It’s no secret that cultivating regular income, along with long-term principal preservation, is key to reaching one’s retirement goals.
Still, it’s not easy to find investment strategies that reach both of these goals. However, the flexibility of the ETF wrapper is opening new ways for advisors and investors to plan portfolios for the long term.
In an insights post, the team at Northern Trust Asset Management broke down how its Distributing Ladder ETFs can operate as compelling solutions for those preparing for the challenges of retirement. The Northern Trust team noted that inflation and taxes are key hurdles folks need to overcome to reach their retirement goals.
“Distributing ladder ETFs are an innovative cash flow management tool designed to secure goals, such as those related to retirement planning, that require recurring annual cash distributions,” the Northern Trust team added. “As a single-fund, low-cost solution to cash flow management, distributing ladder ETFs mitigates the interest rate risk of bond investing while offering potential inflation protection and tax efficiency over a variety of time horizons to best suit clients’ retirement needs.”
Northern Trust Asset Management offers a number of different Distributing Ladder ETFs. These ETFs meet different goals across different time periods. For instance, the Northern Trust 2055 Inflation-Linked Distributing Ladder ETF (TIPD) invests in U.S. Treasury Inflation Protected Securities (TIPS), helping retirement portfolios navigate the risks of inflation. Meanwhile, the Northern Trust 2055 Tax-Exempt Distributing Ladder ETF (MUND) looks to invest in bonds that will pay interest that is exempt from regular federal income tax.
Northern Trust built both TIPD and MUND to operate across a 30-year period. As laddered ETFs, these funds build their ladders around each of the 30 years leading to 2055. Each of the 30 rungs focuses on one of these 30 years. As such, it holds bonds that mature and distribute annually.
Assets for these ladders are allocated on a relatively even basis. This helps deliver more consistent income and principal over an investor’s chosen time horizon. This can further help those planning for retirement by offering the potential for a consistent annual income.
Northern Trust Asset Management offers many other Distributing Ladder ETFs within its suite, covering other time periods such as 5 years and 20 years. And with these ETFs covering solutions for both inflation worries and tax-exempt income, advisors and investors have plenty of options for fine-tuning their retirement goal planning.
For more news, information, and strategy, visit the Bond Ladders Content Hub.
ETF investing involves risk and principal loss is possible. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the ETF. Brokerage commissions will reduce returns. The net asset value of the Northern Trust ETFs will decline over time as income payments are made to shareholders. Individual bonds carry an obligation to fully return principal to investors at maturity, however ETFs have no such obligation.
Before investing, carefully consider the investment objectives, risks, charges, and expenses. This and other information is in the prospectus and a summary prospectus, copies of which may be obtained by visiting www.flexshares.com. Read the prospectus carefully before you invest.
Northern Funds Distributors, LLC, distributor. Northern Funds Distributors, LLC and FlexShares are not affiliated with Northern Trust.
All investments are subject to investment risk, including the possible loss of principal amount invested. Investments do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Not FDIC insured | May lose value | No bank guarantee
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