There are currently more than 2,300 exchange-traded funds (ETFs) and related exchange-traded products (e.g., exchange-traded notes). Some of these funds are broad-based and familiar to many of you, like the SPDR S&P 500 ETF (SPY). There are many more you’ve never heard of, including the USCF SummerHaven SHPEN ETF (BUYN). (This ETF invests in micro-, small- and mid-cap U.S. companies in the natural resources industry. At the end of June, it had less than $1 million in assets under management, which is an extremely low number.)

Even though a plethora of ETFs are already available, even more are on the way. Every year, we see new thematic funds being introduced. A fairly recent blessing from the U.S. Securities and Exchange Commission (SEC) should pave the way for a new set of actively managed ETFs: ActiveShares. These ETFs are designed for active managers (think mutual fund providers) who don’t want to fully reveal their holdings on a daily basis. The demand for non-transparent ETFs is not coming from individual investors; rather, it’s another case of the investment industry developing a product to push onto clients.

Regardless of how many ETFs the industry rolls out, the big question for individual investors is simply “what do I actually need to own?” The answer is not much and rarely anything launched within the last year or two. If you truly wanted to simplify things, you could build an entire ETF portfolio with just a few funds. A simple stock and bond portfolio could be created with just two funds—a broad-based stock ETF and a diversified bond ETF. Expanding the number of ETFs gives you more diversification and potentially more long-term upside, but once you start going beyond single digits there is a diminishing benefit from owning more funds.

Of course, saying not many ETFs are needed and answering the question of “which funds should I choose” are two different things. We sought to provide some guidance in this year’s completely revised guide to exchange-traded funds. Those of you who have read our ETF or mutual fund guides in the past will notice a change. We shifted our focus from providing pages of ETF data to giving suggestions on what to look for based on a person’s investing skill level. Specifically, we created curated content and ETF tables for beginning, long-term and short-term investors. The ETFs shown may not be the ones you ultimately choose to own, but they do provide examples of what to consider.

For those of you who prefer more data, it’s on AAII.com. You’ll find the expanded listings with information on all 2,300+ ETFs on our website.

Also in this issue, we’re addressing the choice of claiming Social Security benefits or taking portfolio withdrawals. Many AAII members have asked me in the past about whether it makes sense to claim Social Security benefits earlier in lieu of taking portfolio withdrawals. I hadn’t seen any specific research about the subject until I recently came across a study published by Brian Betker, a professor of finance at St. Louis University.

Depending on wealth levels, Betker suggests using a look-back period to make the determination of claiming or not. At age 66, if your portfolio has performed well over the last four years, delay claiming; if it hasn’t, claim. Doing so helps to avoid depleting the portfolio when its value is depressed. You can see Betker’s research here.

The strategy is not unlike others we have discussed in the AAII Journal before. AAII founder James Cloonan suggested maintaining four years of cash reserves equal to fund withdrawals during periods of down markets. Wade Pfau, of the American College, suggested tapping a reverse mortgage to protect the portfolio during down markets.

Obviously, there are other considerations when it comes to claiming. They include—but are not limited too—potential survivor benefits, your health, whether your retirement date is voluntarily chosen or not and other sources of guaranteed cash flow. There are benefits to delay claiming but the decision does not get made in a vacuum.

The biggest takeaway is the idea of being flexible. The extent to which you are able to adjust your plans and your portfolio withdrawals, the lower the odds of not outliving your savings will be assuming you start retirement with an adequate level of savings.

Wishing you prosperity,

Related

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The Individual Investor’s Guide to Exchange-Traded Funds 2019

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Using Portfolio Returns to Determine When to Claim Social Security Benefits