Changing your ETF strategy as you get older
You save, you invest.
You keep your investment costs low when you invest.
You diversify your investments across various stocks, bonds and some cash.
You stick with that plan, for years on end. You’re doing a lot of things right. Well done!
So, should you change your investment strategy as you get older? Absolutely.
Does that mean you need to overhaul ETFs in your portfolio? Potentially.
Yet the need to change your ETFs as you get older is largely the thesis I read in a recent Globe and Mail article. In that article, it highlighted the use of Exchange Traded Funds (ETFs), as an “…incredibly powerful tool that investors at any age can use to customize their portfolios and fine-tune their strategies,” says Daniel Straus, vice-president of ETFs and financial products research at National Bank Financial Inc. in Toronto. “But it’s important to get the right one.”
So…what does that mean? Is there a “right” ETF to own?
Not in my book.
The “right” ETF depends on your goals, the income sources you desire from various assets in your portfolio, your tax considerations and much more. I totally get that things change.
My investing approach has changed quite a bit in the last 20 years.
That doesn’t mean there are any right ETFs to own – only the ones right for you.
ETFs for investors just starting out
The article suggested young or new investors, with no immediate need for cash, they should be in an all-equity fund like the Vanguard Total World Stock ETF (VT) (which trades in the United States) or in a product like the iShares Core MSCI All Country Ex-Canada ETF (XAW) provides exposure to almost every stock market around the globe.
While I would agree with the premise that young investors should embrace stocks more than bonds when it comes to investing (I’ve learned to live with stocks and so should you), I’m not entirely convinced these funds are ideal. With VT, you’ll have withholding taxes to consider. With XAW, there is no Canadian content.
There are TD eFunds to consider. Great products (no affiliation).
Not all mutual funds are evil. These are some great all-in-one mutual funds to help younger investors build wealth.
ETFs for investors in their 40s
The recent launch of Vanguard’s “asset allocation portfolio” ETFs are a bit of a game-changer.
Unlike the “experts” in the article, I think you could use them at any age – depending upon your goals.
At the end of the day, whether you’re younger or older, investing boils down to meeting your goals, while managing your risk, as you progress through time.
ETFs for investors in their 50s and 60s (nearing traditional retirement)
Maybe I’m an old-soul when it comes to investing or just plain biased.
But for many years now, I believe using a broad selection of Canadian and U.S. dividend paying stocks can not only help me reduce investment risk, it can also help me earn some solid income via steady dividend income and dividend increases – without touching the capital.
This way, I get income from my portfolio for retirement AND growth.
Volatility is really a short-term headache – don’t let the markets’ short-term price movements scare you.
ETFs for investors in their 70s+ (retirement and beyond)
Despite my knock on some pricey monthly mutual funds, I believe there are some decent monthly income ETFs for seniors to consider if they wanted that focus.
Consider the BMO product ZMI for a moment – the BMO Monthly Income ETF. This ETF is a fund of BMO funds with the rebalancing work done by BMO. With a solid yield, you can rely on steady income with this all-in-one product.
Since I’ve gotten some emails on this subject this fall, from 60- and 70-somethings, here is a short-list of modestly priced income ETFs and/or dividend ETFs to consider. There are certainly others…
Data current at time of this post.
|BMO Monthly Income ETF (ZMI)||· ~55% equities + ~45% fixed income|
· A BMO fund of funds
· 17 holdings
· >$100 M assets under management
|BMO Canadian Dividend ETF (ZDV)||Weighted yield of Canadian dividend paying stocks – a rules based methodology that considers the three year dividend growth rate, yield, and payout ratio to invest in Canadian equities||0.39%||>4.5%||5.4%||3.1%|
|iShares Core S&P/TSX Composite High Dividend Index ETF (XEI)||S&P/TSX Composite High Dividend Index||0.22%||>4.7%||6.3%||3.2%|
|iShares Diversified Monthly Income ETF (XTR)||· ~50/50 split equities and fixed income|
· An iShares fund of funds
· 10 holdings
· >$500 M assets under management
As an alternative, there is also the Horizons S&P/TSX 60 Index ETF (HXT).
It’s referred to as a “swap-based” fund since it doesn’t hold stocks directly. The management fee is super skinny, 0.07% and I think on their site there might even be a rebate associated with that.
The benefit of this swap-product: price increases will be taxable as capital gains (which can be taxed at a lower rate than dividends depending upon your taxable income – so it may be beneficial to hold this product, sell assets when you need income, in a non-registered account).
Should you change your ETF strategy as you get older?
That depends on you!
I can say that over time, I expect to see many more all-in-one fund products offered by various financial institutions AND lower fees for these products, as the investment industry grapples with higher investing expectations: including the need for income for aging investors.
At the end of the day, while your financial plan should definitely change over time I’m not convinced you have to always overhaul your ETF portfolio nearly as much.
What are your thoughts? What’s your approach to sufficient income in retirement?