4 ETFs That Are Everything You Need for Retirement | Smart Switch: Personal Finance

(Stefon Walters)

Saving and investing for retirement doesn’t have to be complicated. With just a few index funds, investors can have a complete and diversified portfolio ready to put them in a good position to be financially comfortable in retirement. Here are four exchange-traded funds (ETFs) that can get you into retirement.

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Include an S&P 500 index fund

There’s a reason why S&P 500 The index, which tracks the 500 largest US companies, is one of the most popular investment indices. Comprised of large-cap companies spanning every industry you can imagine, an investment in the S&P 500 is a surefire way to achieve instant diversification within your portfolio. And due to the size of the companies within the S&P 500, they are generally more financially stable than smaller companies.

An S&P 500 exchange-traded fund like the Vanguard S&P 500 Index Fund ETF (NYSEMKT: VOO) is a good option due to its low expense ratio of 0.03%.

Give yourself the opportunity for high growth

Unlike large-cap companies, which tend to be more stable, investing in small-cap companies is all about the possibility of high growth potential. As companies grow and mature, the room for exponential growth becomes limited. So investors interested in that kind of growth potential should look to small-cap companies.

With this high growth potential comes greater risks. Small businesses are more prone to high volatility and are much more likely to run into financial trouble than a company worth tens of billions. Because of the risk involved with small-cap stocks, you should consider a small-cap index fund that spreads your risks. The Vanguard Small Cap ETF (NYSEMKT: VB) It consists of over 1,540 companies, ensuring you get diversified holdings.

Include a mid-cap ETF

Mid-caps are a good mix of small enough for good growth potential, but also large enough to have a bit more financial resources than some younger companies. You don’t get all the risks involved with small caps, but you don’t get the huge advantage either; You don’t get the stability of large-cap companies, but you also have more room for growth. It is a happy medium for many people.

The Vanguard Mid-Cap ETF (NYSEMKT:VO) it has a low expense ratio of 0.04% and consists of 380 mid-caps. It is also distributed among many industries. The top five include the following:

  • Technology (16.4%)
  • Industrial (14.2%)
  • Discretionary Consumption (13.8%)
  • Finance (11.5%)
  • Health care (11%)

Don’t just focus on US companies.

Typically, a complete investment portfolio should consist of international companies. You are limiting yourself as an investor if you are only looking to invest in American companies because there are great companies around the world that are sound investments. Instead of researching different regions and thriving companies within those regions, a solid ETF like the Vanguard Total International Stock ETF (NASDAQ: VXUS) can do a lot of the heavy lifting for you.

VXUS consists of 7,896 companies in the following regions:

  • Europe: 39.5%
  • Pacific: 26.8%
  • North America: 8%
  • Emerging markets: 25.2%
  • Middle East: 0.5%

The fund’s top 10 holdings represent 9.2% of all assets and include some well-known names such as Samsung, ToyotaY Nestle. International markets are generally classified as developed or emerging. The Vanguard Total International Stock ETF offers investors exposure to both types of markets and, with an expense ratio of 0.07%, is much cheaper than similar funds of its type.

Let your investments grow tax-free

In a regular brokerage account, you’ll owe capital gains taxes every time you sell an investment for a profit (how much depends on how long you’ve owned the investment). The same goes for retirement accounts like 401(k)s and traditional IRAs; You receive your tax breaks in advance and have to pay taxes on the withdrawals you make in retirement.

However, a Roth IRA works differently. You contribute after-tax money to your Roth IRA, and your investments and earnings grow and compound tax-free. Since you paid your taxes in advance, you can withdraw your money without worrying about owing taxes when you’re retired. Taking advantage of a Roth IRA can easily save you tens of thousands of dollars in taxes in retirement. If you’re eligible to contribute to a Roth IRA, you won’t regret using it.

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Stefon Walters has positions in the Vanguard Mid-Cap ETF, the Vanguard S&P 500 ETF, the Vanguard Small-Cap ETF, and the Vanguard Total International Stock ETF. Motley Fool holds positions in and recommends the Vanguard Mid-Cap ETF, the Vanguard S&P 500 ETF, the Vanguard Small-Cap ETF, and the Vanguard Total International Stock ETF. The Motley Fool has a disclosure policy.

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