We’ll check in on the ETF portfolio for retirees. We know that a simple balanced portfolio would have held up quite well over the last year. What does that mean for the retiree that creates a simple ETF portfolio to fund retirement? We’ll have a look at the 7-ETF portfolio for retirees on Cut The Crap Investing. We’ll also look at a few other retirement options including the recent VRIF ETF from Vanguard.
On Cut The Crap Investing, I offered this article – The simple ETF portfolio for retirees. As always, it is not advice but an offering for consideration. The post and portfolio composition can be used for evaluation and to demonstrate that ETFs, and simplicity can work for retirement funding. We all have to build our own retirement funding models that best suit our goals and tax situation and that overall financial and life plan.
Once again, the self-directed investor might seek the help of an advice-only financial planner. Most of us will benefit greatly from professional advice from a retirement specialist.
The 7-ETF Portfolio for Retirees.
Here’s the assets and weighting ‘suggestions’.
A retiree would certainly adjust the stock to bond ratio and they may consider other assets such as gold and Bitcoin, US and International bonds and developing market equities.
2020 created incredible stress for many investors and certainly for retirees. In the moment, the early stages of the pandemic felt like the war that it was and is. That said, not much has happened from an investment standpoint, if we step back and take a look at the last few years.
And of course a retiree should always be prepared for the next crisis. We certainly did not all know that the Black Swan would turn out to be the first modern day pandemic.
Must read: How does the pandemic end?
Central banks and governments came to the rescue with record stimulus, setting a floor under the markets, let’s say. A retiree, so far, should have not been affected if they were invested sensibly and they were investing within their risk tolerance level.
Here’s the 7-ETF retirement portfolio run from 2017. We start with $100,000 and withdraw $334 monthly. It is a 4% withdrawal rate, inflation adjusted.
Once again, not much going on for the investor that was not looking. The portfolio has delivered the income, and has increased in value to the end of September 2020. The 1.58% CAGR (compound annual growth rate) shows that the portfolio has grown at that rate after withdrawals.
Given the start date of portfolio assets, the earliest we can go back (to back test) is January of 2014. Here’s the result.
The simple portfolio mix was able to provide the income and increase the total portfolio value. The 7-ETF mix could have certainly offered a more generous spend rate. It will come back to your retirement plan. You may want the funds to last perpetually, or your retirement plan may suggest that you deplete a certain portfolio more quickly.
It comes back to your goals and the master plan.
And what about that Vanguard VRIF model?
Based on availability of ETF assets, here’s VRIF from January of 2018. Once again we are spending at that 4% rate inflation adjusted.
VRIF and the 7-ETF portfolio are 50% bonds, it’s a fair fight. The 7-ETF would best VRIF slightly. But both portfolios demonstrate that simple can work.
You might need the new 60/40.
I recently looked at the Horizons one ticket offerings. Given the low bond yields of the day, we might need to stretch the equity allocation to provide more growth potential. That might be needed in retirement as well for those that need their portfolio to work (and fund) as hard as possible.
Horizons one ticket asset allocation portfolios – for better asset allocation.
That fund uses some better bonds and has the growth kicker known as the Nasdaq 100.
Here’s the retirement scenario with the same spend rate. The period begins in January of 2019.
Of course you are taking on more risk with HBAL. But again, that may be what is required in the 2020’s and beyond. As always, know and invest within your risk tolerance level.
How did your retirement portfolio hold up? How did you hold up? Please offer your comments.
And always be prepared. There is likely much more volatility and uncertainly to come in 2021 and beyond.
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Cut The Crap Investing readers can sign up with Questrade (Canada’s top-ranked discount brokerage) through this partnership link. You can buy ETFs for free.
And check out EQ Bank for those who want to make their cash work a lot harder. The current high interest savings account rate is 1.5%.
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