Is SPHD a Good Retirement Investment for Boomers?

There’s a huge difference between building an investment portfolio for retirement and maintaining an investment portfolio in retirement. When you’re in the process of building retirement wealth, it makes sense to load up on investments that are poised for growth, even if that means taking on a fair amount of risk.

Once you’re gearing up to retire, it’s important to reduce risk in your portfolio. And the reason is that you’re going to be using your portfolio for income, so you don’t want its value to swing too wildly from day to day.

One investment you may want to consider if you’re on the verge of retiring is the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD). But it’s important to understand the benefits and drawbacks of this particular ETF.

How SPHD works

The Invesco S&P 500 High Dividend Low Volatility ETF tracks the S&P 500 Low Volatility High Dividend Index. First, it invests in a select group of S&P 500 companies that have the highest dividend yields. From there, it chooses companies with historically low volatility to limit investors’ risk.

Why SPHD could be a great retirement investment

At a time when you’re tapping your portfolio consistently, it’s important to minimize risk. SPHD, by nature, does that for you by filtering out companies that are more volatile.

Also, because SPHD focuses on dividend-paying companies, it’s an asset that can continuously generate income for your portfolio. Once you retire, you may be reliant on portfolio withdrawals to supplement your monthly Social Security checks. The more income your portfolio is able to generate, the more leeway you should have to take withdrawals.

Know the drawbacks, too

While SPHD has a lot to offer retirees, there are some drawbacks to be aware of. First, what you gain in the form of portfolio income and reduced volatility, you might lose in the form of less overall growth.

Also, SPHD has an expense ratio of 0.30%, which is somewhat high for an ETF. Many ETFs have lower expense ratios that won’t eat away at your returns to the same degree.

Finally, while SPHD does consist of about 50 distinct companies, there are other ETFs that offer much broader exposure to the market as a whole. An S&P 500 ETF, for example, may be a better choice if you want more diversification.

Make it a part of your broad investment strategy

Overall, the Invesco S&P 500 High Dividend Low Volatility ETF may be a great retirement investment for you if your goal is to generate steady portfolio income while minimizing your risks. However, it’s not an investment you want to rely on alone.

If you’re going to hold SPHD in retirement, make sure your portfolio has a mix of assets that give you more market exposure and more growth opportunity. Also make sure that you have assets in your portfolio that are even less volatile than SPHD, like bonds or CDs.

If you’re not sure how SPHD might fit into your investing strategy for retirement, talk to a financial advisor. They can review your income needs and goals to help you decide if it’s a suitable investment for you.