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.