Exchange-traded funds, or ETFs, are a good way to build a retirement portfolio. They are low-cost, provide plenty of diversification because they track specific indexes and they provide certain tax benefits. Folks looking to retire early, or at least with a solid portfolio, can use ETFs as one of their building blocks.

You'll need to start saving early in order to have enough funds to accommodate your desired lifestyle after retirement, and the earlier the better. Since stocks drive a portfolio and bonds provide security, when you begin building your retirement portfolio it should consist primarily of stocks, and later on, as you are approaching retirement it should include bonds.

Where and When to Buy an ETF
ETFs can be purchased through Fidelity, Vanguard, T. Rowe Price, Charles Schwab and TD Ameritrade. Don't try to time the market. Determining the time to buy is really based on your current and future needs. Many so-called experts have tried to time the market and failed at it.

Put ETFs that have the highest growth potential into a Roth IRA as you won't need to pay income taxes on the earnings, principal, what's currently in the account or what you withdraw, since the money you are using to invest has already been taxed.

Buying ETFs intended to fund your retirement depends upon how much time you have available until you plan to retire. That will make all the difference in whether you buy an ETF that is primarily invested in stocks, bonds or a bit of both.

High Dividend ETFs
Some high-dividend ETFs include the PowerShares High Yield Equity Dividend Achievers Portfolio (PEY) and the SPDR Dividend (SDY). The PEY mimics an equity index called the Mergent Dividend Achievers 50 Index (the "Underlying Index"). This index consists of 50 stocks that are selected primarily on the basis of dividend yield and demonstrate consistent dividend growth. The SPDR replicates, before expenses, the price and yield of the S&P High Yield Dividend Aristocrats Index (the "Index"). This index is designed to measure the performance of the 50 highest dividend yielding S&P Composite 1500 Index constituents that have followed a managed dividends policy of consistently increasing dividends every year for at least 25 consecutive years. Stocks included in the index have both capital growth and dividend income characteristics.

Fixed Income ETFs
If you need bond ETFs to add some fixed income to your portfolio, look into iShares Lehman Aggregate Bond Fund (AGG) and iShares Lehman 7-10 Year Treasury Bond Fund (IEF). The IEF mimics the Barclays Capital US 7-10 Year Treasury Bond Index (the "Underlying Index") which measures the performance of public obligations of the U.S. Treasury that have a remaining maturity of between seven and ten years.

REIT ETFs
If you are looking to diversify with real estate, look into Real Estate Investment Trusts (REIT) such as the Vanguard REIT ETF (VNQ). For example, the VNQ fund tracks the performance of the MSCI US REIT Index which is comprised of stocks of publicly traded equity REITs.

The Bottom Line
There are many ETFs you could invest in; the key is to determine your timeline until you'll need to access your funds. This timeline is what determines which type of ETF you should buy. For example, according to "Exchange-Traded Funds for Dummies," if you have less than 15 years to retire, you might want to take 2% from your stock investments and instead allocate these funds to bonds. When looking to build a retirement portfolio, research growth investments which not only include stocks but also real estate and commodities. Also look into security investments. These include fixed annuities, government bonds, corporate bonds and market-neutral mutual funds. Whatever you decide on, make sure you start as early as possible. Save as much as you can and invest wisely by doing thorough research, not by following emotion or public opinion.

Related Articles
  1. Mutual Funds & ETFs

    Top 3 Lazard Funds for Retirement Diversification in 2016

    Learn about Lazard Asset Management, its long history of strong performance and the top three Lazard funds to consider for retirement diversification.
  2. Retirement

    Early Out: A Realistic Plan to Retire Younger

    If you want to retire ahead of schedule, it'll take some extra planning.
  3. Mutual Funds & ETFs

    Which Fund Share Class is Best for Retirement?

    Mutual funds are a popular investment for retirement. Here's how to choose the best share class when investing in them.
  4. Retirement

    6 Robo-Advisors That Require Little to Start

    There are many well-regarded robo-advisor options that come with minimum investment amounts. Here are snapshots of a handful of them.
  5. Mutual Funds & ETFs

    Top 3 Voya Funds for Retirement Diversification in 2016

    Learn about Voya Investment Management's mutual fund offerings and the three Voya funds to consider for retirement diversification in 2016.
  6. Retirement

    Smart Ways to Tap Your Retirement Portfolio

    A rundown of strategies, from what to liquidate first to how much to withdraw, along with their tax consquences.
  7. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  8. Saving and Spending

    Social Security: Navigating it with Your Clients

    Many people don’t realize how confusing Social Security can be until they're face to face with taking it. Here's how to talk to clients about it.
  9. Your Clients

    How to Construct an Annual Review for Clients

    One of the best things that advisors can provide to clients is an annual review of their financial situation. Here are some guidelines.
  10. Mutual Funds & ETFs

    Pimco’s Top Funds for Retirement Income

    Once you're living off the money you've saved for retirement, is it invested in the right assets? Here are some from PIMCO that may be good options.
RELATED FAQS
  1. Can I buy ETFs for my Roth IRA?

    A Roth IRA held at a brokerage firm is able to facilitate the purchase of exchange-traded funds, or ETFs. Using ETFs within ... Read Full Answer >>
  2. Am I losing the right to collect spousal Social Security benefits before I collect ...

    The short answer is yes, if you haven't reached age 62 by December 31, 2015. The Bipartisan Budget Act of 2015 disrupted ... Read Full Answer >>
  3. What is the maximum I can receive from my Social Security retirement benefit?

    The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639. However, ... Read Full Answer >>
  4. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  5. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
  6. Will quitting your job hurt your 401(k)?

    Quitting a job doesn't have to impact a 401(k) balance negatively. In fact, it may actually help in the long run. When leaving ... Read Full Answer >>
Hot Definitions
  1. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  4. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  5. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
Trading Center