In late 2016, I wrote an article entitled, Millennials - Make This Your New Year's Resolution For 2017.

The article was basically a "total investment package" for millennials. I recommended a specific brokerage to use, 7 specific ETFs, as well as a suggested allocation for each.

Recently, I started thinking about doing more or less the same thing for an investor who is at the opposite end of the investment spectrum. One who has accumulated assets over a lifetime (perhaps in a 401k plan) and now wishes to invest these appropriately for their retirement years.


  • In this article, I select 10 top ETFs with which to secure your retirement portfolio.
  • In the total package this article represents, however, I do much more than that.
  • I offer a suggested brokerage, and reasons why. I also offer two suggested allocations, depending on how you view Social Security.
  • In turn, that links to an article on my personal blog, with an in-depth discussion of valuing Social Security as well as a handy Excel-based tool with which to do so.
  • Finally, I run a 4-year backtest on both asset allocations and offer some thoughts.

Unique Challenges Of the Retirement Investor

The retired, or soon to be retired, investor faces some unique challenges. Unlike the younger investor, with a very long investment horizon ahead of them, an investor in this age group faces the competing challenges of generating some current income while keeping an eye on capital preservation.

At the same time, however, the happy circumstance that life expectancy is generally on the rise requires that we think about maintaining at least some allocation in stocks. In order to battle the risk of inflation, such a growth component is required.

If you'd like to get an idea of how this might look in your case, take a few minutes and enter your gender and birth date into this calculator on In my case, as a male born in the early 1960s, I came up with a life expectancy estimate in the range of 84-86 years of age. For a female of my age, this increases to 86-88. Since these are averages, and do not take into account specific factors such as current health, lifestyle, and family history, it is not at all unreasonable to expect that someone who is blessed with good genetics and who takes care of their health may live well into their 90s.

The Brokerage

If you already have a brokerage account, there is likely no burning reason to change anything. The ETFs I will recommend have extremely low expense ratios. However, you may incur a commission each time you buy or sell. For a younger investor, who may be making small incremental investments each month, this can really add up. A retiree looking to invest their nest egg will likely not generate near as many transactions.

However, if you are looking for a brokerage, I am going to suggest you take a look at Vanguard. Why? In large part, because of this announcement from July 2, 2018. Essentially, Vanguard eliminated all trading commissions on all but a few highly speculative or complex ETFs. For an investor who either exclusively, or predominantly, uses ETFs, this is a sweet deal.

The ETFs

So there you have it, a brokerage account in which you can execute commission-free trades in the ETFs I will now list for you. Here are my 10 selections, broken out by asset type.

As you comb through the table, please note that there is a "further reading" link for each ETF with the exception of VPU. That link will take you to a previous article in which I cover the ETF in some detail.

ETF Name/Symbol

Inception DateExpense RatioAverage SpreadAUMNumber of Holdings30-Day SEC Yield


iShares Core Total U.S. Bond Market ETF (AGG)

(Further Reading)

09/22/03.05%.01%$52.81 Billion6,8453.36%

Vanguard Short-Term Bond ETF (BSV)

(Further Reading)

04/03/07.07%.01%$25.21 Billion2,5483.07%

Vanguard Total International Bond ETF (BNDX)

(Further Reading)

06/04/13.11%.02%$12.19 Billion5,9821.13%


Vanguard Total Stock Market ETF (VTI)

(Further Reading)

05/24/01.04%.01%$100.72 Billion3,6801.93%

iShares Core Dividend Growth ETF (DGRO)

(Further Reading)

06/10/14.08%.03%$4.72 Billion4502.36%

Vanguard High Dividend Yield ETF (VYM)

(Further Reading)

11/10/06.08%.02%$21.49 Billion4043.35%


(Further Reading)

10/22/12.08%.02%$55.82 Billion2,4812.63%

iShares Core MSCI Emerging Markets ETF (IEMG)

Further Reading - Covered with IEFA

10/22/12.14%.02%$46.64 Billion1,8812.26%


Vanguard Real Estate ETF (VNQ)

(Further Reading)

09/23/04.12%.01%$29.83 Billion1843.33%

Vanguard Utilities ETF (VPU)

01/26/04.10%.04%$3.00 Billion713.26%

Why Vanguard and BlackRock?

As your eyes scanned the list above, you no doubt noticed that six of the ETFs are from Vanguard and four are from BlackRock (BLK). Given how many ETF providers are out there in the marketplace, why is it that my 10 selections come from just two fund families?

Simply put, because, in my opinion, when you put all the factors together, you can't do much better. Take a look back at that table.

