When you retire, your investment goals are likely to change in a material way, going from building a nest egg to living off of one. For most retirees, income investments, like dividend-paying exchange-traded funds (ETFs), will suddenly become your best friends.
But what if you want to keep your life simple so you can spend your time enjoying things like family, travel, and recreation? Here are two ETFs that you can use to create a high-quality, income-producing balanced portfolio, containing a mix of high-grade stocks and bonds.
The equity component is key: Schwab U.S. Dividend Equity ETF
When it comes to building a balanced portfolio, it is vital to pay attention to the equity component, which should probably make up at least 60% of assets early in retirement (maybe up to 80% for really aggressive investors). The growth equities provide will help your portfolio keep up with inflation over time.
But you also want something that generates income and is relatively conservative. That’s exactly what you get with Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD).
Vanguard Intermediate-Term Bond ETF’s dividend yield is about 3.5%. That’s roughly 40 basis points higher than what you’d collect from Vanguard Short-Term Bond Index ETF (NYSEMKT: BSV), which would be a more conservative choice. Cash would be the most conservative non-stock investment option, of course.
But for the extra boost in yield, the added risk of intermediate-term bonds is likely to be worth it over the long term. And, like with Schwab U.S. Dividend Equity ETF, you can layer in some higher-yielding bonds, if that’s something you wish to do.
Two ETFs equals one solid portfolio
At the end of the day, with just two ETFs, Schwab U.S. Dividend Equity ETF and Vanguard Intermediate-Term Bond Index ETF, you can create a well-diversified, high-quality, income-producing balanced portfolio. And there’s ample room within this framework for you to add higher-yielding securities if you are willing to take on the extra work and risk. Once a year, rebalance your portfolio back to your preferred stock/bond mix, and you’ll be all set!
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Bond Index Funds – Vanguard Intermediate-Term Bond ETF and Vanguard Bond Index Funds – Vanguard Short-Term Bond ETF. The Motley Fool has a disclosure policy.
These 2 Dividend ETFs Are a Retiree’s Best Friend was originally published by The Motley Fool
