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Looking for the best exchange-traded funds (ETFs) to buy for a large retirement income? Here are three to consider for a diversified and high-returning shares portfolio.
Bargain hunt
Owning a selection of value shares can deliver substantial capital appreciation over time. The theory is that these companies’ share prices will eventually correct higher as the market wises up to their earnings potential.
The iShares Edge MSCI World Value Factor ETF‘s (LSE:IWVL) a fund that provides investors with this opportunity. It holds positions in 398 businesses across the globe, with a particular focus on US and Japanese shares (these comprise roughly 40% and 22% of the fund respectively).
A large weighting of tech stocks (25% of the fund) also means large positions in the likes of Cisco Systems, Qualcomm and IBM.
Annual returns haven’t been especially high over the past decade, averaging 5.5%. If this continues, an investor could endure worse returns than if they purchased other funds.
Yet I still think it’s a good stock to consider to create a balanced portfolio.
Gunning for growth
Investors could offset the weaker returns here by also purchasing the Invesco EQQQ Nasdaq 100 ETF (LSE:EQQQ). The average yearly return here stands at an impressive 18%.
As with value stocks, investing in growth shares provides scope for substantial capital gains. This is because these companies typically experience above-average profit increases that drive share prices through the roof.
The fund’s focus on the Nasdaq means investors here also have high exposure to technology companies. This can mean poorer returns during economic downturns.
That said, it can — as we’ve already seen — provide significant returns as the digital economy explodes. Looking ahead, phenomena such as artificial intelligence (AI), quantum computing and robotics could deliver stunning investor profits.
Significant holdings here include Nvidia, Apple and Microsoft.
Targeting dividends
The final ETF to consider is the Xtrackers FTSE 100 ETF (LSE:XDUK). Investing in Footsie-focused funds has a range of advantages, including diversification across market-leading companies and exposure to a stable and mature market.
Another notable perk is that, as an asset class, British blue-chip shares have a strong culture of paying dividends, underpinned by some robust, cash-rich balance sheets. Some of the index’s largest companies include dividend darlings Shell, Unilever and HSBC.
Investing in dividend shares can help provide a healthy return across the economic cycle. Since early 2015, this fund’s delivered an average annual return of 6.4%.
UK shares have underperformed overseas equities in recent years, and this may continue as the domestic economy struggles. But I still expect the FTSE 100 to be a great place to target dividends.
A passive income of almost £25k
Past performance isn’t always a reliable guide to future returns. But if the long-term returns on these ETFs remains unchanged, a £25,000 lump sum investment spread equally across them would lead to an £495,935 (excluding trading fees) after 30 years.
Investing this in 5%-paying dividend shares could then — if broker forecasts are correct — provide a £24,796 passive income for life.
