Buy VYM (Vanguard High Dividend Yield ETF) or more VTSAX?

[greggieP3]

Thanks to the advice of some fellow Mustachians, I recently transferred roughly $18k in a Roth account to Vanguard. Previously, the account had been with USAA and had gotten a solid return, but the expense ratio of 1.5% was just horrendous. The transfer has finally gone through, and I'm looking to invest the money.

So, I'm asking for some input here. With this $18k, do you think I should purchase VYM (an ETF with a 0.08% expense ratio) or more of VTSAX (expense ratio 0.04%)?

I've been reading up lately about the Dividend Aristocrats, and it sounds like a high dividend yield fund might be a nice complement to the VTSAX I currently own, as well as a reasonable diversification.

For background/context, here are my current vital stats:

-Age: 27
-Current assets: ~$110,000
-Current debt: $0
-Goal age for FI: before 40
-Current savings rate: ~60-65% (2017 will be skewed higher due to some unforseen sources of extra income. For 2018, I plan to save ~$34k of a gross income of ~$60k)

Current allocation:
~$37k in Vanguard Traditional IRA (old 401(k) rollover, invested in Vanguard 2055 target retirement fund)
~$30k in Vanguard Taxable account (invested in VTSAX)
~$18k in Vanguard Roth (TBD: Buy VYM or more VTSAX?)
~$14k in TIAA-CREF 403(b) through current employer (invested in CREF's 2060 target retirement fund)
~$9k in cash (1 checking and 1 savings account)
~$1.5k in a HSA I started this year
 
Is it a good idea to diversify a bit by adding the VYM fund that targets a high dividend yield, or am I overthinking this and better off sticking with more VTSAX?

Any thoughts/advice would be much appreciated!

[JanF]

posting to follow :)

[greggieP3]

Thanks, L.A.S., I appreciate the advice! Also, nice job catching my typo on the VTSAX expense ratio. I just fixed it.

Anyway, correct me if I'm mistaken, but it's my understanding that high and/or reliable dividend payouts can offset the lower yield that comes during times of growth (like right now), and that holding these stocks is less risky during bear markets due to the all-but-guaranteed dividend income. Is this correct?

Also, I'm not opposed to adding some international exposure as well, and it looks like there's a Vanguard option that may offer the best of both worlds.

VIHAX is essentially the same as VYM, except with International companies only.

Positives:

International exposure for diversification
19% return since inception
Offers Admiral Shares option

Negatives:

Even with the Admiral shares option, it carries an 0.32% expense ratio (International investing is expensive, after all)
It also carries a 0.25% redemption fee and a 0.25% purchase fee
This fund has only been around since March 2016 so its return since inception is much less impressive[/li][/list]


That said, I would like some international exposure for diversification, especially with companies that reliably pay dividends.

What are your thoughts on VIHAX vs. VTSAX?

Thanks again!

[runewell]

Suggest you buy VT to add international exposure and avoid home-country bias.

[StudentEngineer]

Check out dividendgrowthinvestor.com for a good analysis on why/how to invest for dividends.

[talltexan]

I don't specifically want the dividends, but I've been reading a lot of material lately by Paul Merriman about tilting toward "value" stocks, which I think you're going to find in the Vanguard High-dividend fund.

[robartsd]

Focusing on dividends vs. growth is just a distraction - what matters is total returns, especially in a tax advantaged account. In taxable accounts, I think it is easier to make the argument for high growth over high dividends because the investor would have more power to control when they realize income. True, high dividend yeild stocks tend to weather bear markets better than high growth stocks. OTOH, high growth stocks tend to provide much higher total returns durring the bull markets.