3 Safety-First ETFs to Retire in Comfort

When you’re in or near your retirement years and safety becomes priority number one, picking out individual stocks can seem risky. As an alternative to single stocks, you can own exchange traded funds (ETFs), some of which provide broad diversification and reduce volatility.

To help you retire in comfort, you might look at ETFs that offer high dividend yields. However, while high yields are fine, it’s important to focus on funds that feature diversification and top-quality stocks.

Otherwise, your wealth and your secure retirement could be at risk. Therefore, today I’m bringing you three great ETFs that meet my strict standards for safety so you can rest assured in the coming years.

Fidelity Low Volatility Factor ETF (FDLO)

To retire in comfort, you’ll certainly want to reduce the sharp price fluctuations in your investments. A fund that could reduce the sharp drawdowns without excessively sacrificing growth is the Fidelity Low Volatility Factor ETF (NYSEARCA:FDLO).

With 131 holdings, the Fidelity Low Volatility Factor ETF provides enough diversification to potentially soften the blow of a broad-market downturn. After all, when the economy is shaky, it’s usually less risky to hold many stocks in different sectors than just one stock.

Speaking of stocks in different sectors, some of the stock holdings in the FDLO ETF are Amazon (NASDAQ:AMZN | AMZN Price Prediction), Eli Lilly (NYSE:LLY), Berkshire Hathaway (BRK-B) and JPMorgan Chase (NYSE:JPM). As you can see, the Fidelity Low Volatility Factor ETF focuses on successful businesses, not random startups.

Now, here’s a data point for you. The FDLO ETF has a five-year monthly beta of 0.72, which means that historically, its price has only moved around 72% as fast (in both directions) as the S&P 500.

To put it another way, the Fidelity Low Volatility Factor ETF should move and grow over time, but not necessarily as fast as the major U.S. stock market indexes. This should be fine if your objective is steady, stable wealth building in retirement.

In addition, it’s worth mentioning that the FDLO ETF provides a 1.34% annual dividend yield. That’s a nice bonus, not the main feature of a safety-first asset for enduring wealth.

iShares Edge MSCI Minimum Volatility USA ETF (USMV)

Keeping to the theme of volatility reduction, our second fund for this list is the iShares MSCI USA Min Vol Factor ETF (BATS:USMV). The USMV ETF is well diversified as it includes 170 holdings across multiple sectors of the economy.

Regarding the fund’s holdings list, it’s hard to go wrong with relatively safe stocks like Johnson & Johnson (NYSE:JNJ), Duke Energy (NYSE:DUK) and Exxon Mobil (NYSE:XOM). These blue-chip companies are in no clear danger of going out of business anytime soon.

How does the the iShares MSCI USA Min Vol Factor ETF compare to the S&P 500 when it comes to historic volatility? The USMV ETF has a five-year monthly beta of 0.59, which is interesting as the S&P 500 has 500 holdings while USMV has 170 holdings.

This just goes to show that a fund can be less volatile even if it has fewer holdings and seems less diversified at first glance. And by the way, the iShares MSCI USA Min Vol Factor ETF features a 1.48% annual dividend yield, so retirees can get some nice cash distributions in their accounts.

State Street Consumer Staples Select Sector SPDR ETF (XLP)

Heading down the final stretch toward safety pick number three, we’re looking at the State Street Consumer Staples Select Sector SPDR ETF (NYSEARCA:XLP). That’s a long name for a fund, but the XLP ETF is based on a simple concept of emphasizing mainstay consumer brands.

When the economy is under pressure, brands representing everyday, essential items can perform better than luxuries. The State Street Consumer Staples Select Sector SPDR ETF’s holdings include many names associated with non-luxury consumer brands, such as Walmart (NASDAQ:WMT), Procter & Gamble (NYSE:PG), Costco Wholesale (NASDAQ:COST) and Colgate-Palmolive (NYSE:CL). 

Granted, XLP ETF has 36 holdings, which isn’t a huge number. But again, having the biggest number of holdings doesn’t necessarily equate to the best safety profile.

Since the State Street Consumer Staples Select Sector SPDR ETF has a five-year monthly beta of 0.6%, it has only moved 60% as fast as the S&P 500. This indicates that the XLP ETF isn’t particularly volatile.   

Plus, for an extra helping of passive income potential, the State Street Consumer Staples Select Sector SPDR ETF delivers an annual dividend yield of 2.56%. That’s one more reason to think about adding shares of the XLP ETF to your safety-and-income-focused retirement portfolio.