As anyone starts to wade into retirement, the first financial things on their mind are likely all about how to handle market volatility and inflation. Anyone in this position should really be thinking about shuffleboard and beach days, but making sure there is enough money to last throughout retirement is, understandably, the primary concern for just about everyone.
It’s for this reason that soon-to-be retirees or those just starting in retirement should turn their attention to a couple of inflation-proof ETFs that can keep the good times rolling. While there are no guarantees whatsoever with the stock market, the hope is that ETFs can provide steady returns even if inflation numbers start to head north.
The old approach of going heavy into bonds alone to withstand inflation is harder to justify these days. Instead, turning to high-yield dividends can provide more cash flow, allow for greater market diversification, and offer better protection against long-term inflation.
Why High-Yield ETFs Help Offset Inflation
There isn’t much room to debate that when prices are rising, retirees are going to need income streams that can rise with them. Without the reliability of a steady paycheck every two weeks, there is something to be said for generating meaningful cash flow and not just drawing down more and more as costs rise.
The idea of drawing down to pay bills might have sounded good at one time, but market volatility and AI bubble concerns make this strategy less effective than it once was. Thankfully, ETFs can help retirees build an income strategy that is durable, allows for cash flow, and most importantly, provides long-term staying power.
To break it down in the most basic terms, high-yield ETFs lower the risk of relying on individual stocks, as well as taking advantage of dividends with ETFs that can rise over time. Better yet, ETFs tend to be less volatile than individual stocks, and you still get the benefit of being able to budget properly, knowing exactly how much you have coming in dividends every month or quarter.
SPDR Portfolio S&P 500 High Dividend ETF
In the larger ETF universe, there is no shortage of funds that can provide high yields, but retirees really want to target those that are designed for simplicity, high income, and broad diversification. Enter the SPDR S&P 500 High Dividend ETF (NYSE:SPYD | SPYD Price Prediction), which is currently offering a 4.59% dividend yield and an annual $1.95 dividend for every share owned. This is an ETF that factors heavily on financials, utilities, energy, and real estate sectors, which give income investors exposure to sectors that traditionally perform better than areas like tech during inflationary environments.
Performance-wise, SPYD has delivered a 4.25% year-to-date return, so you still get the benefits of growth as well. The case for the SPDR Portfolio S&P 500 High Dividend ETF is simple, as it provides steady cash flow from established US companies that anchor on dependable income streams. Let’s say you invest $100,000 into this ETF right now, at the end of 12 months, assuming the dividend yield stays the same, you will have earned $4,590 per year. Increase this investment to $250,000, and you will have earned $11,475 annually, and with a couple of similar ETF positions, this is a steady annual income coming someone’s way.
Vanguard International High Dividend Yield ETF
If you want to look beyond US borders for inflation protection, the Vanguard International High Dividend Yield ETF (NASDAQ:VYMI) is a pretty compelling option. With a current dividend yield of 3.89% and a $3.34 annual payout, this ETF offers solid income by relying on a collection of high-yield companies from around the world.
The ETF also holds more than 1,654 international holdings from across Europe, Asia-Pacific, and emerging markets, which means anyone with this ETF in their portfolio is not just relying on any single economy during inflationary times.
The payout is quarterly, and with a 46.06% payout ratio, there is plenty of room for dividend growth while also reflecting a healthy corporate balance sheet. Add in a 29.63% YTD return and a 22.41% three-year return, and these numbers indicate that the benefits of international markets are strong. Of course, the real numbers matter too, and with the Vanguard fund, a $100,000 investment earns you around $3,890 per year, while a $250,000 investment would result in $9,725 annually.
How These Two ETFs Work Together for Inflation-Proof Income
When paired together, both the Vanguard International High Dividend Yield ETF and the SPDR S&P 500 High Dividend ETF offer retirees a balanced and inflation-resistant strategy based on a few different ideas.
The first is that the SPDR S&P 500 High Dividend ETF is anchored by US high-yield companies that are generating consistent dividends. Separately, the Vanguard International High Dividend Yield ETF broadens the base with international firms, which provides direct exposure to global dividend growth. Combine these two, and you have a combined dividend yield of around 4%, which is powered by two stable, low-cost income engines that will keep on delivering year after year.
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