When it comes to investing for retirement, circ*mstances vary widely among investors. However, it is fair to say that investing for retirement generally requires a strategic approach that should balance growth potential, capital preservation and income generation. Each of these three objectives are emphasized at different points over an individual’s investment horizon.
For instance, younger retirement investors might allocate more dollars to the “growth potential” portion of the portfolio, while those closer to retirement might put an emphasis on “capital preservation.” Selecting the right blend of exchange-traded funds (ETFs) that can tackle one or more of these objectives can provide a well-rounded portfolio that meets the needs of retirees.
Benefits Of ETFs In Retirement Investing
Exchange-traded funds offer plenty of benefits for retirement investors. ETFs provide embedded diversification, helping to mitigate risk compared to individual stock picking. ETFs also tend to have lower expense ratios than actively managed mutual funds.
The ability to trade ETFs throughout the day on an exchange, like stocks, is helpful for portfolio rebalancing or tactical adjustments. And there is a lot of variety in the ETF world. ETFs cover a wide range of asset classes, sectors–including healthcare, technology and energy–and strategies, allowing investors to construct portfolios that target the different themes.
Criteria Used For Choosing The Best iShares ETFs
To arrive at the four iShares ETFs on this list, I filtered for iShares ETFs that targeted the objectives I have mentioned above: long-term growth potential, capital preservation and income generation. I also wanted to add multiple layers of diversification. including geographical, to mitigate periods of U.S. underperformance. I also included a non-equity ETF as another tool for capital preservation and income generation. The four ETFs selected have strong track records, as well as low expense ratios alongside their thematic qualities.
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4 Best iShares ETFs For Retirement Investing
Source: Author reporting and data from YCharts.
1. iShares Core S&P 500 ETF ETF
IVV Overview
Current Share Price: $532.30
Number of Holdings: 503
Market Cap: $462.8 billion
Expense Ratio: 0.03%
Dividend Yield: 1.4%
The iShares Core S&P 500 ETF tracks the , which provides exposure to 500 of the largest U.S. companies across sectors like tech, healthcare and financials. It is a market-cap weighted index, meaning that the fund tilts towards companies with the highest market capitalizations (share price x total shares outstanding). As such, the fund is heavily weighted towards some very familiar mega-cap names such as Microsoft
Why IVV Is A Top Choice
IVV is a diversified core holding tracking 500 of the largest publicly traded companies in the U.S., serving as a broad indicator of the U.S. market's health. This allows investors to capture exposure to some of the U.S.’ largest, most innovative companies without needing to pick winners. In terms of its function within a retirement portfolio, IVV mainly offers long-term growth potential. The fund has a strong track record, with 15% annualized return over the past five years. While its current P/E of 26.2 might suggest that valuations are a bit stretched, for long-term investors the diversification and low costs (0.03% expense ratio) can help offset the fund’s current valuations. And with a 1.5% dividend yield, IVV provides a bit of income too.
2. iShares Core High Dividend ETF iShares Core High Dividend ETF
HDV Overview
Current Share Price: $111.39
Number of Holdings: 74
Market Cap: $10.5 billion
Expense Ratio: 0.08%
Dividend Yield: 3.4%
HDV is benchmarked to Morningstar Dividend Yield Focus Index, which consists of 75 high-yielding U.S. stocks. The index considers a layer of “quality” where its constituents are screened for financial health and dividend sustainability within the universe.
Why HDV Is A Top Choice
HDV focuses on high dividend-yielding U.S. companies. HDV not only offers potential for capital appreciation, but also provides a steady income stream through quarterly dividend distributions (currently at a rate of $0.835 per share). For retirees, this is appealing as it can help generate passive income, reducing the need to liquidate assets for cash flow. HDV has a key differentiator in its portfolio construction, where quality screens that are embedded in the benchmark favor stocks with sustainable dividends and healthy balance sheets, which helps avoid dividend traps. The fund has a five-year annualized return of 7.4%. It also has an equity beta of 0.66 vs. the S&P 500, which is a one way to diversify a portfolio that already includes IVV. That beta implies that this ETF has historically exhibited about 1/3 less volatility than the S&P 500.
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3. iShares Core MSCI EAFE ETF iShares Core MSCI EAFE ETF ETF
IEFA Overview
Current Share Price: $75.87
Number of Holdings: 2,818
Market Cap: $119.5 billion
Expense Ratio: 0.07%
Dividend Yield: 3.1%
IEFA tracks the performance of the MSCI EAFE (Europe, Australasia, and Far East) IMI (Investable Market Index). The fund has a total of 2,818 names including large, mid, and small-cap stocks from developed markets outside of North America, providing broad and diversified exposure to international equities.
Why IEFA Is A Top Choice
IEFA is an attractive choice due to its potential for long-term growth and diversification benefits. By investing across developed geographical markets, IEFA helps to diversify the risk associated with relying solely on U.S. markets. This global diversification can enhance capital preservation and provide opportunities for growth. Additionally, the inclusion of mid- and small-cap stocks alongside large-cap stocks can offer a balanced blend of growth potential and stability. IEFA also has a strong TTM yield profile at 3.1% making the fund a solid choice for building a resilient retirement portfolio that tackles the three objectives of long-term growth potential, capital preservation and income.
4. iShares U.S. Treasury Bond ETF iShares U.S. Treasury Bond ETF Vanguard Total World Stock ETF
GOVT Overview
Current Share Price: $22.53
Number of Holdings:182
Market Cap: $25.5B
Expense Ratio: 0.05%
Dividend Yield: 2.9%
GOVT tracks the results of an index composed of U.S. Treasury bonds. This ETF includes U.S. Treasury securities ranging in maturity from 1 to 30 years. Treasurys are considered some of the safest investments due to the low credit risk associated with the backing of the U.S. government.
Why GOVT Is A Top Choice
U.S. Treasury bonds are known for their low risk, making them important in retirement when preserving capital is crucial. Secondly, GOVT can provide a steady income stream through coupon payments. Having exposure to a non-equity asset class through GOVT is helpful in market selloffs, where there is a “flight to quality” in safer assets. GOVT’s range of maturities helps to manage the fund’s sensitivity to interest rate risk and the ETF wrapper provides greater liquidity than traditional bonds. To learn about other fixed income securities for retirees, check out our article on bonds for retirement income.
Bottom Line
ETFs are financial instruments that are well-suited for retirement investors due to their diversification, low-cost and wide variety. I’ve chosen four ETFs that I think tackle the core objectives of a retirement portfolio: long-term growth potential, capital preservation and income generation. Some of these ETFs can offer more than one function, overall providing a well-rounded portfolio for retirement investors. For more ETF ideas, see which ETFs were considered the top Vanguard ETFs for retirement investing.
Frequently Asked Questions (FAQs)
What are BlackRock iShares ETFs?
BlackRock iShares ETFs are a family of exchange-traded funds managed by BlackRock. They offer a wide range of ETFs covering different asset classes, sectors, and geographies, providing investors with diverse investment options.
Why are ETFs popular in retirement investing?
ETFs are popular in retirement investing because they offer diversification, liquidity and lower costs compared to traditional mutual funds. They allow investors to easily allocate their assets across different markets and sectors, which can help manage risk and optimize returns in a retirement portfolio.
Are iShares ETFs suitable for retirement investing?
Many iShares ETFs can be deployed in retirement investing, depending on an investor's specific goals, risk tolerance, and time horizon.
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