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How ETFs Can Help

The $5 trillion ETF market can provide solutions to the complex challenges facing retirement planners. Put simply, the ETF universe offers funds that cover every segment of the financial system, including stocks, bonds and commodities. With ETFs, retirement planners can tailor their portfolios to suit their specific needs, circumstances and available investment capital.

Use our ETF Screener to find the right ETFs for your portfolio.

Although many investors can’t differentiate between ETFs and mutual funds, understanding this crucial difference can have a dramatic impact on their investment returns. Whereas many traditional mutual funds are actively managed, ETFs are usually passive in nature and follow an index. More aggressive strategies are available but usually require a concerted effort to identify and include them in your portfolio. Additionally, following a more active management style must conform with your risk tolerance and investment timeframe; in the case of retirement planning, these factors are usually more conservative in nature. For example, conservative investors focused on long-term growth will find funds like SPDR S&P 500 ETF (SPY A) and iShares MSCI Core Emerging Market ETF (IEMG A) highly effective.

Actively managed funds are costlier than those that simply track an index or other performance indicators. This means mutual funds are costlier in the long run. Often, the returns do not justify the added cost when compared with low-cost ETFs. Case in point: the average expense ratio for actively managed traditional mutual funds is 1.09%, according to data provider Morningstar. For passive index funds, the expense ratio is a paltry 0.57%.