Many people are beginning to look at exchange traded funds (ETFs) as a retirement investment alternative to mutual funds. It is entirely possible, though not easy, to manage your own diversified basket of ETFs in your IRA or 401k. You have a variety of options here, including picking some all stock market ETFs or adding Health, Energy, Technology, and other sectors to get a diversified basket. You can browse the different ETFs that are out there at places like Instant ETF. Again, this is a more difficult approach to retirement planning, but not necessarily a bad one.
The preferred method of ETF investing is to take advantage of the long-term target ETFs offered: TDAX Independence 2010 ETF (TDD), TDAX Independence 2020 ETF (TDH), TDAX Independence 2030 ETF (TDN) and TDAX Independence 2040 ETF (TDV) and TDAX In-Target ETF (TDX). The ETFs automatically roll over your portfolio into risk positions that are inline with your current stage in life. Each offers an expense ratio of 0.65% compared with 1.3% expenses for comparable mutual funds. If you’re unsure if that is worth it see how much an extra 0.65% compounded annually can effect your portfolio – you may be surprised.
You do want to keep an eye on your ETFs and make sure that they remain solvent. ETFs are a relatively new addition to retirement planning and are somewhat untested over time. We have seen some funds be liquidated which often has tax repercussions for the long term investor. Just a few things to keep in mind before considering added exchange traded funds to your retirement planning.
If you are looking to gain commodity exposure in your self-directed retirement plan, consider using one of a burgeoning number of possibilities that exchange traded funds (ETFs) offer. Head over to Instant ETF and browse by sector to find what you’re looking for. One of the most popular commodities right now is the Natural Gas ETF (AMEX: UNP). There are a lot of other options, including broader based ETFs and ETNs that cover a basket of commodities, including ones that do not just focus on energy. London has been somewhat ahead of New York in offering commodity plays, but there is an increasing number of commodities ETFs in the United States, primarily because of the strong bull market right now. If you’re looking at adding commodities futures contracts themselves, take a look at Commodities Futures Charts.
Research from Russell Investments has come out with research that concludes that it is not how much you save, but how much you earn on those savings that really matters. That is to say someone who stows away thousands of dollars into a savings account may end up doing just as well off as someone stowing away hundreds and allocating it into strong performing mutual funds and other equities.
Of course the big variable in this is your appetite for risk. Many people can’t stomach their retirement fluctuating up and down over 40 years. The simple answer to this: toughen up. If your appetite for risk is limited invest into mutual funds and ETFs that are more conservative in nature or even go 20-30% below your recommended equity allocation, but do not throw all of your money into savings. The harsh reality is that many savings accounts barely return the same money you put in year over year – that is to say inflation can run higher than the rate of return on your savings account.
Do your own research, but also do some simulations. Use some basic assumptions to see the difference in how much you will have when investing in certain ways. You may be surprised how much you’re losing (or gaining) by investing your retirement in a certain manner.