An ETF in Every Portfolio

Posted by: Lauren Young on October 10, 2006

You may have missed my story last week on cool ways to use ETFs in your portfolio.

An area I didn’t get to cover, but one that deserves some attention is how ETFs are making inroads in the retirement market. Like ETFs, target-date mutual funds have been hot sellers in the last year. And now the two are being combined. A handful of money management firms, including Seligman, Federated Investors, and XTF, offer target-date funds comprised of ETFs. These all-in-one portfolios work just like the target-date mutual funds, and have an asset allocation plan that shifts from stocks to bond and cash as you get closer to retirement. The low fees and the autopilot strategy may be enticing, but be sure to study the underlying investment options to see what kind of diversification you are getting.

Another new trend: Though most companies have yet to offer a Roth 401(k) plan, which lets you pay taxes upfront as opposed to when you take a distribution, the ShareBuilder Roth 401(k) plan lets you construct a retirement portfolio using ETFs. And you won’t pay a commission for purchasing or exchanging ETFs within a 401(k) account, a first for the 401(k) industry. That’s pretty cool.

Does anyone work for a company that has a retirement plan that offers ETFs? Let me know how you think it is working out for you!

I’d lalso ove to hear how other investors are using ETFs these days—so share your ideas.

Reader Comments

Vinay

October 12, 2006 11:19 AM

we have a 401k account with sharebuilder using just ETFs. One drawback: they have a limited set of ETFs to choose from.

John Schneider

October 13, 2006 1:00 PM

Investors may not know that there are a number of socially responsible ETF's out there. Powershares WilderHill Clean Energy (PBW), for example, is only one of many. Socially responsible ETF's are a good way to add some green to a portfolio.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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