Glenn Freeman: Speaking about some of the undersold and oversold aspects of exchange-traded funds and one of those oversold aspects according to Christine Benz in Morningstar U.S. is the tradability. What are your thoughts on that?

Jonathan Shead: It's a great question. Because ETFs are used by lots of different participants in the market and it can be tempting to take a benefit for one group and assume it's a benefit for all groups. And you need to be careful doing that. So, there are market participants who actively trade ETFs quite aggressively and frequently. And under those circumstances the high level of tradability and low costs become a really strong benefit.

I think for retirees we think that the buy and hold is probably a better way of generating that income over time. So, really, it's things like diversification and simplicity. I do think that in retirement you are also talking about a period of potentially cognitive decline. So, the more complex you make your portfolio, the more you are setting yourself up for problems later on in retirement. Plus, with an aging population you've got things like multi-generational households where your bequest motives or financial assistance may run across multiple generations.

You are talking about a retirement that might actually be only a partial retirement. Maybe you might be doing part-time work or contracting. Maybe you might be retiring a bit later. Maybe you might be popping in and out of the workforce. And the ability to have a structure that's simple enough to be manageable but that's well-diversified and that you can keep in place for 15, 20 years without having to constantly tinker and change with it I think is the real strength of ETFs. But that speaks to a buy and hold benefit rather than a low-cost benefit from high trading.

Freeman: Sure. In a recent presentation you delivered, you were speaking about what you identify as the four stages for retirement; the accumulation, approaching retirement, active retirement and elderhood. Can you elaborate on some of the roles that ETFs play in some of those different stages?

Shead: I think those stages that we talk about first map to the kind of risk profile or income profile. So, if you think about the early stage of the savings journey, when you're perhaps up to 55-years-old, then really you want to be growth would be I think fairly well accepted advice. And then, as you start to approach retirement, you may want to make your portfolio a little bit more conservatives. ETFs are one but not the only way you can do that to shift your portfolio towards a slightly more conservative footing.

I think when you actually reach retirement, ETFs provide a really simply way to identify that income component. So, if you think of it this way, if you were to live off just the dividends and maybe a fixed amount of your underlying account balance, so let's say, 1% of your account balance, and you were just to live off the dividends. There'd be some variability in that. Dividends do go up and down over time, but they actually don't vary that much. Even a simple strategy like that, which is easy to do with an ETF kind of structure, you'll have some variability, but most adults have spent their entire working life dealing with some level of income variability, and that's a kind of structure that can serve you really well in that active retirement component.

We use the term active retirement because people are old but no longer frail. I'm talking about the demographic that retires but wants to go adventure tourism to Africa or wants to go bungee jumping in New Zealand or something like that. When you get to what we've called elderhood, which is, when you slow down, when you've got much more stable requirements, certainly the government's intention is that at that kind of point you may start to look at things like your more traditional term deposits or possibly annuities or those much, much more stable kind of structures.

Freeman: Now, one of the other things that you mentioned there is about using ETFs as a part of the income component. It's not something that I at least haven't thought of ETFs within that context so much mainly as an accumulation phase, but actually exchange-traded funds have been sources of distributions.

Shead: Yeah. So, exchange-traded funds, if you think about them as almost being like a cardboard box that's got hundreds of companies in it. And someone is on your behalf collecting all the dividends from those companies, bundling them up together, and then just giving you a dividend payment once a month or once a quarter. That simple kind of structure is a great way to get income from those long-term growth assets like equities without having to have all the tax and administration and investment complexities of holding hundreds and hundreds of companies.