The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: nihilism122 on March 28, 2018, 05:17:26 PM
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Which ones are the better investment? Obviously the latter is more diversified, but that does not necessarily mean the return will be better. I am personally invested in standard index funds, but my GF is getting into investing and I am considering getting her into dividend ETFs. She is about to inherit six figures to lump sum invest. Thoughts?
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The diversification IS an issue. If you could find an etf that has good diversification I would say go for it. Some international ETFs (not even the dividend version) have yields around 3% while maintaining broad diversification, so that is what I use.
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Why would you want skew to the dividends? For a psychological benefit that you know GF would likely experience from seeing the dividends or having potentially lower volatility? Otherwise, you're probably losing diversification and maybe making a less tax efficient investment for no good reason.
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Paying taxes is good. Dividend ETFs make you pay more taxes. Therefore, dividend ETFs is good. (Wow, I am logical.)
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If you are going with a mutual fund/ETF I would stick to a standard index fund. More diversification with those. What makes you think the Dividend ETF would have a better return? Lets look at these ones.
Dividend Yield 10 yr Return
Vanguard S&P500 (VFIAX) 1.87% 9.49%
Vanguard Dividend Appreciation ETF (VIG) 1.86% 9.03%
Vanguard High Dividend Yield ETF (VYM) 2.96% 9.13%
Vanguard Total Stock Market (VTSAX) 1.78% 9.74%
So better returns over the past 10 years with the index funds and they are more tax efficient by having a lower dividend. Plus they have the benefit of more diversification.