“Okay, Paul, now that we know ETFs are better for retirement accounts than mutual funds, how do I pick from the thousands of ETF? Please help!”
I received a few variations of this question after posting last week's article, "Why ETFs are better than mutual funds.” While I am not your financial advisor, I can give you a few tips and 7 of my favorite ETFs for longer term investments.
Before you finish reading today's post, make sure to register to join me live tomorrow at 12PM EST as I uncover in more detail how you can trade and utilize your retirement accounts for longer-term swing trading.
Tip 1: Dividend Yield
If you are investing in ETFs in a retirement account, your portfolio should contain an allocation of ETFs that have a high dividend yield.
Dividend yield is what the company pays out to you for every share you own. If a stock is trading at $100 with a 3% dividend yield, you will get $3 per share you own.
This type of “baked in” performance is important for long term investing for retirement because it helps with reducing the volatility of the market. It also is often a better “investment” than other investment vehicles like bonds .
Tip 2: Low Equity Ratio
Seemingly miniscule fees crush our retirement accounts.
As we showed in our ETF vs Mutual Funds example, if we invest $10k with a yearly $10k addition over 30 years, the difference between investing in mutual funds versus a ETFs can cost you a mind boggling 1.3 million dollars over the life of the account.
While ETFs are the better choice, not every ETF has low fees. Always check to make sure there is a low equity ratio. Anything under .5% is good, but the lower the better and most will be .1-.35%.
Tip 3: Liquidity
Make sure the ETFs you are investing in are liquid and built to last. New ETFS are always entering the market. I like to wait a few years before investing in them long term, and rarely invest in an ETF that trades less than 1 million shares daily.
Tip 4: Balance Growth Versus Value
The age old debate for investors and traders is value versus growth stocks. A value stock is a stock that is trading at a lower price than one would expect based on things like the company's earnings. Growth stocks are expected to grow faster than the market average based on revenues and earnings potential.
As investors we are not picking a side. In the Retirement class we’ll dig deeper into setups and entry points that help pick good growth and value ETFs. For now, know that we want a mix of both.
In the upcoming retirement class, we will dig into why I picked these ETFs and analyze many more. In addition, we will go over setups, market timing, retirement account types and benefits, fundamentals, earnings and longer term options strategies.
Join me live tomorrow at 12PM EST as I uncover in more detail how you can trade and utilize your retirement accounts for longer-term swing trading.