Building a retirement portfolio that can sustain you throughout your senior years can be challenging because you need the right balance between growth and security. You also don’t want to constantly monitor your portfolio, as you’ll be too busy enjoying life. After all, isn’t that what you worked so hard for all these years?
In order to keep the money from your investments flowing in while simultaneously providing portfolio stability, you need to have some key holdings that can serve as anchors for your other investments. With this in mind, three Motley Fool contributors recommend the Invesco S&P 500 Equal Weight ETF (NYSEMKT:RSP), the Vanguard Total Bond Market Index (NASDAQ:BND), and the SPDR S&P Dividend ETF (NYSEMKT:SDY) as core investments for your retirement portfolio.
Image source: Getty Images.
Barbara Eisner Bayer (Vanguard Total Bond Market ETF): If you’ve spent your working years funneling your retirement savings into stocks, like I have, you might not be familiar with the nuances of investing in bonds. But they’re a necessary component of principal preservation once you stop working and start living off your savings.
But where to begin? There are Treasury bonds, municipal bonds, corporate bonds, and savings bonds. What’s a stockhead to do? The answer, of course, is to buy the Vanguard Total Bond Market ETF, which provides exposure to numerous bonds and can serve as the anchor for the bond portion of your retirement portfolio.
According to Vanguard, when you buy this fund, you’ll get “broad exposure to the taxable investment-grade U.S. dollar-denominated bond market, excluding inflation-protected and tax-exempt bonds.” In other words, you’ll have very safe and relatively risk-free exposure to the bond market as a whole.
The fund holds total net assets worth $317 billion and owns 10,099 bonds with an average duration of 6.8 years, so there’s very little turnover. And with its variety of bonds — 65% in U.S. government bonds, 19.2% in A-level bonds, and 15.8% in B-level bonds — you’re looking at a pretty safe investment. With an extremely low expense ratio of 0.035%, this Vanguard fund won’t cost you an arm and a leg to own.
Don’t expect stock market style returns, however. Remember: Bonds are there to provide stability and preservation of principal, not mouth-watering growth. The three-year average return for this ETF is 5.41%, which is quite a bit higher than you’d normally expect. Since its inception in 2007, the fund has provided investors with an average annual return of 4.16%, which isn’t too shabby considering the security it provides.
All retirement portfolios need stability, and bonds are where that treasure can be found. The Vanguard Total Bond Market ETF is the perfect place to put your money to anchor a secure and worry-free retirement.