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3 Stock Funds for Retirees

Christine Benz
Susan Dziubinski

Susan Dziubinski: Hi, I'm Susan Dziubinski for Morningstar.com. Today's retirees need their portfolios to last for two decades or more. Stocks can provide some much-needed growth during the drawdown phase. Morningstar's director of personal finance, Christine Benz, includes three stock funds in her model portfolios for retirees. She is here today to discuss them with us.

Christine, thank you for joining us today.

Christine Benz: Susan, it's great to be here.

Dziubinski: Now, your retirement portfolios include stock funds in that very last bucket, bucket 3.

Benz: Right.

Dziubinski: And the stock fund that takes up the largest percentage of assets in that bucket is Vanguard Dividend Appreciation. Why this fund in particular?

Benz: This fund is available as either an exchange-traded fund or as a traditional mutual fund. The reason I like it, Susan, is that it is focused on companies that have had a history of growing or increasing their dividends. That tends to anchor it in financially healthy firms. A big share of this portfolio is classified as wide-moat stocks. So, these are generally higher-quality companies than the broad market. I like it because that tends to reduce the volatility relative to other stock funds. It's also very, very cheap. It charges just 8 basis points.

Dziubinski: Oh, it's great. Now, speaking of the broader market, you do include another Vanguard index fund in your portfolio, Vanguard Total Stock Market. How does that one fit in?

Benz: Well, this one could be one-and-done. If you just wanted a single U.S. equity fund, this would be the one that I would use. The reason I use it as a complement to the Dividend Appreciation fund is that it provides some exposure to sectors that are somewhat lacking in the Dividend Appreciation fund. So, it's broadly diversified. It has exposure to technology stocks, for example, which tend not to pay very large dividends certainly. So, it's a good complement or it's a good sole standalone holding. It's also very, very cheap. In fact, cheaper than Dividend Appreciation.

Dziubinski: And then you round things out with a little bit of an international flavor with American Funds International Growth and Income. Tell us a little bit about that fund.

Benz: Yeah. This is a fund that is run by American Funds Capital Research Group. It has multiple managers, but they are all applying what we think is a very sensible strategy. They look for dividend-paying firms by and large. And one thing that people might not know about American Funds' products is that they are available through Schwab in the F share class without any sales charge and without any transaction fee. So, a lot of people might say, American Funds, that's for load investors. Not so. You can access the funds through Schwab.

Dziubinski: That's great. A lot of good ideas for retirees today. Thank you, Christine.

Benz: Thank you, Susan.

Dziubinski: Thank you for tuning in. I'm Susan Dziubinski for Morningstar.com.