Savings

4 ETFs that can boost your retirement savings

The bear market has many investors looking for smart buys that can lift their retirement portfolios above the returns of major indexes. It is unreasonable to think that you will consistently outperform the market over the long term. However, there are some great exchange-traded funds (ETFs) out there that can accelerate growth or improve income yield, whatever your preference.

Vanguard Growth ETF

Younger investors typically prioritize growth in their retirement accounts, and Vanguard Growth ETF (NYSEMKT: VUG) could be the simplest and most efficient growth-oriented ETF on the market. This is a modified version index fund which holds domestic large- and mid-cap stocks that pass six growth factor criteria.

He currently owns 250 companies, with heavy exposure to large-cap tech and retail stocks. The fund is weighted by market capitalization, which makes it highly exposed to Apple, Alphabet, Microsoft, Amazonand You’re here. These large companies represent more than 40% of the portfolio.

The Vanguard Growth ETF has greater upside potential than the broader market, but it may experience excessive volatility. This makes it suitable for long-term investors, but the ETF is less suitable for anyone with a short-term horizon, such as people who are currently retired.

Image source: Getty Images.

The fund’s passive construction methodology and huge size allow it to charge a super meager 0.04% expense ratio. It is also very liquid with a low bid-ask spread, so the cost of owning and trading this ETF is about as low as it gets. The Vanguard Growth ETF is dynamic when it comes to index funds, but quite vanilla when it comes to growth-oriented ETFs. It is a great tool for passive investors who want additional upside potential relative to the broader market.

iShares Exponential Technologies ETF

The iShares Exponential Technologies ETF (NASDAQ:XT) is a more aggressive play for growth investors. This fund invests in nine emerging technology themes, including artificial intelligencerobotics, nanotechnology, bioinformatics, data analysis, fintechand cloud computing.
It owns businesses around the world, including emerging markets. International equities represent 40% of the allocation.

Instead of betting on a single company to thrive, this ETF allows investors to take advantage of global megatrends. It provides diverse exposure to disruptive technology leaders in high-growth industries that could define the decades to come. The allocation is equally weighted, so the smaller companies in the portfolio can strongly influence the results. This is useful for growth investors looking for exponential returns.

The iShares Exponential Technologies ETF uses a fairly active methodology, which contributes to a fairly high expense ratio of 0.46%. It has to offer higher returns just to break even than passive funds, such as the Vanguard Growth fund. Exposure to mid-cap stocks and international companies also increases volatility, which can magnify losses during market corrections.

iShares Core High Dividend ETF

Retirees and income investors are always looking for opportunities to increase returns without taking on too much risk, and the iShares Core High Dividend ETF (NYSEMKT:HDV) is an excellent fund for this purpose.

This ETF holds 75 high dividend-yielding U.S. stocks, which are selected for the presence of a economic gap, financial health, dividend sustainability, earnings growth and quality. The portfolio is dividend-weighted, unlike most of its peers, which are market-cap or yield-weighted. This tends to bias the fund towards high yield large caps.

The management team’s goal is to create a portfolio that delivers a high dividend yield without sacrificing quality, stability or financial health – and it appears to be achieving that goal. The fund offers a distribution yield of 4.4%, which should satisfy income investors. Although its proprietary investment selection process is somewhat complicated, the fund still maintains a low expense ratio of 0.08%, which is huge for anyone relying on income from their retirement fund.

The iShares Core High Dividend ETF carries some concentration risk. Energy values, basic materials, basic consumer goods and health care make up about 60% of the allocation. Its 10 largest holdings make up more than 50% of the fund. Unexpected bad news from a handful of companies or sectors can have disproportionate effects on fund performance.

Global X SuperDividend ETF

If you’re looking for a dividend ETF that thinks outside the box, consider the Global X SuperDividend ETF (NYSEMKT: SDIV). This fund maintains an equally weighted portfolio of 100 high-dividend stocks from around the world. Holdings are screened to exclude companies that are expected to reduce or eliminate dividends, and the management team purchases the best performing stocks that pass their sustainability review. Only 30% of companies are based in the United States

This approach leads to an exceptionally high return, currently over 15%. ETFs have always been among the higher yielding investments in the market, but this has been exacerbated by this year’s market sell-off amid global economic uncertainty and currency fluctuations.

Chart showing the fall and rebound in Global X's dividend yield since the start of 2020.

SDIV dividend yield given by Y-Charts

With the high yield of the ETF comes added volatility. Sound 1.1 beta doesn’t look too bad on paper, but it’s high for a dividend investment. Retirees need to be diligent about managing volatility, so keep that in mind if you’re considering buying the Global X SuperDividend ETF.

It also involves concentration risk, with a high exposure to the financial sector. Financial stocks are heavily influenced by macroeconomic conditions, and we have seen havoc across the sector at times in the past. Don’t be shocked if this fund’s performance is highly cyclical, which is also undesirable for some income investors.

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Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. ryan downie has positions in Alphabet (A shares), Amazon, Global X SuperDividend ETF, Microsoft and iShares Exponential Technologies ETF. The Motley Fool holds positions and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, Tesla and Vanguard Growth ETF. The Motley Fool recommends the following options: long calls $120 in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.