  • Longevity - Six of the ETFs have been around for over 10 years. The newest, DGRO, has over 4 years under its belt.
  • Size - Seven of the ETFs have AUM (Assets Under Management) in excess of $20 billion, with 3 over $50 billion and 1 over $100 billion. VPU, the smallest of the group, still boasts AUM of $3 billion.
  • Expenses & Liquidity - The funds have an average expense ratio of .087%, with the most expensive, IEMG, coming in at .14%. In addition to that, four of the ETFs have an average trading spread of .01%. At .04%, VPU is the highest. Not that I think you'll be trading much, but that tells you something about the liquidity of each of the ETFs. In other words, this portfolio won't chew up your hard-earned funds with high expenses.
  • Diversification - Look back at the number of holdings in each ETF. Those total-market ETFs, both for stocks and bonds? In each case, between roughly 2,000 and 6,000 holdings. Even the "specialty" ETFs are quite diversified, given the targeted asset groups they represent.

However, I'm not asking you to simply take my word for it. Back on June 20, 2018, none other than Forbes Magazine released an article featuring the Best ETFs For Investors 2018. From the "universe" of ETFs, they started by culling the list down to those with at least $10 million in assets and expense ratios no higher than 0.4%. The 1,100+ funds that didn't make this initial list? "Too tiny or costly to be worth your attention," said Forbes.

From that list, Forbes ultimately settled on 64 ETFs as the "best of the best." For example, they would consider several different ETFs that were more or less equivalent. But if one had an expense ratio 3 or 4 times its competitor? Out it went. But here's where we get to Vanguard and BlackRock. Of those 64 ETFs, 17 were from Vanguard and 17 from BlackRock. Yes, 34 of the 64 ETFs from just those two fund families. For what it's worth, Charles Schwab was next, with 12 ETFs making the list.

The Portfolio

While I offered links to further reading on 9 of the 10 ETFs, let me offer just a few quick thoughts, by asset type, on why I selected each of them for the portfolio.

Bonds - This asset class is represented by AGG, BSV, and BNDX. AGG is your 'core' bond holding, representing the total U.S. bond market. With an average duration of 5.94 years, it offers a conservative balance between decent income and reasonable interest rate risk. BSV, with its shorter average duration of 2.7 years, can be used to whatever extent you desire to minimize interest rate risk, at the same time typically offering a somewhat lower yield than AGG. BNDX is the most 'controversial' choice. If you decide to leave it out, consider splitting the recommended allocation between AGG and BSV instead. However, take a good look at the linked 'further reading' article before making a final decision, as there are benefits to including international bonds in your portfolio.

Domestic Stocks - This asset class is represented by VTI, DGRO, and VYM. VTI is your 'core' domestic stock holding, representing the total U.S. stock market. DGRO represents a subset of stocks specifically selected for their dividend growth characteristics. VYM represents a subset of stocks specifically selected for their high dividend yield characteristics. For this article, suffice it to say that if you dig into articles from either myself or other Seeking Alpha authors, you will find these two ETFs consistently rated as quite possibly the best in their related segments. Later in the article, when we get to the asset allocations, you will notice that I have approximately 60-70% of your U.S. stock exposure in DGRO and VYM. This is because, as a retiree, income is an important component for you. Therefore, I am purposely skewing your weighting in favor of dividend-producing stocks. The fact that these are typically some of the most stable stocks in the marketplace is an added benefit.

Foreign Stocks - This asset class is represented by IEFA and IEMG. IEFA represents developed international markets. IEMG represents emergingmarkets. In general, a country is considered developed if it has a highly developed capital market, competent and serious regulatory agencies, and high levels of per-capita income. Emerging economies, on the other hand, tend to be characterized by higher levels of economic, political, or social instability, lower per-capita income, and still-developing infrastructure. I recommend at least some allocation to foreign stocks, as they offer the benefits of diversification as well as potentially greater growth.

Other - This asset class is represented by VNQ and VPU. VNQ represents REITs; companies that invest in real estate and which, by law, are required to distribute the bulk of their earnings in the form of dividends. VPU represents Utilities. I include a small allocation of these both for stability and to keep the level of dividend income as high as possible, while keeping an eye on capital preservation.

Asset Allocation - How Do You View Social Security?

Now that I have laid out the ETFs for you, and explained the relative place of each in the portfolio, we come to the question of asset allocation.

As you ponder this, a fairly significant question arises. How do you view your Social Security benefits? After all, once you decide to tap into it, this government-provided benefit is going to offer you a steady income stream, including cost of living adjustments, for the rest of your life.

Here is where we are going to take a little detour. Since this is such an important question, I have dedicated an entire article to it on my personal blog. This article will discuss the topic, provide a link to a handy Excel-based tool to calculate the approximate present value of your expected benefits, and finally offer no less than 7 links to suggested further reading. By the time you are done, I believe you will have everything you need to develop your own point of view on this topic.

Two Versions Of The Portfolio

Now that you have considered that material, here are two versions of asset allocation for you to consider.

Option A is the more aggressive of the two. In this version, we will view Social Security as a bond, allowing us to allocate a higher percentage to stocks. In this version, some 47% of your assets are in a combination of Domestic and Foreign stocks. As can be seen, with 38% bonds and 15% REITs and Utilities, the portfolio is still reasonably conservative. I have slanted it in favor of generating decent current income, while allowing potential for growth.

