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3 Equity ETFs for Retirees

Christine Benz
Susan Dziubinski

Susan Dziubinski: Hi, I'm Susan Dziubinski from Morningstar.com. Morningstar director of personal finance Christine Benz has created a series of bucket portfolios for retirees. Equity funds play a role in bucket three, which carries a time horizon beyond 10 years. Christine is here today to discuss three ETFs that can help fill that third bucket.

Christine, thank you for joining us today.

Christine Benz: Susan, its great to be here.

Dziubinski: You suggest that the largest portion of assets in that third bucket go to Vanguard Dividend Appreciation Index ETF. Why that fund?

Benz: The key reason is that retirees do need equities, but this is a way to own them with a little bit less volatility. So this dividend appreciation ETF focuses on companies with a consistent history of increasing their dividends and tends to concentrate the portfolio in profitable wide-moat stocks. It's also a pretty inexpensive ETF; it charges just 8 basis points.

Dziubinski: You also suggest keeping a portion of the assets in that bucket in Vanguard Total Stock Market Index ETF. What does that fund bring to the table that the dividend fund doesn’t?

Benz: Well, it's very comprehensive. So reasonably you could use this as your sole U.S. stock fund, but the reason I've put it alongside the dividend appreciation product is that it provides exposure to some sectors that are under-represented in dividend appreciation. Technology stocks, for example--most tend not to clear the dividend hurdle in dividend appreciation--they'll be represented here. And as we've seen over the past several years, there will be periods of time where tech stocks will really pace the markets; you want to make sure that you own at least some of them.

Dziubinski: Then lastly, you suggest adding some international flavor in this bucket, too, right?

Benz: That’s right. Even retirees need to have some international exposure, in my view. The benefit is that you are getting some diversification; some of these markets may not move in the same direction as the U.S. market. So, the fund that I've used is Vanguard FTSE All World Ex-U.S., it's ticker is VEU. Someone could reasonably use a total international stock market index instead. The main differentiator is that VEU, the FTSE All World Ex-U.S. product, is focused on mid- and large-cap stocks, whereas the total market tracker tends to have greater share of smaller-cap stocks. Both are very low-cost products.

Dziubinski: Thank you very much for sharing these ETF ideas today for that third bucket of a retirees' portfolio.

Benz: Thank you, Susan.

Dziubinski: From Morningstar.com, I'm Susan Dziubinski. Thanks for tuning in.