3 Investing Ideas for the Perfect Retirement Strategy

These three ETFs can help you take care of both your near-term and long-term needs, even once you’ve stopped working.

Once you retire, your relationship with your investments changes. As you start relying on your investments to cover your costs of living, the stock market’s ups and downs make it too dangerous a place to put any money you’ll need to spend within a few years. At the same time, your retirement could last for decades, so you’ll need to keep some money invested more aggressively to cover your costs during your later years.

ETFs are great for helping investors achieve the perfect balance in their retirement portfolios. They can offer low-cost, one-stop diversification within a particular sector or asset class, making it easier, safer, and less expensive to reach your portfolio goals. The three ETFs described below can be excellent tools to fill in particular niches in your strategy.

Short-term bonds for money you need soon

The Vanguard Short Term Bond (NYSEMKT:BSV) ETF invests only in investment-grade domestic or U.S. dollar-denominated foreign bonds with maturities of less than five years. By following a low-cost indexing strategy for such bonds, it keeps its fees low — 0.09% of assets — which helps it deliver a positive yield to its owners despite today’s low interest rates. The Vanguard Short Term Bond ETF currently yields about 1.05%.

Its price has been fairly stable over the last five years, which is important for investors who are looking for a place to park money they expect to spend in the near term. Between Aug. 4, 2011 and Aug. 3, 2016, the ETF traded within an extremely tight range of $79.42 to $81.94. While the Vanguard Short Term Bond ETF is not a money market fund that strives to hold a stable price, its focus on short-term, investment-grade bonds does tamp down its volatility.

With short-term bonds as its specific investing target, the Vanguard Short Term Bond ETF is less exposed to the downside risk of rising interest rates than longer-term bond investments would be. And with a low cost design, it’s able to continue making its payment even in today’s low interest rate environment.4

Dividend growers to help refill your bond holdings

The PowerShares High Yield Dividend Achievers (NYSEMKT:PEY) ETF seeks to invest in the stocks that make up the Dividend Achievers 50 index. That index tracks 50 of the higher-yielding companies from the overall Dividend Achievers index, which itself tracks companies with at least a 10-year streak of increasing their dividends.

What’s special about dividends is the fact that companies that pay them typically need to generate enough cash flow to cover those payments. If a company has the ability to not onlypay a dividend, but also regularly increase its dividend, then that’s generally a sign that its underlying business is growing, too. As a result, an investment like the PowerShares High Yield Dividend Achievers ETF offers a balance between current dividend income and potential long-term capital growth.

With a current yield of about 3.2%, the PowerShares High Yield Dividend Achievers ETF may not currently generate enough income to directly cover your retirement costs. Still, those dividends can help replenish the bond ETF shares that you may have to sell to cover your costs.

Seek out capital appreciation for long-term growth

The Vanguard S&P 500 Growth (NYSEMKT: VOOG) ETF tracks the S&P 500’s Growth index, which is made up of the top third of companies in the overall S&P 500 index as ranked by growth characteristics. As a more aggressive stock-based investment, it’s not appropriate for money you need in the near term, as its value is bound to fluctuate. Still, early in your retirement, this ETF is a reasonable choice for money you’re saving for your later years.

Because the Vanguard S&P 500 Growth ETF is passively managed, it can keep its expenses low — a mere 0.15% of assets — allowing more of its returns to flow to its shareholders. While this ETF does pay a modest dividend with about a 1.5% yield, the core focus of the ETF is to track the growth side of the S&P 500 index, rather than searching for yield.



Manage your ETF portfolio for a strong retirement

These three ETFs could form the core of a solid retirement portfolio. Just be sure to start with enough money in the short-term bond ETF to cover several years’ worth of the living expenses you need your portfolio to cover, and keep the rest in the stock-focused ETFs.

You can then use your dividends and interest payments to cover a portion of your costs of living and sell some the bond ETF shares to cover the rest. In a good market for their shares, you can sell some of the shares of the stock-focused ETFs to replenish the bond ETF shares you’re spending to cover your costs.

If the market isn’t cooperating, well, that’s the benefit of having several years’ worth of expenses in short-term, bond-focused investments. Spending down that bond-oriented buffer gives you the ability to wait for the stock market to show signs of life before selling your stock-focused holdings.

With a three-pronged strategy of bond, dividend growth, and capital growth-focused investments from these ETFs, you can balance your short-term need for income with your longer-term need for growth. That combination can give your retirement portfolio the tools it needs to put more money in your pocket throughout your retirement.

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Chuck Saletta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.