Using ETFs as part of your retirement strategy

Why ETFs are the ideal retirement investment option

Investing for a healthy financial future is important for all investors, young or old.

Investing for an early retirement

Many people tend to look at long-term investing as something that they would want to consider or action ‘one day’, but the first step to a long-term strategy can be taken today. A new movement called the Financial Independence, Retire Early (FIRE) movement is well underway, as more and more people realise the value of long-term investing and taking charge of their financial futures. One of the challenges, however, is being able to make the right choices that not only grow your nest egg over time but also ensure you don’t pay too much in management fees while doing so.

The idea behind longterm investments

The value of investing over the long term is often underestimated, as investors try to take advantage of shortterm fluctuations in sharemarkets. But the market often rewards those who have the ability and confidence to hold on. Economic growth cycles of boom and bust can typically last anywhere from 2 to 5 years. So, you see, cycles of boom and bust tend to even out with positive trends over the long term – which the savvy investor can capitalise on.

Look for capital appreciation over the long-term

For younger investors who are starting their investment journey with an eye towards their future, one of the most important things to aim for is capital appreciation. Over long periods, many studies have proven the value of investing in shares for generating wealth. BetaShares’ range of Funds includes equities ETFs that invest in a portfolio of shares and, in doing so, aim to produce capital appreciation over the long term.

The power of long-term investments

Naturally, there are rises and falls in the market, but by maintaining a focus on the goal of retiring early and having the patience to hold on for the long term, those with a distant investment horizon should have a better chance of meeting their objectives and seeing their investment grow, despite short-term fluctuations.

Consider this: a 50-year-old investor could invest $1000 every month ($12,000 a year), into a low-cost, broad market ETF. If this ETF grows at a rate of 4 per cent annually, after 25 years that investment could be worth over $500,000, minus any fees or expenses. If you can afford a higher investment amount, you may be able to make it to retirement even faster.

Low-cost investments for the long run

While returns are the main way you’ll reap the rewards of long-term investing, keeping fees to a minimum will also have a significant impact on your returns. ETFs are known not only for their simplicity and diversification, but also for being cost effective.

Planning for an early retirement

So you didn’t start investing at 25. As we mentioned earlier, you can start investing in midlife and still reap the rewards of long-term investing. Having a long-term focus allows you to ride out short-term fluctuations, while seeking positive returns that compound with time, especially when using ETFs that are low on management costs. BetaShares’ Australia 200 ETF, for example, is the lowest cost Australian shares ETF currently available on the ASX with only 0.07 per cent p.a. management costs*. It also offers the advantage of accessibility, diversification, transparency, and quarterly distributions from dividend income.

ETFs fit the bill for low-cost, long-term investments. And if you can allocate a steady amount of your savings to long-term investments, you may not be too far away from realising your dream of FIRE!

Investing in retirement

As you get closer to retirement age, you may feel the need to take a closer look at your investment portfolio to ensure you have enough to retire comfortably. While volatile markets can rattle even seasoned investors, such volatility can be more detrimental for anyone relying on their portfolio to fund lifestyle needs in the short-term. Investors approaching retirement may not have the time to ‘ride out the storm’ and recover from market losses, which is why BetaShares’ Managed Risk series of Funds is an ideal solution. The Managed Risk series aims to defend against market losses whilst still providing exposure to the growth and income potential of Australian or international shares.

BetaShares has a range of Funds to help retirees meet their investment goals.

Investment specialist Dr Roger Cohen says: “A crisis such as the COVID-19 pandemic will test the behaviour and risk appetite of many investors. Key to long-term success is the ability not to be rattled by wild short-term swings in equity markets, and to maintain a portfolio that gives the best chance of achieving long-term goals, even at the expense of short-term discomfort.” For investors who have reached retirement, BetaShares offers a range of funds focused on providing income. These include the BetaShares fixed income ETFs and hybrid securities funds. The BetaShares Active Australian Hybrids Fund (managed fund) (ASX: HBRD), for example, gives investors the opportunity to earn attractive, tax-efficient monthly income from a diversified portfolio of hybrid securities, actively managed with the aim of reducing the volatility and risk associated with owning hybrids directly. There’s also the BetaShares Australian Major Bank Hybrids Index ETF (ASX: BHYB) which aims to passively track the performance of a diversified index of hybrids (preference shares) issued by the Big 4 Australian banks.

Diversify your investments

Spreading your investments across a range of asset classes is a proven way to reduce risk in your portfolio. Maintaining an adequate level of diversity helps protect portfolios should certain asset classes be more affected than others from market declines.

BetaShares’ range of Funds cover all the major asset classes, including Australian shares, international shares, fixed income, cash, commodities, and currencies.

Spending the time to research and look more into your retirement portfolio is often the most important step towards improving your future wellbeing. Whatever your investment needs, BetaShares is sure to have a fund that will assist you in meeting your retirement investment goals.