Retirement planning takes many years, and your goals will change as you get older. Younger investors typically focus on stocks, while older investors gravitate toward bonds and high-yield savings accounts.
Risk tolerances, preferences, and financial situations change. A balanced allocation ETF can align with your risk tolerance and hold a mix of stocks and bonds. A portfolio manager does all of the work to ensure funds match up with your risk tolerance.
If you’re looking for some balanced allocation ETFs that can set you up for retirement, these are some choices to consider.
Key Points
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Balance allocation ETFs give you exposure to stocks and bonds.
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You can invest in balanced ETFs that align with your risk tolerance, and these five ETFs are good starting points.
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iShares Core Conservative Allocation ETF (AOK)
The iShares Core Conservative Allocation ETF (NYSEARCA:AOK) won’t keep up with the market during bull runs. However, this ETF does a better job of preserving wealth during market downturns. The fund primarily invests in other iShares ETFs, with almost 60% of its total assets in a bond ETF. An ETF that mirrors the S&P 500 makes up roughly 17.5% of the fund’s total assets.
AOK has a 0.20% expense ratio and a 3.1% yield. Shares are up by 3% over the past year and have been flat over the past five years.
Vanguard Target Retirement 2070 Fund (VSVNX)
Target retirement funds are a type of balanced allocation ETF, and VSVNX is one of the top choices to consider. The fund has a 0.08% expense ratio and a 2.29% 30-day SEC yield.
The fund will gradually decrease exposure to stocks and increase exposure to bonds as the target retirement date gets closer. Right now, the fund puts about 90% of its funds into stocks and 10% of its funds into bonds. VSVNX has $1.2 billion in total assets and requires a $1,000 minimum investment. The fund has gained 13% over the past year.
WisdomTree U.S. Efficient Core Fund (NTSX)
The WisdomTree U.S. Efficient Core Fund (NYSEARCA:NTSX) prioritizes exposure to U.S. equities with some exposure to U.S. Treasury futures contracts. The fund has a 0.20% expense ratio and a 1.51% yield. It’s up by 17% over the past year and has rallied by 50% over the past five years.
NTSX’s equity positions only consist of large-cap stocks, with the Magnificent Seven stocks making up a good amount of the fund’s total positions. Currently, the fund puts 60% of its total assets into stocks and 40% of its funds into bonds. More than one-third of its assets are in the tech sector.
GraniteShares HIPS U.S. High Income ETF (HIPS)
The GraniteShares HIPS U.S. High Income ETF (NYSEARCA:HIPS) allocates its capital across four alternative income categories: REITs, MLPs, BDCs, and closed-end funds. Each of those investment classes makes up a 25% slice of the fund’s total assets. The ETF’s 1.99% expense ratio may be enough to scare investors, but it also comes with an 8.82% 30-day SEC yield.
The ETF has generated an annualized 4.33% return over the past five years. It’s unlikely to outperform the stock market during bullish cycles, but its focus on income-producing assets makes it more durable during economic downturns. HIPS has maintained a monthly distribution of $0.1075 per share since its inception on January 6, 2015. The fund has daily rebalancing, which contributes to the elevated expense ratio.
iShares Core Growth Allocation ETF (AOR)
The iShares Core Growth Allocation ETF (NYSEARCA:AOR) has delivered an 8% return over the past year and a 17% return over the past five years. It offers exposure to equity and fixed-income funds. The fund has 35% of its assets invested in a fund that mirrors the S&P 500 and another 35% of its funds into a fund that follows the U.S. bond market.
AOR has a 0.15% expense ratio and a 2.54% 30-day SEC yield. The fund also has $2.38 billion in total assets and offers quarterly distributions. Approximately two-thirds of the fund’s assets are in U.S. corporations.
Why Investors Buy Balanced ETFs
Many investors prefer to take a hands-off approach with their investments. Between a full-time job and raising a family, most investors don’t have enough time to follow the daily developments of the stock market and individual positions.
Balanced ETFs make it easy to accumulate stocks and bonds instead of only committing to a single asset. They’re much easier to manage, but they also reduce risk. Many balanced ETFs underperform the stock market during bullish cycles, but they also don’t lose as much value during bearish cycles. Furthermore, these funds tend to have higher yields since they have fixed-income assets.
You also won’t have to spend as much time in your portfolio. There isn’t a need to make frequent trades if you focus on buying shares in a balanced ETF.
How to Decide Which Balanced ETF Is Right For You
Investors have to determine their risk tolerance before deciding which balanced ETF is right for them. If you don’t want as much risk, you may want to consider an ETF that allocates more than half of its total assets toward bonds. However, investors who want to take on more risk in exchange for higher potential returns should narrow their focus to ETFs that put more than 50% of their capital into equities.
You should also check each fund’s expense ratio and 30-day SEC yield. Some people value higher yields and want to live off cash flow. Others will take a lower yield if it means higher potential returns. Knowing what you want, the amount of risk you’re willing to take, and your financial situation can lead to the best decision for you.