Are you worried about outliving your money? You’re not alone. Many retirees face the daunting challenge of ensuring their savings can cover their retirement expenses. One investment tool that can help boost your income is the dividend ETF.
Understanding Dividends and ETFs
Exchange-Traded Funds (ETFs) are baskets of investments, a type of mutual fund. They differ from traditional open-end mutual funds in that they trade on the stock exchange, meaning you can quickly buy or sell shares.
A dividend is a portion of a company’s profits distributed to shareholders. For instance, if you invest $100,000 in a stock with a 4% dividend yield, you earn $4,000 annually. This income can supplement your retirement savings, providing regular cash flow. By choosing ETFs that produce dividends, you can have a well-diversified investment portfolio that also produces regular income.
The Benefits and Risks of Dividend ETFs
Dividend ETFs offer the benefit of an income stream, often paid monthly. Your $100,000 investment can yield regular dividends and potential growth. However, not all dividend ETFs are the same. The risk level depends on the underlying investments. For example, ETFs investing in high-quality, short-term treasury bonds are less volatile, but may yield lower returns, compared to those investing in high-yield, lower-quality bonds or stocks.
Understanding these risks is crucial. Higher yields often come with higher volatility. Consult a financial advisor to determine if dividend ETFs are appropriate for your investment situation. More conservative investors might find alternatives like FDIC-insured CDs more suitable.
Actionable Advice
To make the most of dividend ETFs, consider the following steps:
- Assess Your Risk Tolerance: Understand how much risk you’re willing to take. Higher yields often come with higher volatility.
- Diversify Your Portfolio: Spread your investments to mitigate risk.
- Consult a Professional: Speak with your cross-border financial advisor to tailor investments to your specific needs.
When was the last time you reviewed your U.S. investments to see if they were appropriate for your situation? If your American investments aren’t producing as much income as you’d like, register for a free Cross-Border Financial Evaluation at profile-financial.com/call. Together, we’ll review your portfolio and determine if we are the right company to help you meet your financial goals.
Douglas Goldstein, CFP® is the director of Profile Investment Services, Ltd. www.Profile-Financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Published September 3, 2024.