As we discussed a few days ago, retirees in Australia, or even those who are planning an imminent hanging-of-the-boots, have many options when it comes to building an investment portfolio to fund their golden years. Many ASX investors simply opt to buy shares in established blue chips like Commonwealth Bank of Australia (ASX: CBA) and Telstra Group Ltd (ASX: TLS). But others are increasingly looking to exchange-traded funds (ETFs) as well.
ETFs offer simplicity, passivity, and diversification, which is a hard trio for many to turn down. ETF provider Vanguard is often the first port of call for investors seeking out ETFs or index funds for their retirement. This popular index fund pioneer is famously not-for-profit, and is thus trusted to offer what is usually some of the most competitive pricing in the ETF landscape.
So today, let's talk about how I would build the ultimate retirement portfolio using just three Vanguard ETFs.
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A three-ETF Vanguard retirement portfolio
Starting off, we can take a look at the Vanguard Australian Shares High Yield ETF (ASX: VHY). This ETF holds a basket of around 60 of the ASX's best dividend stocks. These stocks are selected based on a few criteria, including their dividend history, franking credit potential, and future income expectations. Some current holdings include Commonwealth Bank, Rio Tinto Ltd (ASX: RIO), Telstra, and Macquarie Group Ltd (ASX: MQG).
This ETF pays out quarterly dividend distributions. These will fluctuate from year to year, but should always be competitive with any ASX income-focused portfolio. Right now, VHY units are trading with a trailing dividend distribution yield of just under 3.5%.
Next, we can throw in the Vanguard International Shares High Yield ETF (ASX: VIHY). This Vanguard ETF is similar in nature to VHY. However, instead of investing in ASX shares, this fund focuses on finding high-yield stocks from other markets around the world. The US contributes a large chunk of these, but other countries like Japan, the UK, Canada, and Taiwan are also represented.
Some of VIHY's individual holdings include Johnson & Johnson, ExxonMobil, Procter & Gamble, and Bank of America.
This ASX ETF also pays quarterly dividend distributions. VIHY hasn't been around for very long, so we only have one payout to analyse. However, if we annualise that payout, we get an indicative yield of 3.58% at current prices.
Don't forget about the bonds
Our final Vanguard ETF to include in our retirement portfolio doesn't track stocks, ASX or international. Instead, the Vanguard Australian Fixed Interest ETF (ASX: VAF) is a fund that tracks a large basket of Australian government bonds. Bonds, also known as fixed-interest investments, are popular amongst retirees thanks to their low-risk nature and guaranteed returns.
Thanks to the interest rate hikes we have seen this year, this ETF is looking unusually attractive. If rates stay high or go up even more, investors might see some payout increases from this Vanguard ETF going forward. I think this fund offers a nice defensive counterweight to the other ETFs in our ultimate retirement portfolio. Like the other funds, VAF pays out quarterly as well, and is currently trading with a trailing yield of 3.24%.
