No matter where you are in your life cycle and no matter how much you’ve saved up to this point, there’s an ETF that fits your situation, explains David Dierking, exchange-traded fund expert and editor of The Street's ETF Focus.

Vanguard is one of the most popular investment providers in the world. Its wide range of ultra-cheap products make it the ideal spot to open up a brokerage account and start building your retirement savings. Because of that, we’ll look at the Vanguard family of ETFs as your primary investment options.

For this exercise, I’ll look at every decade of your journey to retirement and offer a top ETF pick for that age bracket, from the 20s all the way up through retirement. That doesn’t necessarily mean you should ONLY consider that fund. It simply means that it’s an age-appropriate ETF to consider adding to your portfolio at that age.

20’s: Laying The Foundation

My Pick: Vanguard Total Stock Market ETF (VTI)

At this point in your life, you’ve probably have some actual income for the first time in your life and any money you invest now has potentially 40+ years to grow, a lot of time for your money to make money on its own! At this age, you want to think about building the core of your portfolio. That means primarily equities (since you’ll have years to ride out the highs & lows) that are broadly diversified and ultra-cheap.

VTI invests in more than 3,700 U.S. companies from large to small. Because it’s market-cap weighted, the big names, including Apple, Microsoft, Coca-Cola and Walmart, receive the largest allocations (roughly 75% of the fund is invested in large company stocks). Its annual expense ratio is just 0.03%, meaning you pay next to nothing to own it. It’s a great cornerstone for long-term investing!

30’s: Thinking Globally

My Pick: Vanguard Total International Stock (VXUS)

After you’ve established your foundation, it’s time to begin thinking about building around it. This is the point where you can consider adding other asset classes and strategies since your core buy-and-hold position is already in place.

If VTI invests in the entire U.S. stock market, VXUS invests in pretty everything else around the world, including even South America and Africa. Pairing VXUS with VTI adds another 8500 stocks to your portfolio and gives you an ownership stake in nearly every publicly traded company in the world! And you can have it for a cost of just 0.07% annually. One of the best deals around!

How much international exposure you wish to add is up to your personal risk tolerance, but I think it’s important to have at least some exposure to other markets around the world.

40’s: The Big Saving Years

My Pick: Vanguard Dividend Appreciation ETF (VIG)

Your 40s are the time where you should start to think about risk management. You’re potentially only 20 years away from retirement now and not every risky bet will pay off. Studies have shown that dividend paying stocks tend to outperform non-dividend paying stocks over the long-term. Dividend payers tend to be quality companies built on strong balance sheets and cash flows.

VIG invests in companies with a 10+ year streak of consecutive annual dividend increases. Companies that keep increasing their shareholder payouts are probably leaders in their chosen sectors and have a greater chance of withstanding any short-term economic downturns. Dividend stocks, realistically, belong in almost every portfolio.

50’s: Time To Think About Protection

My Pick: Vanguard Total Bond Market ETF (BND)

In your 50s, it’s time to start considering principal preservation. If you plan on retiring in 10 years (or even less), you may not have the time to recover from a steep bear market. Bonds are the classic diversifier to stocks because they often move in the opposite direction of stocks.

BND invests in the total investment-grade U.S.-denominated bond market. In other words, these are higher quality fixed income securities across both the corporate bond market and U.S. Treasuries (about a 1/3 to 2/3 split currently).

Because they stay away from junk bonds, they’re less volatile, have a lower default risk and a much higher propensity to continue their income streams over time. Like VTI, it’s a great low cost way to capture the entire bond market, which makes a perfect complement to an existing all-stock portfolio.

60’s: Hitting The Finish Line Safely

My Pick: Vanguard Short-Term Bond ETF (BSV)

Here’s where principal protection becomes not just recommended, but necessary. This is not the time to be thinking about maximizing your potential for gains. It’s the time to be thinking about minimizing your downside risk.

I’m sticking with the bond theme here, but pivoting to just those of the short-term variety. The composition of BSV is very similar to that of BND, but both the time to maturity and volatility of the portfolio is less than half that of BSV. That lack of volatility is what’s going to be most important here.

Investors should consider reducing their equity allocations in favor of increasing fixed income allocations even more than they might have done in their 50s. The best thing is that you no longer need to necessarily sacrifice returns when shifting to bonds. Today, BSV is paying an annual yield of around 4.4%, not a bad trade-off!

Retirement: Creating An Income Stream

My Pick: Vanguard Ultra-Short Bond ETF (VUSB)

When you’re actually in retirement, your portfolio should be conservative. That doesn’t mean giving up on equities altogether. But the priority should be principal preservation. You’re likely no longer adding to your portfolio, you’re withdrawing what you’ve accumulated. That means you likely no longer have the means of replacing that money when it’s taken out by income from a job.

If you’re looking for just a steady, predictable income source, VUSB does a great job. It pays nearly the same 4.4% yield of other bond ETFs, but comes with almost no share price fluctuation. Think of it as the next step up the risk ladder from a straight money market fund.

You don’t necessarily need to put all of your retirement eggs in this basket, but it makes for a great safety valve for your portfolio while still providing a really nice yield in the process.

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