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Retirement planning is one of the most critical aspects of personal finance, and many people spend decades saving and investing to build a nest egg that can sustain them through their non-working years.
However, the path to retirement is not the same for all investors. Some focus on growth and go aggressively into stocks, while others are more into stability and invest in dividend-paying stocks or bonds. But for those nearing retirement, a balance between these two strategies is imperative since there’s a lot at stake.
In a recent Reddit post, a 53-year-old sought advice on how to invest $200,000 to prepare for retirement. The poster, who plans to retire in 12 to 14 years, explained that this sum would likely be the only contribution to his retirement fund.
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His main question was whether he should go all-in on ETFs or focus on dividend-paying stocks. He also expressed concerns about making the right choice to ensure his money grows enough to support him in retirement.
The Reddit r/ETFs community offered various suggestions, ranging from aggressive growth strategies to more conservative approaches. Let’s break down the most relevant advice received and the most common themes that emerged in the comments.
Invest in the S&P 500 Index
Several Redditors suggested the investor put the $200,000 in the S&P 500 and ETFs that track it because it would more than double the money in over a decade.
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“S&P 500 Index fund, [Vanguard S&P 500 ETF (NYSE: VOO)] or [SPDR Portfolio S&P 500 ETF (NYSE: SPLG)]. Why the S&P 500? It’s a stock market index that tracks the stock performance of 500 of the largest companies listed on American stock exchanges. Historically, the S&P 500 Index average annual returns are 10%. Using the Rule of 72, at 10%, the principal investment will double every 7.2 years. If the S&P 500 Index performs similarly over the next 15 years, a $200,000 investment could grow to $800,000,” a Redditor explained.
“90% S&P 500 Index; 10% short treasury,” another comment reads.
One user suggested the S&P 500 or a total stock market but also said the poster should consider all the other expenses and income needs because, in his opinion, if the $200,000 is the only retirement income he has to invest, he won’t be able to live off of it.
“The time horizon is long enough to invest in the S&P 500 Index or Total Stock Market but living expenses vs. other income needs to be considered. For example, if the only other source of retirement income is social security (no pension and no other savings) it will be difficult to retire,” he said.
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Balance Your Portfolio With ETFs
Reddit users agreed that investing in ETFs using a balanced strategy is best since it combines growth-focused funds with dividend-paying stocks or short-term treasuries.
“$100,000 in [Schwab U.S. Dividend Equity ETF (NYSE: SCHD)] & $100,000 in VOO,” a comment says.
A Redditor suggested both ETFs to get both growth and dividends.
“I totally agree with VOO, SCHD and chill. I will do 50% for VOO for growth and 50% SCHD for dividends,” another recommendation reads.
A comment simply recommended the poster go all-in or dollar cost average into VOO and not think about the money until retirement comes around.
“Dump or [dollar cost average] in VOO and chill,” he said.
Suggesting the 120-age rule of thumb to determine the percentage of his allocations, this commenter also mentioned an ETF focusing on treasuries.
“I believe in 120-age in equities, so in this case, I would suggest 30% in something like [Vanguard Intermediate-Term Treasury ETF (NASDAQ: VGIT)] off the bat. There are recommendations for SCHD here, which may be best in class for something that represents the [Dow Jones Industrial Average (DJI)], but not absolutely necessary. I would just do Vanguard’s total market or total world,” he said.
Wondering if your investments can get you to a $5,000,000 nest egg? Speak to a financial advisor today. SmartAsset’s free tool matches you up with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.
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This article 53-Year-Old With $200K To Invest Seeks Best Stocks For Retirement – 'Should I Go All-In On ETFs Or Bet Big On Dividend Stocks?' originally appeared on Benzinga.com
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