In this article, we discuss the 10 best ETFs to invest in for retirement. If you want to read about some more retirement ETFs, go directly to 5 Best ETFs to Invest In for Retirement.
Investors around the globe are looking for ways to strengthen their portfolios as stock markets become more volatile. One of the best ways of protecting a growth portfolio in an inflationary market is investments in exchange-traded funds (ETFs). Some of the benefits that ETFs offer include diversification and low costs. For example, ETFs cover most major asset classes and offer you a single-trade diversification chance. In addition, the operating expense ratios of ETFs are low and many finance advisors offer access to them on zero trade commissions.
Some other advantages of investing in ETFs include trading flexibility, transparency, and tax efficiency. Trading flexibility is demonstrated by the versatility that ETFs offer in terms of moving money between stocks, bonds, or commodities. As a majority of ETFs disclose their holdings on a daily basis, there is a lot more transparency involved in their trade compared to alternatives like mutual funds. Factors like lower turnover and the in-kind creation/redemption process mean fewer capital gains are passed onto investors, leading to lower taxes.
Historically, ETFs have come a long way since their inception. The first ETF in the US was launched in 1993 under the S&P 500 SPDR name. As of April 7, SPDR S&P 500 ETF Trust (NYSE:SPY) has over $416 billion in net assets and is trading at a price of $447. The second-largest ETF in the market, launched in the year 2000, is the iShares Core S&P 500 ETF (NYSE:IVV). As of April 7, this fund has an average trading volume of 8,667,283 and a share price in excess of $448.
Even though ETFs are lauded for the variety they offer to investors, there are some who also blame them for making the markets more volatile. The popularity of ETFs, on the other hand, increases dramatically in times of volatility as investors use them as safe havens during crisis situations. Research firm ETFGI estimates that ETFs are now a $9 trillion global market. Market experts like Salim Ramji, an investment manager at Blackrock, expect this number to cross $15 trillion in value within the next three years.
Institutional investors and insurance firms are also investing in ETFs. Investor concerns around ETFs were cooled by a decision of the Federal Reserve to buy ETFs tracking corporate bonds. Even though the market is largely bullish on ETFs, there are a few bears who have warned of the negative effects of a larger economic slowdown on the funds sector. Craig Siegenthaler, a senior analyst at Credit Suisse, told the Financial Times last year that “if we get a bear market that will make it tougher for the industry to keep growing at the pace we have seen”.
Nevertheless, ETFs offer investors the chance to grow their portfolios significantly over time, making them ideal choices for a retirement or savings portfolio. Some of the top holdings of retirement ETFs popular in the US include Cloudflare, Inc. (NYSE:NET), Exxon Mobil Corporation (NYSE:XOM), and American Tower Corporation (NYSE:AMT), among others discussed in detail below.
Our Methodology
The ETFs listed below are discussed with regards to their top holdings. The aim of the article is to provide readers with a basic rundown of some of the top retirement ETFs in the US. All the ETFs listed below trade on exchanges in the United States.
Photo by Diana Parkhouse on Unsplash
Best ETFs to Invest In for Retirement
10. Vanguard 500 Index Fund (NYSE:VOO)
Vanguard 500 Index Fund (NYSE:VOO) is a fund that tracks the performance of the S&P 500 Index. The index is widely considered the benchmark index of the US stock market and comprises 500 of the biggest companies in the US based on their market capitalizations. The fund aims to replicate the returns of the index by holding each stock in the same proportion as the index.
One of the biggest holdings of Vanguard 500 Index Fund (NYSE:VOO) is Tesla, Inc. (NASDAQ:TSLA), a firm that markets electric vehicles and clean energy solutions. At the end of the fourth quarter of 2021, 91 hedge funds in the database of Insider Monkey held stakes worth $12.9 billion in Tesla, Inc. (NASDAQ:TSLA), compared to 60 in the previous quarter worth $10.6 billion.
Just like Cloudflare, Inc. (NYSE:NET), Exxon Mobil Corporation (NYSE:XOM), and American Tower Corporation (NYSE:AMT), Tesla, Inc. (NASDAQ:TSLA) is one of the stocks that institutional investors are flocking to.
Here is what ClearBridge Investments had to say about Tesla, Inc. (NASDAQ:TSLA) in its Q4 2021 investor letter:
“Within the growth universe we target, emerging growth stocks – the category with the highest revenue growth rates – significantly underperformed the overall growth categories in 2021 after leading performance in 2020. The pull-through effect on digitization, online access across industries, and spending to modernize outdated corporate infrastructures accelerated trends in a highly compressed time frame. Much of that trend slackened in 2021 and shares of these companies, while showing good top-line growth, saw slowing appreciation from the blistering pace in the prior year. With that moderating growth, multiples decelerated from 2020 highs. Bucking the headwinds among our emerging growth names was Tesla, Inc. (NASDAQ:TSLA) which saw continued sales momentum from their leadership positions in the key growth areas of electric vehicles.”
9. Invesco S&P 500 Equal Weight ETF (NYSE:RSP)
Invesco S&P 500 Equal Weight ETF (NYSE:RSP) is an exchange traded fund that tracks the investment returns of the S&P 500 Equal Weight Index. The index comprises the same stocks as the S&P 500 Index but each is weighted equally to help with diversification. The fund invests at least 90% of assets in securities on the index.
A premier holding of Invesco S&P 500 Equal Weight ETF (NYSE:RSP) is Paycom Software, Inc. (NYSE:PAYC), a firm that provides cloud-based human capital management solutions. At the end of the fourth quarter of 2021, 46 hedge funds in the database of Insider Monkey held stakes worth $1.3 billion in Paycom Software, Inc. (NYSE:PAYC), compared to 40 in the previous quarter worth $1.4 billion.
