For investors looking to supplement their superannuation with sound investments, there are a few factors to consider.
Three main priorities for retirees to focus on are:
- Reliable income
- Diversification
- Enough growth to keep pace with inflation.
A common mistake is simply targeting the three highest-yielding ETFs, since high distributions often come with substantially higher risk.
This simple three-ASX ETF portfolio can provide a balanced allocation across these priorities.
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Vanguard Australian Shares High Yield ETF (ASX: VHY)
This ASX ETF provides exposure to Australian companies that tend to pay relatively high dividends. This creates a reliable stream of investment income without needing to sell investments regularly.
For Australian investors, the dividends can also come with franking credits. This may improve the after-tax income depending on individual circumstances.
Importantly, VHY still provides exposure to shares, so it offers the potential for long-term capital growth that can help protect against inflation.
However, VHY's role isn't simply "high dividends" alongside superannuation.
In a retirement portfolio, its main attraction is that it can turn a portion of an Australian equity allocation into a relatively strong cash-flow-producing asset while retaining exposure to businesses that can grow over time.
Vanguard Australian Fixed Interest Index ETF (ASX: VAF)
This ASX ETF can play a vital role in a retiree's portfolio by providing exposure to Australian government and investment-grade corporate bonds.
This asset class is often considered less volatile than shares.
Its primary purpose is to provide stability and regular income. This can help to reduce the overall risk of a portfolio that also contains equity ETFs.
Having a defensive allocation like VAF can be particularly valuable in retirement because it provides an asset that can potentially be drawn on during periods of share-market weakness, reducing the need to sell shares when prices are depressed.
While VAF is unlikely to deliver the same long-term growth as shares, it is a useful counterbalance to the higher risk and growth potential of equity investments.
Vanguard MSCI Index International Shares ETF (ASX: VGS)
The final complement to superannuation is the VGS fund.
It provides broad exposure to international shares, particularly companies across major developed markets outside Australia.
Its main purpose is to provide long-term growth and diversification, reducing reliance on the Australian share market, which is relatively concentrated in sectors such as banks and resources.
This fund gives retirees exposure to a much wider range of global businesses and industries, helping spread investment risk across different economies and markets.
While its value can fluctuate significantly and it does not provide the same focus on dividend income, it can provide valuable capital growth over the long term.
This is vital to helping a retirement portfolio keep pace with inflation and supporting income needs further into retirement.
