5 ETFs That Are All You Need for Retirement

The SPDR S&P 500 ETF Trust (NYSEMKT: SPY) is the quintessential index fund of the ETF world. It’s one of the oldest, largest, and most popular financial products of its kind. The fund doesn’t do anything too crazy — it just holds stocks that are meant to replicate the performance of the S&P 500. That makes this ETF a useful cornerstone for nearly any strategy when combined with other more specific investments.

This passive strategy allows for a razor-thin 0.09% expense ratio, which means investor returns aren’t eroded year after year. The fund’s popularity leads to high trading volume, which makes it highly liquid with low trading costs. These are all great features that make this a great piece of any retirement ETF strategy.

The Vanguard Growth ETF (NYSEMKT: VUG) is a straightforward investment vehicle for investors who seek higher growth than a typical stock market index. The Vanguard Growth fund is passively managed, and it’s meant to provide higher upside exposure without excessive risk. Its selection criteria include several screens for earnings and sales expansion across multiple time frames, so it holds stocks that are consistently growing. It currently has around 250 holdings.

Unlike the ETFs that track the S&P 500, the Vanguard Growth ETF also holds mid-cap stocks. That helps investors mix up some performance and potentially outpace the market. The ETF’s 0.04% expense ratio is as low as it gets, so that’s great for net returns. Younger investors who are building assets for a retirement a few decades down the road should consider a growth-heavy portfolio in their IRA or 401(k).

The iShares Russell 2000 ETF (NYSEMKT: IWM) is one of the most efficient investments for diversified exposure to small-cap stocks. Small caps tend to be more volatile than their larger counterparts, but they can also provide more upside. Many of tomorrow’s dominant industry leaders are currently in their formative stages, and investors who get on board today will experience explosive returns. Small caps are also popular among factor investors and the smart beta crowd, with research indicating that smaller companies have tended to outperform larger ones over the long term.

The iShares Russell 2000 ETF has a relatively high expense ratio among index funds at 0.19%, so you have to pay a premium for this. That’s still far below the typical fees for actively managed and niche funds.

The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is one of the best options available for investors who want dividend income from their portfolio. The fund holds 100 stocks, all of which have at least a 10-year history of distributing cash to shareholders. The fund’s selection criteria target financial health, operational efficiency, dividend growth, and yield. The resulting portfolio is composed of companies with sustainable and reliable dividends.

It currently boasts a 3.42% distribution yield, which is well above the market average. This also comes with a super-low 0.06% expense ratio and great liquidity. Dividends are especially important for investors who are retired (or approaching retirement), so the Schwab Dividend Equity ETF could be a great option for older households looking to sell off some of their growth assets.

The iShares MSCI International Quality Factor ETF (NYSEMKT: IQLT) is another option for investors prioritizing stability. This fund screens its potential holdings based on return on equity, the debt-to-equity ratio, and earnings variability. It then weighs the portfolio based on quality score rather than market cap, so its largest holdings are the stocks that are the best fit. The ETF is composed of profitable, consistent stocks. That’s generally not the recipe for the highest growth or dividends, but it can be extremely attractive for retirees and other risk-averse investors.

Even though the fund doesn’t specifically target dividend stocks, its selection methodology tends to favor companies that pay dividends. Its 3.57% distribution yield is high. It’s also a global fund, so it provides great exposure to economies outside of the United States. Investors probably aren’t thrilled with the 0.3% expense ratio, but that’s still manageable.

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Ryan Downie has positions in iShares Edge MSCI Intl Quality Factor ETF. The Motley Fool has positions in and recommends Vanguard Growth ETF. The Motley Fool has a disclosure policy.