In its Q3 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Paycom Software, Inc. (NYSE:PAYC) was one of them. Here is what the fund said:
“Our most significant detractors from performance over the fourth quarter includes Paycom Software, Inc. (NYSE:PAYC). Paycom Software, Inc. (NYSE:PAYC) underperformed, we believe, due to investor profit-taking following several months of solid performance. We remain positive on the long-term prospects of what we view as a great company.”
8. Vanguard Total Stock Market Index Fund (NYSE:VTI)
Vanguard Total Stock Market Index Fund (NYSE:VTI) is an exchange traded fund that invests at least 80% of net assets in securities on an index that comprises 100% of investable companies in the US stock market. The fund employs a sampling strategy to invest in securities on the index.
A key holding of the Vanguard Total Stock Market Index Fund (NYSE:VTI) is Apple Inc. (NASDAQ:AAPL), a firm that makes and sells consumer electronics. At the end of the fourth quarter of 2021, 134 hedge funds in the database of Insider Monkey held stakes worth $186 billion in Apple Inc. (NASDAQ:AAPL), up from 120 in the previous quarter worth $146 billion.
In its Q4 2021 investor letter, Berkshire Hathaway highlighted a few stocks and Apple Inc. (NASDAQ:AAPL) was one of them. Here is what the fund said:
“Apple Inc. (NASDAQ:AAPL) – our runner-up Giant as measured by its year end market value – is a different sort of holding. Here, our ownership is a mere 5.55%, up from 5.39% a year earlier. That increase sounds like small potatoes. But consider that each 0.1% of Apple’s 2021 earnings amounted to $100 million. We spent no Berkshire funds to gain our accretion. Apple’s repurchases did the job. It’s important to understand that only dividends from Apple are counted in the GAAP earnings Berkshire reports – and last year, Apple paid us $785 million of those. Yet our “share” of Apple’s earnings amounted to a staggering $5.6 billion. Much of what the company retained was used to repurchase Apple Inc. (NASDAQ:AAPL) shares, an act we applaud. Tim Cook, Apple’s brilliant CEO, quite properly regards users of Apple Inc. (NASDAQ:AAPL) products as his first love, but all of his other constituencies benefit from Tim’s managerial touch as well.”
7. Vanguard Total World Stock Index Fund (NYSE:VT)
Vanguard Total World Stock Index Fund (NYSE:VT) is an exchange traded fund that invests in securities on the FTSE Global All Cap Index. The fund invests a majority of assets in securities on the index and also holds a representative sample of securities that resembles the full index.
Vanguard Total World Stock Index Fund (NYSE:VT) holds a large stake in JPMorgan Chase & Co. (NYSE:JPM), a financial services firm. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in JPMorgan Chase & Co. (NYSE:JPM) with 7.4 million shares worth more than $1.1 billion.
In its Q4 2021 investor letter, Ariel Investments, an asset management firm, highlighted a few stocks and JPMorgan Chase & Co. (NYSE:JPM) was one of them. Here is what the fund said:
“In our view, inflation will not just be a 2021 phenomenon. Inflationary expectations are only now working themselves into the labor market with historically low unemployment, resurgent labor unions, and higher wages. These labor cost pressures are only starting to show up in the Consumer Price Index. The most recent Producer Price Index showed a +9% year over year increase, the highest since it was created in 2010. Higher input prices generally lead to rising consumer prices.
“In our view, inflation will not just be a 2021 phenomenon.”
Consumer balance sheets are in excellent shape with lower unemployment and banked stimulus checks. A recent analysis from JPMorgan Chase & Co. (NYSE:JPM) showed average checking accounts have 50% higher balances than pre-Covid. The U.S. money supply as measured by M2 (a calculation that includes cash, checking accounts, and “near cash” such as money market securities) is up +38% versus year-end 2019. Higher consumer cash holdings and higher money supply mean more spending and demand for goods. Some emphasize supply issues to explain current inflation. Going forward, we see very strong demand as well, too much money chasing too few goods.”
6. Vanguard Dividend Appreciation Index Fund (NYSE:VIG)
Vanguard Dividend Appreciation Index Fund (NYSE:VIG) is an exchange traded fund that tracks the performance of an index which comprises the common stocks of companies that have a record of increasing dividends over time. The fund holds each stock in the same proportion as the weighting on the index.
Vanguard Dividend Appreciation Index Fund (NYSE:VIG) holds a large stake in Microsoft Corporation (NASDAQ:MSFT), a Washington-based tech giant. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation (NASDAQ:MSFT) with 26.8 million shares worth more than $9 billion.
In addition to Cloudflare, Inc. (NYSE:NET), Exxon Mobil Corporation (NYSE:XOM), and American Tower Corporation (NYSE:AMT), Microsoft Corporation (NASDAQ:MSFT) is one of the stocks that hedge funds are buying for long-term gains.
In its Q4 2021 investor letter, Vulcan Value Partners, an investment management firm, highlighted a few stocks and Microsoft Corporation (NASDAQ:MSFT) was one of them. Here is what the fund said:
“Microsoft Corporation (NASDAQ:MSFT) was a material contributor during the quarter. It is one of the highest quality companies in the world. We believe it has tremendous competitive advantages in its consumer and commercial Microsoft Office products as well as in its server and tools and Azure divisions. Over the last several years, Microsoft Corporation (NASDAQ:MSFT) has been implementing a successful transition from a traditional software license and maintenance revenue model to a subscription revenue model. The company remains competitively entrenched, produces strong free cash flow, and has a strong balance sheet.”
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Disclosure. None. 10 Best ETFs to Invest In for Retirement is originally published on Insider Monkey.
