Worried about your retirement savings running out? You’re not alone. Many retirees face this challenge. One strategy to address this concern is investing in dividend ETFs (Exchange Traded Funds). Dividend producing ETFs can provide a steady income stream during retirement and feel a little like an additional pension.
What Are Dividend ETFs?
An Exchange-Traded Fund (ETF) is a type of investment that holds a mix of assets, such as stocks or bonds, and is traded on stock exchanges. ETFs are generally highly liquid, making them easy to buy and sell.
A dividend is a portion of a company’s profit paid to shareholders. For example, investing $50,000 in a dividend ETF with a 4% yield provides $2,000 annually. Unlike fixed bond interest, dividends can fluctuate based on the ETF’s stocks, and the ETF’s value can be volatile. During downturns, dividends may be reduced, affecting your income. While dividend ETFs offer income, they lack the stability of bonds.
Why Invest in Dividend ETFs?
- Steady Income: They provide a consistent income stream. Frequently, ETFs pay dividends on a monthly basis.
- Market Flexibility: ETFs can be traded like stocks, allowing for easy adjustments to your investment portfolio.
- Diversification: They offer exposure to a wide range of companies, reducing risk compared to investing in a single stock.
Consider the risks involved. Evaluate the assets within the funds—such as stocks, high-yield bonds, or real estate investment trusts. Each type has its own volatility and potential for loss, which you need to assess carefully.
Investing in Dividend ETFs
To determine if ETFs are right for you, first assess your risk tolerance—higher yields often mean higher volatility. Choose an ETF that matches your risk level and ensures its underlying investments differ from others in your portfolio. For instance, owning both a small-cap stock ETF and a similar mutual fund lacks true diversity. Consult a financial advisor for a comprehensive portfolio review to ensure dividend ETFs align with your financial goals.
I frequently encounter clients looking for reliable income. Dividend ETFs offer a balanced approach, providing income and diversification. To see if they are appropriate for you, schedule a call at profile-financial.com/call.
To learn more about ETFs, watch a short clip by clicking here.
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 December 3, 2024.