Value Investing for Retirement: 3 ETFs for a winning portfolio

If growth and value investing were about people, Growth would be the outgoing friend who usually has a good time but can get you in trouble at times. And Value is your low-key buddy who is less exciting but a little more reliable. Both are great to have around. But when you’re ready to take a more defensive stance in your retirement account, your friend Value might be the one you lean on to get the job done.

Value investing is about finding and buying securities that appear to be undervalued by the market. The value investor is a bargain hunter, who seeks to buy stocks at a price lower than their intrinsic value. Identifying these positions involves analyzing the financial parameters and the business model of the company relative to its peers. The idea is that the market will eventually recognize the value of these undervalued stocks and the stocks will rise.

This price appreciation can materialize slowly, however, which means that value investing is a long-term game. Fortunately, value companies generally have strong fundamentals, which makes them good candidates to buy and hold for the long term anyway. Many also pay dividends.

Here are three valuable ETFs that may have a role to play in your IRA.

Russell 1000 SPDR Target Return ETF

the Russell 1000 SPDR ETF Return Target (NYSEMKT: ONEY) builds its portfolio around the value-oriented, dividend-paying components of the Russell 1000 Index. The fund is not a pure value game. It uses an algorithm to rank Russell 1000 companies on value, quality, small size, and yield, with yield being the highest priority. Rankings are weighted according to market capitalization and a weighting threshold determines which stocks are included in the fund. The resulting portfolio, made up of some 280 companies, is oriented towards mid-cap stocks and produces a dividend yield of 2.75%.

The ETF has sector concentrations in consumer discretionary, financials and industrials. The main titles include Ford Motor Company, HP, Oil Marathon, and Delta Airlines. Since the fund was launched in 2015, it has grown by 10.28% per year on average. Assets under management total $ 492 million and the expense ratio is 0.20%.

IShares Core S&P US Value ETF

the IShares Core S&P US Value ETF (NASDAQ: IUSV) is a true value fund. Its benchmark is the S&P 900, which combines large caps S&P 500 and the mid-cap S&P 400. Top 10 headlines include names you’ll recognize, such as Berkshire Hathaway, JP Morgan, Walt disney, and Johnson & johnson. It is fitting that Berkshire Hathaway is the fund’s largest holding, accounting for almost 3% of the portfolio, given that Warren Buffett is among the most successful value investors in the world.

The 10-year average annual return is 10.69%, including a dividend yield of approximately 2.3%. This fund has net assets of $ 7.73 billion and an effective expense ratio of 0.04%.

Vanguard Russell 2000 Value ETF

If you want something on the bolder side of value, the Vanguard Russell 2000 Value ETF (NASDAQ: VTWV) tracks the Russell 2000 Value Index, a benchmark for small-cap value companies. This is a riskier and more rewarding option than the previous two because of this focus on small businesses, which tend to rise and fall faster than larger ones. For example, the fund plunged more than 40% when the overall market derailed in March 2020. It is now up about 14% from its pre-crash peak a year ago. a year.

Due to this volatility, you would like to keep this fund as a small part of your portfolio. It’s too risky to be a prime position, but it will give you exposure to a different layer of the market compared to the other two ETFs here.

The portfolio is well diversified with over 1,500 stocks. The top 10 holdings represent only 5% of net assets, which total $ 629 million. The 10-year average annual return of the fund is 9.87% and the expense ratio is 0.15%.

Value for reliability

As a retirement saver, increasing your exposure to value stocks can be a strategy to remove the risk from your equity holdings as you get older. Like your low-key friend, your value stocks may not be very attractive, but they are profitable and generally more stable than growth-oriented companies, especially large caps. These are qualities that you will appreciate as you take a more conservative approach to investing over time.