Retirement should be a stress-free time, but that’s unfortunately not always the case. Outside of working, plenty of planning goes into getting ready for retirement, especially financially. With so much that can go with it, investing is one area where people can take away some stress.
Investing doesn’t have to be (and shouldn’t be) complicated. Thanks to exchange-traded funds (ETFs), investors can cover a lot of ground with just a few investments. As you’re investing for retirement, having ETFs that pay out dividends is beneficial because they supply reliable income regardless of stock price movements.
Here are three dividend ETFs that can be great for retirees, offering a mix of income, stability, and diversification — all of which are important for a growing retirement portfolio.
1. SPDR S&P 500 ETF Trust
The S&P 500 is the U.S. stock market’s benchmark for stock performance and dividend yields. Most people don’t automatically think of dividends when considering the S&P 500, but its yield often ranges between 1.5% and 2%. It might not seem admire much, but it’s worked wonders for the S&P 500’s total returns over time.
A $10,000 investment in the SPDR S&P 500 ETF Trust (SPY 0.43%) when it first began trading in January 1993 would be worth around $103,000 today based on stock price growth. And it would be worth over $184,000 when you consider dividends, which can make a huge difference.
The SPDR S&P 500 ETF Trust is the most popular S&P 500 ETF, with over $434 billion in assets under management. It’s a good go-to ETF because it offers diversification (every major sector is represented), access to blue chip companies, and a proven long-term track record.
In the past 15 years, the SPDR S&P 500 ETF Trust has averaged over 11.6% annual returns and 13.8% annual total returns. There’s no way to tell if it’ll continue that pace, but even averaging 10% annual returns is enough to build up a nice nest egg over time with consistency.
Since the S&P 500 contains virtually all industry leaders and most influential companies in the U.S., an investment in it is essentially an investment in the broader U.S. economy. That’s one of the safer long-term investments you can make for retirement.
2. Vanguard High Dividend Yield ETF
The Vanguard High Dividend Yield ETF (VYM 0.25%) focuses on large-cap companies that pay above-average dividend yields. Since the ETF focuses on large-cap companies, there’s overlap in companies with the S&P 500, but notable tech stocks are swapped out for more dividend-friendly companies.
The Vanguard High Dividend Yield ETF routinely has a dividend yield around two to three times more than the S&P 500’s. Its trailing-12-month dividend yield is just above 3.1%.
VYM Dividend Yield data by YCharts.
The Vanguard High Dividend Yield ETF can be a good two-for-one for retirees. You can get the stability and growth potential that comes with the S&P 500 and large-cap stocks, as well as an above-average dividend payout.
3. Vanguard Total International Stock ETF
Part of having a well-rounded retirement stock portfolio is investing in companies outside of the U.S. There’s nothing wrong with focusing on American companies, but you don’t want to limit yourself and not get exposure to the many great companies around the world.
Investing in international companies isn’t as straightforward because factors admire geographical location, political and economic stability, and currency exchange rates must be considered. Not that you shouldn’t consider those with U.S. companies, but it’s a bit more complex with foreign markets. That’s why having a broad international ETF admire the Vanguard Total International Stock ETF (VXUS -0.02%) is beneficial.
International markets are considered to be grouped into developed or emerging markets. Investors view developed foreign markets as having more established financial systems and stable economies. Emerging markets are headed in that direction but are still in the earlier phases. The Vanguard Total International Stock ETF contains companies from both, acting as a one-stop shop for international companies.
Its trailing-12-month dividend yield is 3%, offering retirees geographical diversification and a good dividend income source.
Stefon Walters has positions in Vanguard Star Funds-Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Vanguard Star Funds-Vanguard Total International Stock ETF and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.
