You must have read several articles on the importance of retirement planning and why you should build a retirement corpus for your golden period. However, one of the biggest roadblocks in achieving retirement plan is often choosing the right investment options. This article will cover one such investment option offered to investors to catalyse their retirement planning – ETF (exchange-traded fund). Let’s understand how ETFs help in building a retirement corpus.
Reasons why ETF mutual funds are perfect for retirement planning:
Following are some of the reasons why ETF mutual funds are perfect for retirement planning:
- They make it easier to diversify your investment portfolio
Diversification is the key to investments as throwing all your eggs in one basket can turn to be disastrous. If you invest all your savings in just a few stocks and those stocks don’t perform satisfactorily, your money will be in trouble. And if you are on the verge of retirement or already retired, a bad investment can easily wreck your plans for the future.
With an ETF fund, you can achieve instant diversification. A single ETF fundmight contain different stocks, so if a few of those stocks take a tailspin, it likely won’t have a paramount on your portfolio as a whole. - History is on your side in recovering from market downfalls
History is proof that the stock market has time and again witnessed extreme volatility which can be unnerving for those investors who are planning for retirement. An investormight not be able to avert risk completely when they invest in the stock market. However, ETFs, especially index ETFs, make it much more likely that your savings recover from a market downfall.
Index ETFs track specific stock market indices such as the Sensex 30 or the Nifty 50, and they are considered to be one of the least risky types of investments. Of course, this also means that if the stock market as a whole takes a hit, your investments will take a hit too.Although historically, the stock market has always bounced back from every downturn it has ever faced. This means index ETFs are likely to recover from even the worst market crashes, which is a chief advantage if you’re investing for your retirement. - Investments in ETF require less research
Investing in stocks requires much research to ensure that you are investing in reliable companies that’ll be around for the long haul. Several investors simply don’t want to put that kind of time and efforts into investing, and that is completely fine.
If you want to take a hands-off approach to investing, an index ETF may prove to be your best bet. These are great “set it and forget it” types of investments as you can easily invest in an index ETF and then leave your money alone for decades.
On the other hand, if you want a more customised investment portfolio, you may opt to invest in thematic funds. This approach allows you to invest in particular areas of the stock market without having to research individual companies heavily. Also, it limits your risk because you still invest in a large group of securities rather than just a few individual stocks.
When you save for retirement, where you invest matters significantly. ETFs are a smart investment option for many reasons, and by taking advantage of them, you can save more and better protect your investments. Happy investing!