Congratulations, my friend. You've made it. After many years of hard work, you've achieved your financial independence.
And now, you'd like to keep it.
Fortunately, retirement investing doesn't have to be complicated. A few well-chosen exchange-traded funds can go a long way toward providing you with the capital preservation, growth, and income you'll need to fund a long and happy retirement. To help you in this regard, here are three dividend ETFs that can help form the foundation of your retirement investment portfolio for many years to come.
Strengthen your core
Apologies to Sir Mix-A-Lot, but I like big moats and I cannot lie.
A wide economic moat built upon powerful competitive advantages is the single greatest determinant of business' long-term success, in my opinion. In fact, this is the core principle upon which my personal "Tier 1" investment philosophy is built. And it's why I was intrigued when I first learned about the iShares Core High Dividend (HDV 1.76%) ETF.
This ETF tracks the Morningstar Dividend Yield Focus Index, which consists of 75 high-yield U.S. stocks of companies that are expected to earn above-average returns on capital over a long period of time thanks to their strong competitive positions. In turn, these high-quality and financially sound businesses are expected to sustain and grow their dividends over time.
The iShares Core High Dividend ETF offers sector diversification, with consumer staples currently comprising the largest allocation at 22%. Energy (16%), healthcare (14%), telecommunications (13%), and industrials (12%) round out the top five, with information technology, utilities, consumer discretionary, and a small sliver of financials making up the rest.
In all, the iShares Core High Dividend ETF currently yields 3.4%, and it sports an ultra-low expense ratio of 0.08%. This high-yield and low cost ETF holds true to its name and could form the core of a retiree's portfolio.
Smaller companies, bigger return
For retirees willing to take on more risk in exchange for the possibility of even greater rewards, small- and mid-cap stocks can deliver higher returns than their larger brethren. And one excellent way to gain exposure to these stocks is through the WisdomTree SmallCap Dividend Fund (DES 2.58%).
This ETF has roughly 60% of its assets invested in small-cap stocks and about 40% in mid-cap companies. Yet unlike typical small-cap funds, the WisdomTree SmallCap Dividend Fund offers a bountiful yield of nearly 3%. And the fund's expense ratio is reasonable at 0.38%.
With its smaller-company focus, the WisdomTree SmallCap Dividend Fund pairs nicely with a mostly large-cap fund like the iShares Core High Dividend ETF and gives investors access to areas of the U.S stock market they otherwise would miss out on if they owned only large-cap stocks. Even better, a portfolio that contains both large and small companies should have a greater overall expected return profile while still maintaining a lid on volatility.
Add some international flavor
Retirees seeking further diversification may wish to add an international element to their portfolios. One outstanding way to do that is through the WisdomTree Global ex-U.S. Quality Dividend Growth Fund (DNL 3.32%).
This ETF gives investors access to 300 dividend-paying international companies located in both developed and emerging markets. Weightings are based on fundamental growth and quality factors, including:
- Long-term earnings growth expectations.
- Three-year historical averages for returns on equity and assets.
- Market capitalization of at least $2 billion.
All told, the WisdomTree Global ex-U.S. Quality Dividend Growth Fund -- with its 2% dividend yield and 0.58% expense ratio -- offers retirees a relatively low-cost way to own a diversified collection of high-quality, dividend-paying international stocks. And when combined with the iShares Core High Dividend ETF and the WisdomTree SmallCap Dividend Fund, these ETFs provide a convenient way to own a broad swath of strong, income-generating global businesses.