Three Ideal ETFs for FIRE Fiends

The topic of retirement planning is met with dread by many investors. Earlier retirement, well, that’s a different matter and one typically met with more enthusiasm.

In fact, the concept of retiring early in well-heeled fashion spurred a movement known as financial independence, retire early (FIRE). Put simply, those living the FIRE lifestyle are trying to retire before age 60 or earlier if possible. FIRE isn’t just a movement. It’s a community as many of its aspirants lean on each other for advice, ideas and tips on how to save enough now to reach early retirement tomorrow.

“Many members of the FIRE community suggest investing as part of the strategy to reach financial independence,” according to Charles Schwab research. "They also focus on developing multiple revenue streams by starting businesses or engaging in other activities with the potential to provide some type of passive income."

Fortunately for those wanting to join the FIRE movement, they don’t stretch into exotic or risky asset classes to make their dreams of comfortable early retirements come true. Exchange traded funds could be the ideal vehicles, one of them at the very least, through which FIRE aspirations can become reality. Here are a few to consider.

WisdomTree U.S. Quality Dividend Growth Fund (DGRW)

With FIRE participants signing up for a lengthy retirement, one that could result in them living far longer than they were members of the workforce, income is essential. Fresh off its 10-year anniversary, the WisdomTree U.S. Quality Dividend Growth Fund (DGRW) is positioned as an ideal FIRE ETF.

Over that span, DGRW handily topped the broader market while delivering a steady diet of lower volatility and elevated payout growth. That’s just what the doctor ordered when it comes to equity investing in retirement, FIRE and traditional. Past performance isn’t guarantee to repeat, but DGRW’s strong first 10 years is impressive when considering none of the beloved mega-cap growth stocks that propelled the broader market higher during that period are dividend equities.

“Fundamentally, it has a design that enabled it to achieve success despite the market loving non-dividend payers all these years,” according to WisdomTree research. “Also, because of its explicit profitability screens, the strategy has a higher return on equity (ROE) than the S&P 500. Additionally, the strategy has a lower forward P/E. Though that is all well and good, you would think DGRW would have had a tough decade given it never had a penny in Alphabet, Amazon, Meta, Tesla, Salesforce or many other non-payers. But things worked out anyway.”

Nationwide Nasdaq-100® Risk-Managed Income ETF (NUSI)

The Nationwide Nasdaq-100® Risk-Managed Income ETF (NUSI) is another example of income ETF that could be useful for FIRE investors, but its approach is vastly different than that of the aforementioned DGRW. In simple terms, the actively managed NUSI generates income by writing covered calls on the Nasdaq-100 Index (NDX).

Now this is where things get interesting. Most covered call ETFs do just that: Sell covered calls and lob off big yields to investors. NUSI sets itself apart from rivals because it offers downside protection and thus, added portfolio diversification.

“Investors want to protect their money, reduce volatility, and generate more net after-tax income,” said Garrett Paolella, Portfolio Manager of the Nationwide Risk-Managed Income ETFs, in interview with Nasdaq. "In addition to receiving dividends and interest on equities and fixed income securities, they’re looking for alternative products that generate tax-efficient income – ideally ones that aren’t highly correlated with other income buckets."

NEOS Enhanced Income Cash Alternative ETF (CSHI)

A common theme here is that FIRE investors need income and the lower the risk attached to that income, the better. With that in mind, the NEOS Enhanced Income Cash Alternative ETF (CSHI) is an ETF with clear FIRE credentials.

Actively managed, CSHI “utilizes a put option strategy consisting of written (sold) and purchased put options on the SPX index that seeks to enhance the income generated from the underying T-Bills while maintaining a low risk profile,” according to the issuer.

CSHI sports a 30-day SEC yield of 4.72%, which is far superior to what investors earn with money markets and CDs.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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