Investing in retirement is vastly different from investing during your primary working years. You need to switch from a focus on growing your capital to a focus on protecting your capital and living off of it. That means generating income becomes an increasingly important part of the mix -- but only if it doesn't require material increases in risk. Vanguard Total Bond Market ETF (NASDAQ:BND), Vanguard Utilities ETF (NYSEMKT:VPU), and SPDR S&P Dividend ETF (NYSEMKT:SDY) are three exchange-traded funds, or ETFs, that will help you invest the right way after you retire.

1. The entire U.S. bond market in one purchase

Vanguard Total Bond Market ETF is not an exciting investment. But that's the point: Bonds are meant to provide stability for your broader portfolio. As you enter your retirement years, bonds should become a more important part of your asset mix.

three gold eggs in a nest made of money

If it's time to live off of your nest egg, then conservative ETFs should be a core option for you. Image source: Getty Images

You can try to cherry-pick the "best" bond ETFs, but having a core fund that represents the entire U.S. bond market will provide a foundation on which you can layer potentially higher risk investment options. To put a number on just how boring the Vanguard Total Bond Market ETF is, its standard deviation over the past decade was just 3.4. Standard deviation is a measure of volatility, with higher numbers suggesting more volatility. For reference, the SPDR S&P 500 ETF (NYSEMKT:SPY) has a standard deviation of around 14.6 over that same time period.

The ETF's trailing yield is relatively modest at around 2.6%, but that still surpasses the yield of the SPDR S&P 500 ETF, which is around 1.8%. And it's important to keep in mind that the Vanguard Total Bond Market ETF is meant to be a foundational investment. As an index fund, it tracks the U.S. bond market, so performance will be, by definition, average. The relative stability and low cost (its expense ratio is a tiny 0.05%) of this ETF, however, allow you to branch off into riskier assets.

For example, this relatively boring Vanguard bond ETF might make owning a little of a high-yield ETF like the SPDR Bloomberg Barclays Short Term High Yield Bond ETF (NYSEMKT:SJNK) easier to handle. SJNK's biggest attraction is its trailing yield of around 5.4%, but that comes with a standard deviation that's nearly 50% higher than that of the Vanguard ETF over the past five years. (It's also relatively costly, with an expense ratio of 0.40%.) While I'm not suggesting you buy SJNK, owning a low-cost foundational bond ETF like Vanguard Total Bond Market ETF provides you the leeway to do so if you want to because of the diversification and stability it provides.

2. Add some energy to the mix

Although you should have a broad-based stock ETF like the SPDR S&P 500 ETF as a core holding, one Vanguard stock ETF you might want to consider for your retirement portfolio is the Vanguard Utilities ETF. The fund is designed to broadly track the performance of the U.S. utility sector, including electric, gas, and water utilities.

The ETF has a very low expense ratio of 0.10%, and a trailing yield of around 3.2%, 1.4 percentage points higher than the S&P 500 Index tracker noted above. That yield advantage is significant given that the fund's standard deviation of 13.7 over that past 10 years is slightly lower than the SPDR S&P 500 ETF's 14.6 standard deviation. Vanguard Utility's performance hasn't kept up with the S&P over the long haul, which makes sense given its investment focus, but the yield advantage is huge if you are looking for current income.

Key Cost, Yield, and Volatility Stats

ETF Name

Expense Ratio


10-Year Standard Deviation

Vanguard Total Bond Market ETF




Vanguard Utilities ETF




SPDR S&P Dividend ETF








Data source: Morningstar

Basically, owning a little bit of this ETF can help to kick up the income you generate from the stock side of your portfolio without increasing the overall volatility of your portfolio. It shouldn't be your only stock holding, but it can provide a nice, relatively high-yielding complement to a more broadly diversified ETF portfolio.

3. A focus on dividends

Assuming that you have a core stock ETF holding, you might also want to think about adding the SPDR S&P Dividend ETF. This fund tracks companies that have increased their dividends for at least 20 consecutive years. It then weights the holdings by yield, putting more assets into the highest yielding names. Effectively, it is using dividend history to screen for the companies that have proven they can continue to increase dividends in good markets and bad. Then it gives the most weight to stocks that are most likely to be out of favor (as indicated by a relatively high yield).

SPDR S&P 500 Dividend ETF's trailing yield is roughly 2.4%, 60 basis points higher than the broader SPDR S&P 500 ETF, and its standard deviation is roughly similar to that of the S&P 500 index. Like the utility ETF above, you can get a little more yield without a material increase in volatility.

And while this fund has underperformed the S&P 500 over the trailing five-year period, it outperformed by roughly two percentage points over the trailing 10-year period. Over the long-term, you shouldn't have to worry about giving up too much on the performance side of the equation here; the more material drawback is that the fund's 0.35% expense ratio is a little high. However, for the added yield it might be worth the expense for conservative, income-seeking investors.

Core and explore

If you are building a retirement portfolio, Vanguard Total Bond Market ETF is a great core investment around which to layer higher-yielding and more volatile investments. It is boring, but that's really the fund's most attractive attribute. And since bonds are really meant to provide stability, this is the type of fund you should make sure you start with as you build a retirement portfolio that will keep you in the market through thick and thin.

After that, consider branching out. While a core stock holding is also a good idea (like an S&P 500 Index ETF), with a solid bond foundation you can afford to get a little more creative on the stock and bond sides of your portfolio. Two good options on the stock side are the Vanguard Utility ETF and SPDR S&P Dividend ETF, which both allow you to increase yield over an S&P 500 Index ETF while not materially altering the overall volatility of your portfolio -- which will make it easier to stick around when markets hit a rough patch. If you are building your portfolio today, this trio of ETFs should be on your short list.