It goes without saying that investors traditionally look to the market to accumulate more wealth, not the other way around.
However, once investors approach retirement age, the focus tends to shift to decumulation rather than accumulation. In other words, older clients often look to advisors for help distributing their wealth in a liquid and transparent manner, while also enabling lifestyle preservation.
Oftentimes, investors look to products like money market funds as a low-risk way to put their cash to work. However, money market funds face their own challenges, including shifting interest rates and reinvestment risk.
Bond Ladder ETFs offer a Transparent Route to Retirement Income
This is where distributing ladder ETFs can emerge as a potent alternative. These funds offer a structured, transparent means to decumulate through a laddered, flexible portfolio, invested in either municipal bonds or Treasury Inflation-Protected Securities (TIPS).
As an example, take a look at how the Northern Trust 2045 Inflation-Linked Distributing Ladder ETF (TIPC ) works. As one of Northern Trust’s distributing ladder ETFs, TIPC offers exposure to a laddered portfolio of TIPS.
TIPC’s goal is to generate transparent, consistent income across a 20-year outcome period. To do so, the fund separates each of the 20 rungs of its laddered portfolio by calendar year. As such, each rung is filled with bonds that reach maturity in a specific calendar year.
Crucially, all of these funds are constructed with a relatively even weighting. This can help TIPC’s investors access a more consistent path to long-term, inflation-linked income, along with annual principal distributions once a ladder rung matures.
This approach gives TIPC a potent niche as a tool for investors to decumulate as they approach retirement. Investors can allocate a portion of their savings to TIPC to help mitigate inflation risk and generate steady income. For those in their later years who rely on their portfolio and retirement income to cover lifestyle expenses, this strategy could prove especially fortuitous.
For more news, information, and analysis, visit the Bond Ladders Content Hub.
Disclosures:
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
