compensation for actions taken through them.
Exchange-traded funds (ETFs) are must-haves if you’re currently in retirement and you’re looking for income. Many people focus solely on Treasuries or a mix of individual stocks and Treasuries, but you’re missing out if you’re not considering ETFs. Unless you’re a person in their late ’80s or ’90s with enough cash to ride out serious waves of inflation, I’d look into ETFs.
ETFs allow investors to invest in a basket of assets, thereby avoiding crashes in any particular asset. They are often tax-efficient and rebalance on their own if certain assets underperform for prolonged periods. These are truly passive investments, some of which are managed by extremely experienced teams. The best part is that you’re only paying a few dollars per $10,000 you invest for that service.
For the average retiree, I’d look for an ETF from a reputable provider that provides a strong yield and safety. A new retiree in his or her 60s or 70s could still have decades left in retirement. That’s why just holding cash or Treasuries on their own is not a smart idea. A $100 investment in 2020 is
As such, ETFs with some exposure to the stock market are recommended. Stocks act as a hedge against inflation, and shares of quality businesses won’t let you down in the long run. Invesco provides an extensive suite of ETFs, many of which are perfect if you are looking for retirement income. Here are two that can generate significant retirement income, and do so with an above-average margin of safety.
Key Points in This Article:
- SPHD gives you exposure to solid dividend-paying stocks, especially those with low volatility.
- PGX gives you an even higher dividend yield through preferred equities.
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Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
The Invesco S&P 500 High Dividend Low Volatility ETF (NYSEARCA:SPHD) does exactly what it says. It is a specialized exchange-traded fund that gives you a high dividend yield and minimizes volatility.
The underlying index uses a sophisticated dual-screening process. S&P Dow Jones Indices first ranks S&P 500 securities by dividend yield, then sorts them in ascending order by their one-year trading volatility as measured by daily standard deviation. The ETF then selects stocks from that selection.
The SEC 30-day yield is at 4.84%. The annualized dividend yield is at 3.82%, with an expense ratio that is on the higher end at 0.3%. This is $30 per $10,000. What you’re getting for it is worth that expense ratio, in my eyes. This ETF pays monthly.
Monthly payments make it a true passive income generator. Most ETFs focused on equities will pay you quarterly. Being paid monthly will let you budget with more predictability and consistency, and they’ll also compound faster if you choose to reinvest.
The top three largest holdings are Altria Group (NYSE:MO) at 3.52%, Crown Castle (NYSE:CCI) at 3.51% and Verizon Holdings (NYSE:VZ) at 3.2%. These are well-established businesses that will generate dependable cash flow year after year. Altria’s financials are as steady as their customers’ pack-a-day habits, and both Crown Castle and Verizon are internet-related. They are much more stable than you’d expect due to how indispensable the internet has become.
Invesco Preferred ETF (PGX)
The Invesco Preferred ETF (NYSEARCA:PGX) is an exchange-traded fund that invests in preferred securities. It tracks the ICE BofAML Core Plus Fixed Rate Preferred Securities Index and focuses specifically on fixed-rate, U.S. dollar-denominated preferred securities.
At least 80% of its investments are in fixed-rate preferred securities, and these securities must be rated B3 or better. These preferred securities combine the features of both equity and fixed income investments. Plus, most preferred securities dividends are considered qualified dividends, meaning they are taxed at a lower rate than ordinary income.
Most of these preferred securities come from the Financials sector. Banks like JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC) are among its biggest fixed-income holdings. Roughly 71.4% of its sector allocation is from this sector.
Many see this as a negative thing due to memories from 2008, but banks have learned a lot since then. Stress tests are significantly more rigorous, there are no “NINJA” loans, and the Federal Reserve remains willing to step in as needed. In 2023, big banks actually benefited from the crisis as depositors moved money away from smaller regional banks into bigger ones.
PGX has an expense ratio of 0.5%, meaning you pay $50 per $10,000 invested. The SEC 30-day yield here is 6.27%, whereas the 12-month distribution rate is 6.15%. It also pays monthly. The ETF is down 21.9% in the past five years, but is highly likely to recover in the coming years. Interest rates are expected to start being cut starting in September. As rates continue going down, PGX will look significantly more attractive to investors.
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