“From a retiree’s perspective, living on fixed income and being exposed to an inflationary environment, having some exposure to real assets could make sense,” he added. “That said, they’re very volatile assets. So, like everything else, it’s OK in moderation.”
Launched this past April, RAAX is still in its infancy, with only $14 million in total assets, but it’s not the only game in town. Competing ETFs in this alternatives ETF space include funds such as the SPDR SSgA Multi-Asset Real Return ETF (RLY), which also blends different assets to hedge against inflation, and has $143 million in assets. There’s also the 20-month-old QuantX Risk Managed Real Return ETF (QXRR), which also can go all into cash, and has $7.2 million in assets.
3 Key Takeaways
It goes without saying that this isn’t a comprehensive list of ETFs that could meet your retirement investing needs. There are more than 2,100 ETFs listed in the U.S. today, and a lot of them are big, liquid, well-run, tax efficient and cheap. You have choices aplenty.
If these tickers don’t do it for you, others might. But keep in mind three little nuggets as you evaluate your asset allocation.
Firstly, fees matter in security selection, especially during retirement. You can only spend your net-of-fee return, as Grogan says. Tony Watson, CIO of Detroit-based Portfolio Solutions, goes one step further, saying low-cost index funds and index ETFs are “always the right vehicle,” under any circumstance. “We don’t believe in active management or spending extra money in an attempt to gain alpha here.”
Secondly, even the best ETF choice can’t overcome an ill-constructed spending plan. Accurately assessing your withdrawal rate is of paramount importance to the success of your asset allocation.
“Really put a lot of effort into coming up with that spending number, because far and away, the biggest driver of success of a financial plan is how much you’re spending relative to how much you’ve saved,” Grogan said. “There’s nothing we can do on the investment side or with the asset allocation that’s going to overcome an extremely high withdrawal rate. It’s the withdrawal rate that makes the most difference.”
Finally, remember we are all only humans, and retired or not, behavioral biases can eat your nest egg.
“The biggest risk facing retirees is behavioral biases,” Watson said. “They’ve worked their entire life for these nest eggs, and they’re very afraid of losing it. That heightens those behaviors that negatively influence all investors.
“When times are good, people think they can handle risk, but the real question is, if we have another 2008-2009, and equity values fall by 50%, are you going to be tempted to sell, and take equity risk off the table?” Watson said. “If the answer is yes, that’s a problem, because you’re going to have irreparable damage done to the portfolio. The key is having a really efficient diversified portfolio.”