Retirement isn't cheap. According to the 2022 Survey of Consumer Finances, the average family has just $333,940 saved, so most families have some work to do to get that nest egg to a level that will make retirement comfortable. The good news is that patience and a plan can go a long way.
So, if you want to retire with $1 million or more, you're in luck. There's likely still time to make this a reality. Anyone can build a simple and effective retirement plan using exchange-traded funds, large groups of stocks that trade under one ticker symbol.
These four ETFs are different from one another. Together, they make a diversified and dynamic wealth-building machine that will take your retirement savings to the next level while reducing risk.
1. SPDR S&P 500 ETF: Invest in America's best
Want to bet on America's world-leading economy? The SPDR S&P 500 ETF Trust (SPY +0.74%) could be the best option. This ETF tracks the S&P 500, an index of 500 of America's most prominent corporations. The S&P 500 has proven to be a nearly automatic wealth-generator over time. The index has marched higher, enduring recessions and wars throughout history, to generate roughly 9% to 10% annualized returns. That means your investment is doubling every seven or eight years on average. Do that math over decades, and it becomes clear how mighty the S&P 500 is.
NYSEMKT: SPY
Key Data Points
A committee monitors and adjusts the S&P 500. Periodically, the committee removes fundamentally declining companies in favor of innovative and growing up-and-comers. The index always looks to include the best America's economy offers, explaining its long track record of growth. Buying this ETF hitches you to the wagon and instantly adds diversity to your portfolio. An S&P 500 index fund like SPDR S&P 500 ETF Trust is an excellent foundation for any retirement plan or long-term investment strategy.
2. Vanguard Total World Stock ETF: The diversity broadens
As great as the U.S. stock market has been, you shouldn't put all your eggs in one basket. It's healthy to diversify to non-U.S. markets; the Vanguard Total World Stock ETF (VT +0.40%) can help. This ETF is an investment in the global economy because it exposes investors to worldwide markets. Approximately 37% of the ETF is in non-U.S. stocks, including nearly 10% in emerging markets that offer higher potential growth than developed countries.
NYSEMKT: VT
Key Data Points
Although it hasn't performed as well as the S&P 500, the ETF has averaged 7.5% annual returns since its inception in 2008. However, it offers substantial diversification (it contains nearly 10,000 stocks) and easy international exposure without sifting through foreign markets. Vanguard's Total World Stock ETF is a fine choice to ensure your retirement savings don't miss out on the economic growth outside America without taking on much additional risk.
3. iShares 20+ Year Treasury Bond ETF: U.S. Treasuries investing made simple
Diversifying your retirement savings includes looking beyond stocks to other assets. The iShares 20+ Year Treasury Bond ETF (TLT +0.14%) offers a simple way to invest in U.S. Treasury bonds, which is how America borrows money. This ETF tracks an index of U.S. Treasuries with long-term maturities (20-plus years). The idea behind owning this ETF is to diversify outside of stocks and generate reliable income. The ETF pays a monthly distribution with a 3.8% trailing-12-month yield.
NASDAQ: TLT
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Treasuries are generally less volatile than stocks, though that's not always true. In 2022, interest rates rose at the sharpest pace in decades, punishing bond prices and wiping out years of returns for the iShares 20+ Year Treasury Bond ETF. That's unfortunate, but it was also a worst-case scenario and a likely outlier to typical situations. It shouldn't prevent you from considering Treasuries (and this ETF) as a tool to generate income and stability as part of your retirement strategy.
4. Schwab U.S. Dividend Equity ETF: Generate passive income with an ETF
Dividend investing can be a powerful long-term strategy. The Schwab U.S. Dividend Equity ETF (SCHD +0.09%) can give you a diverse portfolio of dividend-paying stocks without putting the work in to pick them yourself. Dividends are cash payments from companies to shareholders. That means dividends are firm investment returns that can't be lost if the market crashes. Dividends can also be reinvested or spent as you please.
NYSEMKT: SCHD
Key Data Points
The Schwab U.S. Dividend Equity ETF holds approximately 100 blue chip dividend stocks across various industries. It pays a quarterly distribution with a trailing 12-month yield of 3.6%. Holding stocks means the ETF can sometimes be volatile, but it also offers potential price appreciation. Over the past decade, the ETF has averaged 10.8% annual returns. That makes it a balanced investment option that investors can buy, reinvest the dividends, and sleep well while it compounds throughout their working years.
