If you're a retiree, you may feel anxious investing in the stock market right now. While the S&P 500 has been rallying and generating above-average returns for three consecutive years, you may be worried that at some point, a correction could be coming. Or maybe, with all the investments into artificial intelligence (AI), a bubble has been created, and a full-blown crash could be on the way.
But the good news is there are ways to mitigate your exposure to tech and to keep your risk relatively low while remaining invested in stocks. Exchange-traded funds (ETFs) with low volatility and that pay dividends can be ideal options for retirees to turn to right now. Three ETFs that tick off those boxes are Schwab U.S. Dividend Equity ETF (SCHD 0.58%), Vanguard Value Index Fund ETF (VTV 1.20%), and iShares Russell 1000 Value ETF (IWD 1.34%).
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Schwab U.S. Dividend Equity ETF
A popular fund to consider if your focus is on stability and dividends is the Schwab U.S. Dividend Equity ETF. At 3.7%, this ETF pays more than 3 times the S&P 500 average of 1.1%. It's a reliable dividend investment you can hang on to because the Schwab fund carefully holds dividend stocks that have strong financials that can support their payouts. Its focus isn't just to load up on all sorts of income investments; there are around just 100 stocks in the ETF.
An attractive feature about the fund is that its focus is on sectors that could be relatively safe in relation to the overall market in a downturn, including energy, consumer staples, healthcare, and industrials. Those four sectors make up around two-thirds of its entire holdings.
NYSEMKT: SCHD
Key Data Points
The stability of the fund is clear with its low beta value of 0.68. The lower the beta is, the less the ETF has moved in relation to the broader market, and it's a way to gauge just how volatile it is. A beta of 1 would indicate that the investment moves in unison with the market. Its 2% returns over the last 12 months may seem boring, but the fund can make for a solid low-risk investment to hang on to and collect dividends from. Its expense ratio of 0.06% is also fairly low.
Vanguard Value Index Fund ETF
Another top ETF for retirees is the Vanguard Value Index Fund ETF. It yields a solid 2% and has minimal fees, with its expense ratio coming in at just 0.04%. Its beta value of 0.76 also suggests that this can offer you some protection from the market's wild swings. In the past 12 months, it has risen by more than 14%.
This ETF holds more than 300 stocks, focusing specifically on large-cap value stocks. The average stock in the fund trades at 20 times trailing earnings, which is lower than what the S&P 500 averages -- a price-to-earnings multiple of over 25. By focusing on more mildly valued investments, this fund can help reduce some of your overall risk in the markets.
NYSEMKT: VTV
Key Data Points
Just 8% of the ETF's holdings are in tech, with its focus also being on more stable sectors such as financials, healthcare, and industrials. The Vanguard Value Fund will effectively give you a more value-focused way of tracking the overall market. There will still be some risk, but it likely won't be as vulnerable as holding S&P 500 index funds.
iShares Russell 1000 Value ETF
The iShares Russell 1000 Value ETF is another value-focused fund that retirees might appreciate. Its yield is the lowest on this list at around 1.7%, but it's still above average. Its expense ratio of 0.18% is also the highest, but it's still fairly low compared to other funds. And its beta of 0.86 means this ETF more closely aligns with the market than the ETFs listed above; its 15% returns over the past year are not far behind the S&P 500's gains of 16%.
This fund is similar to the Vanguard Value fund, but with many more stocks -- it had 871 holdings as of Jan. 5. Given its vast portfolio, it's inevitable that it will more closely track how the market does. And at 11%, tech stocks do have a bigger piece of the pie with this investment.
NYSEMKT: IWD
Key Data Points
The iShares Russell 1000 ETF can offer a good compromise if you want to stay largely invested in the stock market and not fall too far behind the S&P 500, while being focused on value stocks. This ETF's holdings are primarily in the financial, industrial, and healthcare sectors. Together, those stocks make up nearly half of its portfolio, and that can help offer some valuable diversification for risk-averse investors.
