Goals-based investing comes in many forms, with a multitude of motivations and time horizons driving investors’ needs to meet key financial thresholds.
Some investors may be looking to save up for college savings or travel. Others may be thinking more long-term, seeking to construct a suitable nest egg to cover living expenses for retirement. Alternatively, some could be looking to build reserves to make consistent charitable donations.
Regardless of what goal is being focused on, financial goals share one key constant: goal-based investors can greatly benefit from a stable means of generating income on a consistent basis. Situations like these are where the Distributing ladder ETFs from Northern Trust Asset Management may offer a compelling use case.
“These tax-exempt or inflation-linked ETFs are designed to pay monthly income, like traditional bond ladders,” noted the Northern Trust team in an insights post. “What makes them different is that, through an investment in a single ETF, they are designed to return principal annually over a variety of preset time periods up to 30 years.”
How TIPA Could Help Accommodate College Tuition Needs
Northern Trust offers a variety of funds within its suite of Distributing ladder ETFs. They provide options to meet a range of financial goals. For instance, an investor may be looking to protect the money they have accumulated to cover college tuition expenses from the brunt of inflation. In this situation, the Northern Trust 2030 Inflation-Linked Distributing Ladder ETF (TIPA ) may offer a compelling investment case.
TIPA aims to offer a spend-down strategy through a focus on U.S. Treasury Inflation Protected Securities (TIPS). The TIPS portfolio can provide decumulation, continuous income, and annual principal, with the benefit of inflation protection. This can be particularly helpful for navigating regular expenses like college tuition.
The Northern Trust portfolio team aims to build TIPA’s laddered portfolio in a relatively evenly-distributed manner. Each of the fund’s five ‘rungs’ coincides with a specific year: 2026, 2027, 2028, 2029, and 2030. Within these rungs are TIPS that reach maturity throughout different points of those calendar years.
Retirement Goals Call For a Long-Term Strategy
Alternatively, an investor may be looking to achieve a goal that typically requires more long-term saving than college tuition does, such as decumulation and access to stable cash flow opportunities in retirement. The Northern Trust 2045 Tax-Exempt Distributing Ladder ETF (MUNC ) may be a helpful tool for achieving this kind of goal.
Much like TIPA, MUNC invests in a laddered selection of bonds, distributing exposure across a respective period of calendar years. However, MUNC differentiates itself from TIPA in a few key ways.
To start, MUNC covers a longer time period, consisting of 20 calendar year rungs that run through 2045. This longer time horizon can help accommodate goals like meeting spending needs in retirement.
Additionally, MUNC primarily invests in municipal bonds, unlike TIPA’s focus on TIPS. Municipal bonds help the fund tap into income that is exempt from regular federal income taxes. Since this is a fund focused on delivering consistent income, reducing the impact of federal income taxes could pay off in the long term.
MUNC and TIPA are just two of many funds that Northern Trust offers within its suite of Distributing ladder ETFs. Investors interested in using these funds to help meet their goals should conduct due diligence and find the strategy and time horizon that best align with their needs.
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
