2 Ways Retirees Can Help Keep Their Money Safe, No Matter the Market Conditions

David Jagielski, The Motley Fool

Sat, May 3, 2025, 3:32 AM 5 min read

Key Points

Retirees can reduce their risk in the market by diversifying their portfolios with many holdings.
An easy way to diversify is through a broad exchange-traded fund, which can hold hundreds or even thousands of stocks.
Dividend income can also be crucial in providing you with regular cash flow and padding your overall returns.

The market can seem pretty unpredictable these days. Global tariffs can lead to higher costs for companies across all industries, and trying to navigate which stocks to hold and which ones to sell isn't easy. For retirees, the name of the game right now is about stability and capital preservation, to ensure you don't incur significant losses, in order to protect your nest egg.

The good news is that you don't have to exit the markets to keep your money safe. There are a couple of ways to minimize your risk and still have a position in stocks. Here's how.

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Diversify your portfolio

An important way to keep your risk down is through diversification. Having a position across many stocks can be a much safer option than relying on just a single investment. This year, the markets have tumbled, and even a top performer such as Nvidia has lost close to 20% of its value. Amid a correction or bear market, even seemingly once-safe stocks can experience significant drops in value.

Rather than trying to predict which stocks will outperform the market based on economic conditions, a safer strategy is to hold a basket of stocks or, better yet, have a position in hundreds or thousands of stocks through an exchange-traded fund (ETF). With an ETF, you can decide whether you want a position in the entire market or perhaps a subset of it.

For example, this year, if you may have been concerned about the U.S., you may have opted to invest in the Vanguard FTSE Europe ETF (NYSEMKT: VGK), which, as its name suggests, invests in European stocks. It has a low expense ratio of 0.06% and contains more than 1,200 stocks, providing you with some excellent diversification. Year to date, the ETF has risen by around 15% -- far better than the S&P 500's decline of around 6%.

No stock in the ETF accounts for even 3% of its total weight, which means that you won't have to worry about any single poor-performing stock weighing down the fund's overall performance too much.

Hold dividend stocks

Another way for retirees to keep their money safe and minimize risk is by holding dividend stocks. With dividend stocks, you're getting a recurring stream of cash flow. That cash can accomplish a couple of things. The first is that it can give you some regular income, which may avoid you having to sell investments if you need money. Secondly, it can also pad your overall returns. If you don't want the cash, you can have that dividend income reinvested, which can then help to ensure your return is higher than if you were just relying on price appreciation alone.

Here, you can also use an ETF. Picking individual dividend stocks can come with risk because while a yield may look good today, that doesn't mean it will be safe in the future. If a company underperforms or faces troubling industry or market conditions that it can't keep up with, it may have no choice but to cut or suspend its payout. ETFs can help in this area as well.

Here, a good investment option is the iShares Core High Dividend ETF (NYSEMKT: HDV), which yields 3.4%. Over the past five years, it has risen by 41% in value, and when you include its dividend, its total return is up to around 70%. While that's lower than the S&P 500's total return of 109%, the ETF gives you a good combination of diversification and dividends. It holds 75 dividend stocks and charges an expense ratio of only 0.08%. This year, that has provided investors with good stability as it's up in positive territory.

ETFs are excellent options for retirees in both the short and long term

If you're worried about the markets or don't know what to invest in, then holding one or more ETFs can help you. They can provide you with lots of diversification and dividend income, which, together, can minimize your overall risk and exposure to the markets, as you won't be overly reliant on a single investment. And it's much easier holding a single ETF in your portfolio than buying dozens of stocks on your own. Not only is that more time-consuming and likely much more costly as a result of commission fees, but it won't be as effective as an ETF, which holds dozens or hundreds of stocks, potentially even more than that.

You don't need to exit the markets in times of adversity. Instead, consider holding ETFs for the long haul. Not only will you likely earn a great return in the long run, but you won't have to be as concerned amid a downturn.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

2 Ways Retirees Can Help Keep Their Money Safe, No Matter the Market Conditions was originally published by The Motley Fool

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