Exchange-traded funds, or ETFs for short, have exploded in the three decades since they were first introduced, but do they belong in your retirement portfolio? Retirement Tip of the Week: Get familiar with ETFs, which are often cost-effective and more easily tradable than other investments in a portfolio. They may already be in your retirement accounts.
The SPDR S&P 500 ETF
the first exchange-traded fund, was introduced in January 1993 and has since become an extremely popular investment choice. The SPDR S&P 500 ETF had $6.5 million in assets at its birth, according to State Street Global Advisors. It now has almost $357 billion. There are more than 3,000 ETFs with almost $6 trillion in assets in the United States, according to the New York Stock Exchange. The average daily value of ETF transactions is $149 billion across 2.3 billion daily trades. Hand-picking investments for retirement portfolios isn’t for everyone. In order to do so, investors should research the choices available in their plans, and understand the best mix of stocks, bonds and other investment options that suit their needs and goals. For example, a younger investor just starting her career may prefer a portfolio primarily in equities, while that same person may want to slowly shift toward conservative assets as she gets older and closer to retirement. That’s why target-date funds are a useful tool for retirement savers. These funds are tied to an estimated retirement year, and automatically change asset allocation to become conservative over time. Target-date funds may be too generic for some investors, but can work well for an investor still learning. …