How to Make Money with ETFs

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ETFs Guide for Canadian Investors: Find the best way to invest in ETFs with low fees, low risk & high satisfaction.

Topic: ETFs

What are the Best Income Funds for Retirees? What you need to know

best income funds for retirees

What are key tips to ensure that your investment portfolio holds the best income funds for retirement?

Uncovering the best income funds for retirees is a key part of any strong financial plan. We recommend that you ensure the best results from that plan by choosing the highest quality investments you can find.

One thing investors of all ages fear is not having a good financial plan in place in order to have enough retirement income to live on once they’ve stopped working. Addressing this concern is usually a high priority for many of our Successful Investor Portfolio Management clients.

How to Make Money with ETFs

Learn everything you need to know in 'The ETF Investor's Handbook' for FREE from The Successful Investor.

ETFs Guide for Canadian Investors: Find the best way to invest in ETFs with low fees, low risk & high satisfaction.

Stay out of these income funds for retirees or you could lose money

First, eliminate anything with “asset allocation” in the name. If the fund’s name includes the term, it means the fund’s managers or sponsors feel they can enhance returns and/or reduce the risks of their funds by switching back and forth among stocks, bonds and cash equivalents, often using a so-called “black box,” a computer program that makes trading decisions based on a pre-selected set of rules for interpreting financial statistics. Then, eliminate anything with “balanced” in the name.

Funds that have the term “asset allocation” or “balanced” in their names will hold bonds, and we advise investors to stay out of long-term bonds. That’s because bonds are unlikely to perform as well in the next few years as they have in the past, mainly because interest rates are at all-time lows with little room to move down. (Bond prices and interest rates are inversely linked. When interest rates go up, bond prices go down, and vice versa.) That means investors would only earn interest income on their bonds; instead of capital gains, their bond holdings could produce capital losses.

Next, eliminate theme funds where the theme is plucked from today’s headlines. Theme funds are funds that focus on investments in areas such as, say, cryptocurrencies and so on. These funds often suffer from “pseudo-diversification.” That is, they have lots of different stocks in their portfolios, but these stocks all respond to the same economic or other factors. Download this free report now to learn more strategies for ETF investing.

The best income funds for retirees: Hold them in Registered Retirement Income Funds (RRIFs) to protect your investment

A RRIF is a tax-deferred retirement plan for your Registered Retirement Saving Plan (RRSP). RRIFs are used by those who don’t plan to cash out their RRSP as a lump sum when they retire, and prefer to extend their investment and take smaller withdrawals by converting to a RRIF. Registered Retirement Income Funds offer more flexibility and tax savings than annuities or a lump-sum withdrawal. You don’t need to sell your RRSP holdings when you convert—you just transfer them to your RRIF.

The government requires that everyone with a Registered Retirement Savings Plan must convert it into a RRIF by December 31st of the year they turn 71 or earlier. You start making withdrawals from your RRIF in the year following the year in which the RRIF is established.

You can receive RRIF payments on any schedule, though most investors choose to receive them either monthly or yearly. However, unless you need monthly payments to live on, it’s best to request only one payment per year, near year-end, to prolong your tax deferral.

Find out how the right ETFs can be among the best income funds for retirees

We still feel that investors will profit the most with a well-balanced portfolio of high-quality individual stocks, but ETFs can also play a role in a portfolio.

ETFs give investors the broad market exposure of a traditional mutual fund, plus the ability to trade via stock exchanges with nominal fees. The best ETFs offer well diversified, tax-efficient portfolios with exceptionally low management fees.

As mentioned, the MERs (Management Expense Ratios) are generally much lower on ETFs than on conventional mutual funds. That’s because most ETFs take a much simpler approach to investing. Instead of actively managing their portfolios, ETF providers invest so as to mirror the holdings and performance of a particular stock-market index.

There are an expanding variety of ETFs out there for investors—so you need to be very selective with your ETF picks.

Look for out of fashion investments to find great choices for your portfolio

Instead of familiarity, we think you should aim for investment quality and diversification. At any given time, lots of prosperous, well-established companies are out of investor fashion. In fact, some of the biggest profits you ever make will come from buying these stocks before they find their way into the limelight.

Note that the broker/media limelight can also create buying opportunities. When brokers and the media turn negative on an investment, they can ignore hidden value and stay negative for longer than they should. When that happens, it can give you the opportunity to add some good investments to your portfolio at bargain prices.

Bonus tip: Take advantage of compounding as a long-term investment strategy for retiring in Canada

Compound interest—earning interest on interest—can have an enormous ballooning effect on the value of an investment over the long-term. It can be considered one of the best long-term investment strategies.

Note that the benefits of compounding can apply to dividend-paying stocks as well. When you earn a return on past returns, the value of your investment can multiply. Instead of rising at a steady rate, the number of dollars in your portfolio will grow at an accelerating rate. Reinvested dividend payments act in a similar fashion to compound interest.

What strategies are you focusing on for your retirement savings?

What do you think are the best income funds for retirees? Do you like ETFs and RRIFs or do you prefer investments with more risks, but more potential for big returns?


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