Harvest Portfolios Group

Retirement challenged by market volatility – how income can help | ETFs

June 16, 2022

By Harvest ETFs

Volatile markets can challenge retirees, but income can helpTime in the market beats timing the market. That’s an old saying about investing, reminding us that markets generally trend upwards and volatile periods or downward swings aggregate out over time. However, there is one piece of timing that matters for many long-term investors: the moment they decide to retire.

Market volatility challenges retirees by impacting the overall value of their portfolio, raising the risk that they might cement a loss, and potentially derailing the full scope of their retirement goals.

A robust portfolio with allocations to sector-leading companies and industries with long-term growth tailwinds has historically been a strong way to help safeguard a retirement plan. However, temporary market downturns can impact even the most robust companies.

What many retirees need in these situations is an income stream that can meet their daily needs in rocky times while the principal of their investments can stay invested and participate in any eventual upside.

How equity income ETFs can help allay retirement concerns

Equity Income ETFs combine a portfolio of equities—most of which may pay dividends—and add a covered call strategy to generate monthly cashflow for unitholders. They trade on stock exchanges and hold equities and are therefore capable of participating in some market upside. At the same time, they pay monthly income and depending on their underlying holdings may have particular tailwinds and specific growth opportunities.

Through covered call strategies, many equity income ETFs are able to generate annualize income yields at rates higher than most fixed income and generally above the rate of inflation in Canada. They can help compliment a retirees’ plans by paying monthly income that can offset day to day costs while participating in market growth opportunities.

Equity Income ETFs also have the advantage of holding a portfolio of equities. Though covered call strategies do limit upside participation somewhat, the income they generate can offset downturns in volatile periods. Perhaps more importantly, this strategy allows the income-generating portion of a portfolio to experience growth tailwinds from a diverse array of sectors—not just bonds.

As retirees consider the potential downsides of retiring in a volatile market, they may want to consider how income investments—and specifically equity income ETFs—can help them get through a rough patch.

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