When it comes to ETF selection, investors should honestly assess their circumstances when it comes to three main factors. These three factors must be considered holistically:
- Time horizon: how long will it be before I need the money and have to sell the ETF?
- Investment objective: What am I investing for? Retirement? Income? Down payment?
- Risk tolerance: How much volatility or how big of a drawdown can I endure without panic-selling?
Today, I'll be profiling some ETFs that could be suitable for the conservative investor, who is usually investing post-retirement, needs steady income and safety of principal, and does not want to take on excessive volatility.
Each of these ETFs is intended to be an all-in-one, professionally managed solution for investors looking to keep their portfolio simple. They're examples of the recent trend in the ETF industry towards managed, one-ticker solutions.
iShares Core Conservative Allocation ETF (AOK)
iShares Core Conservative Allocation ETF (NYSE:AOK) is one of the ETFs in iShares' "Asset Allocation" suite. The asset allocation ETFs provide investors with an all-in-one portfolio of global stocks and bonds in various proportions, which range from 80/20, 60/40, and 30/70. They are rebalanced automatically on a periodic basis.
As its name suggests, AOK targets conservative investors. With an asset allocation of 30% equities and 70% fixed income, it tends to be suited for investors favoring safety of principle above all, with moderate income potential and modest capital appreciation potential.
In terms of holdings, AOK allocates to U.S., international developed, and international emerging stocks via underlying index ETFs. On the bond side, there is an allocation to U.S. and international bonds as well as a tiny bit of money market exposure. The ETF charges an expense ratio of 0.15%.
Invesco Conservative Multi-Asset Allocation ETF (PSMC)
Investors who don’t mind an actively managed ETF can opt for PSMC, which selects investments based on quantitative and qualitative criteria across multiple asset classes. Compared to AOK, PSMC is much more complex in terms of its underlying ETFs
On the equity side, PSMC utilizes smart-beta ETFs that target growth stocks and multi-factor approaches. The fixed-income side is actively managed as well, with ETFs that target high yield corporate bonds, emerging market sovereign debt, senior loans, municipal bonds, and variable-rate loans.
Unlike AOK, PSMC targets a more dynamic asset allocation, with a target of 65%-95% in fixed income ETFs, 5%-35% in equity ETFs and 3%-20% in ETFs that invest in foreign stocks and bonds. However, it charges a much higher expense ratio of 0.37% due to the active management.
LifeGoal Conservative Wealth Builder ETF (SAVN)
I'm always on the lookout for up-and-coming ETFs outside of the big fund managers, and SAVN is a great example. This ETF targets an allocation of 15% equities and 85% fixed income, making it more conservative compared to AOK or PSMC. It is also actively managed, with a wide array of holdings.
On the equity side, SAVN holds some individual stocks screened for dividend growth and low volatility, but also holds domestic and international equity ETFs targeting dividend growth, small-caps minimum volatility. It also holds a small allocation to utility and materials sector ETFs.
On the bond side, SAVN steps outside the usual aggregate bond ETFs, with holdings in mortgage-backed securities, intermediate treasury and corporate bonds, TIPS, long-term corporate bonds, and emerging market bonds. Uniquely, SAVN also allocates to gold and commodity ETFs.
This content was originally published by our partners at ETF Central