Option B is the more conservative of the two. In this version, we will lean away from viewing Social Security as a bond, and therefore allocate a higher percentage to bonds. In this version, a mere 40% of your assets are in a combination of Domestic and Foreign stocks, with the 7% difference allocated to bonds. I've left REITs and Utilities at 15%, simply helping to round out the portfolio and boost income. Even in this version, though, that 40% allocation to stocks leaves reasonable opportunity for growth.

Without further ado, here are the allocations.

ETF Name

Portfolio 1

View Social Security As A Bond

Portfolio 2

No Consideration Of Social Security

iShares Core Total U.S. Bond Market ETF14.00%20.00%
Vanguard Short-Term Bond ETF14.00%20.00%
Vanguard Total International Bond ETF10.00%5.00%
Vanguard Total Stock Market ETF10.00%8.00%
iShares Core Dividend Growth ETF12.00%10.00%
Vanguard High Dividend Yield ETF13.00%12.00%
iShares Core MSCI EAFE ETF10.00%8.00%
iShares Core MSCI Emerging Markets ETF2.00%2.00%
Vanguard Real Estate ETF7.50%7.50%
Vanguard Utilities ETF7.50%7.50%

Backtesting The Portfolios

How did I arrive at those allocations? I started with some information from Vanguard itself with respect to recommended allocations for a retirement portfolio. Then, using the tools available on the Portfolio Visualizer website, I played around with the weightings of the various asset classes until I hit what appears to be a nice "sweet spot" for both versions. The goal was to find a nice combination of risk/reward for both versions. Here's a link to the results of that backtest.

As it happens, due to the inception date of DGRO, the backtest was only able to go back as far as January 2015. Still, we will be able to get a decent idea of how it stacks up against the S&P 500 average, for benchmarking purposes.

Here is a nice visual of the allocations. First, Portfolio 1.

Next, Portfolio 2.

Here are the overall returns of both variants, using a fund that mirrors the S&P 500 as a benchmark.

Lastly, here is the annual income generated by each portfolio over that time frame. Bear in mind that 2018 looks a little low because the bulk of Q4 dividends have not been paid yet. However, a quick look at 2017 will reveal that both portfolios are generating an overall dividend yield of roughly 3%.

I have to say, I found Portfolio 1 to hold up amazingly well in this backtest. It outperformed Portfolio 2 by a decent margin amount in the context of a rising market. Importantly for a retiree, you might notice that the current income level is virtually identical for both portfolios.

What I really focused on from the standpoint of a retiree, however, were those 'worst year' and 'max drawdown' amounts. Even here, Portfolio 1 held up fairly well. In the event of a major downturn in the U.S. and/or foreign stock markets, however, Portfolio 2 should prove its worth for those wishing to be conservative.

What, though, about that S&P 500 return? It blew both portfolios right out of the water! As you ponder this, however, bear in mind that particularly since the election of Donald Trump, U.S. stocks have dramatically outperformed pretty much every other asset class out there, including foreign stocks. You, however, are not as much interested in looking in the rearview mirror as you are going forwards. You are also likely interested both in generating a reasonable level of income and, perhaps even more importantly, capital preservation.

The Importance of Rebalancing

The last thing I will touch on is the matter of rebalancing. When I set up the above backtests, I selected "annual rebalancing." Why is this so important, particularly for a retiree? Here's how I have previously explained it.

However, much like the landscape around your home, your asset allocation needs regular maintenance. When you landscaped your home (or started a garden, as the case may be), you likely worked with design and installation professionals to pick exactly the right plants for each location depending on your climate zone, the correct sun/shade mix and similar factors. No doubt, it all looked absolutely spectacular upon completion. However, left untended, your landscape or garden will not look nearly as good even weeks later, not to mention a year or more. In fact, it might ultimately look so bad that it would be hard for an impartial observer to discern that there had ever been a design or plan.

Your asset allocation, left untended, is also subject to entropy. Another way to phrase this is "portfolio drift." . . . Over time, however, this behavior can result in your asset classes drifting far from their initial weighting. In turn, this has the potential to raise the risk level of your portfolio far beyond what you ever intended.

In that article, I offer some guidelines which may help you rebalance your portfolio much more efficiently than simply setting a date once per year on the calendar.

Final Thoughts

Whew! It's been a lot, hasn't it? We've covered a ton of ground in this article, and even more if you reviewed the linked article on my personal site.

In summary, we have followed the three anchors laid out at the beginning of the article - low expenses, diversification, and dividend income - to build a solid portfolio for an investor of retirement age. Regardless of which option you choose, the portfolio will return approximately 3% per year in current income, while offering you two options to balance growth vs. risk.

I hope it has been of some help in developing your own perspective. Please feel free to drop thoughts, comments and, yes, even criticisms in the comment section below. I'm looking forward to what may be a very lively interchange on a very important subject.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish.