1 Dividend Fund To Hold For The Next 20 Years

Which is more important to you, a steadily growing portfolio that spits out income regularly, or maximizing your returns?

Having both would be nice but sadly that’s not the way the market works typically. You can pick a more volatile stock that has lots of ups and downs, and can outperform, or you can pick a steady grower that spits out income regularly but doesn’t produce as high an overall return.

Take the difference between Berkshire Hathaway and Apple this year. As you can see from the chart, Apple has periods where it dramatically outperforms Berkshire but you’ll also see periods where it has vastly underperformed.

As an investor, you need to pick which train you want to ride on, the bullet train that has hard stops from time to time, or the slow coach that marches on more steadily.

If you find yourself in the latter category, the Vanguard High Yield Dividend ETF may be for you.

Key Points

• VYM targets large-cap companies with a history of solid dividend payouts, offering a diversified portfolio across multiple sectors.
• The fund manages over $40 billion in assets and has an average annual return of around 10% over the last decade. 
• One of the most attractive features of VYM is its low expense ratio of 0.05%, significantly lower than the industry average. This cost advantage can make a significant impact on your long-term returns.

Dividend Fund to Hold For 20 Years

The Vanguard’s High Dividend Yield ETF doesn’t take unnecessary risks. Instead, VYM focuses on companies that have a history of returning cash to shareholders. These are mostly large-cap companies with a track record of stability. The portfolio represents various sectors such as health care, consumer goods, and financials, offering a broad market exposure.

The ETF manages over $40 billion in assets and had an average annual return of around 10% over the last decade. That’s largely on account of its exposure to stalwart companies like JP Morgan, Procter & Gamble, and Exxon Mobil, which pay dividend yields of 2.68%, 2.44%, and 3.09% respectively.

Under its umbrella, the fund has over 460 stocks so investors get broad exposure to help diversify risk.

It Won’t Cost You An Arm & a Leg

Expense ratios can eat into your returns like termites into wood, which is why Vanguard funds in general are a solid option – it’s famous for its low expense ratios. For VYM that expense ratio is just 0.05%.

To put that in perspective, the average ETF has an expense ratio between 0.20% and 0.50%.

Over time, this small percentage difference could mean saving thousands of dollars in fees. It’s a seemingly minor detail, but for investors with a keen eye for numbers, it can make a material difference on your overall wealth.

1 Caveat To Note

Dividends can be lucrative, but they also come with tax considerations. Generally, dividends are taxed either as ordinary income or as qualified dividends at a lower rate.

The good news is most dividends paid by VYM meet the criteria for qualified dividends, which are taxed at a lower rate than ordinary income, thereby enhancing after-tax returns for investors, making it an even more attractive option for those in higher tax brackets.

Tortoise vs Hare

Returning to the original premise, if you like slow and steady returns, meaning less volatility when compared to growth-oriented funds or individual stocks, VYM is a solid option.

Its focus on established, large-cap companies makes it less susceptible to market whims. According to its three-year beta coefficient—a measure of risk relative to the overall market—VYM stood at around 0.85, indicating lower volatility than the general market.

If you’re an avid portfolio watcher who likes a bit more excitement, there are other options for you, such as high growth stocks that Cathie Wood at ARK Invest may select. If income is a top priority, though, VYM is a solid alternative.

Lastly…

Vanguard High Dividend Yield ETF is a dependable option for investors seeking steady returns and a handsome flow of dividends.

While it may not make headlines for meteoric gains, it consistently delivers what it promises: a robust and diversified portfolio of high-dividend-yielding stocks with low fees.