estate investment trusts. These are companies that hold physical properties and pay quarterly dividends, which are earned from rents and other forms of income.
All of the REIT’s in IYR are US companies. They are mid-cap and large-cap firms. Some of the better known REITs in the fund include Vornado Realty Trust (NYSE:VNO) and Public Storage (NYSE:PSA). The fund’s annualized 15-year return is over 9%, a very good sign.
The average daily volume of IYR is 7 million, which is very high. This means that the bid-ask spread will be low, which reduces the cost of trading. The fund’s expense ratio is 44 basis points, and it pays dividends quarterly.
Recap
By making good selections of exchange-traded funds, you can add high return potential to your nest egg while keeping risk to a minimum. If you need safety about all else, be sure to look at a bond fund. If long-term return is of higher importance, a stock fund may be best. And don’t forget a REIT fund, which will pay consistent dividends.
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