A sample ETF retirement portfolio in 3 buckets

A diversified basket of investments for those seeking a low-cost, truly hands-off retirement portfolio

Christine Benz 25 March, 2013 | 6:00PM
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My columns featuring a sample portfolio for retirees using the so-called bucket system have elicited many terrific comments. Some readers characterized the bucket approach as old wine in a new bottle, and I'd agree that there's an element of truth to that assertion. After all, most bucketed portfolios will include cash, bond and stock components--not a radical departure from the types of portfolios many retirees have maintained all along.

Yet other readers noted that they find the bucket system a useful construct as they think about crafting their in-retirement portfolios. Because the bucket approach segments a portfolio based on when a retiree expects to tap his or her assets for living expenses, it helps take the guesswork out of asset allocation. And having safe reserves on hand to meet income needs also allows retirees to ride out the volatility that's inherent in the longer-term, higher-risk/higher-reward portion of the portfolio.

Some readers requested a similar portfolio using only exchange-traded funds rather than the traditional mutual funds that populate my other portfolios. ETFs aren't just for fast-trading institutions and individual day-traders; they can also be ideal building blocks for retiree portfolios. For one thing, any broad-based index product, including ETFs, has set-it-and-forget-it appeal. The ability to be hands-off is particularly attractive for retirees who have better things to do with their time than monitor manager comings and goings or worry that their fund manager was leaning one way and the market another. Moreover, many (but not all) ETFs and broad-market index funds feature ultralow costs, and that's a particularly desirable retirement-portfolio attribute because your return potential trends down as you shift more and more assets into bonds and cash. Finally, broad-market equity ETFs' tax efficiency is attractive given that many retirees have a healthy share of their assets in taxable accounts. (Bear in mind that fixed-income ETFs will be no more tax-efficient than mutual funds, however.)

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About Author

Christine Benz

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

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