ETF to fund a hobby

[NewStachian]

My DW has an expensive hobby - one that she wants to be able to fund in retirement. I'd like to start a separate account that I contribute to regularly, beyond my normal retirement contributions, to provide passive income to fund this hobby starting today (even if it's just a small amount for now). She is onboard with my FIRE goal, but she doesn't really want to FIRE, so I figure this is a good way to get her more excited about saving. I use Fidelity, so I'm trying to stay clear of Vanguard funds (they have a commission).

So, I'm opening a new account that i plan on adding to every month. I want to put my money into 1 income-yielding ETF/fund. I was looking into a few of the iShares ETFs (IDV or HDV). I have always invested for long-term wealth accumulation, and although the vast majority of my accounts will still be focused on that, I want this 1 account to be focused on maximizing income, even if a small amount for now

Any thoughts on what my 1 fund/ETF should be? (Please, I'm not interested in Vanguard ETFs or "switch to Vanguard". I'm aware they're good, but I'd rather not leave Fidelity at this time. iShares charges no commission for their ETFs but Vanguard does)

[wtjbatman]

DVY is another solid dividend ETF from iShares. Either DVY or HDV will result in market average returns with twice the dividends/income than a regular S&P 500 fund like iShares IVV.

IDV has a larger yield than either of those funds, but the returns could be lower and/or riskier since it's an international fund, and I believe the expense ratio is higher.

[hodedofome]

I'll be a little different and recommend reading http://www.amazon.com/Shareholder-Yield-Approach-Dividend-Investing/dp/0988679906/ref=sr_1_1?ie=UTF8&qid=1401719918&sr=8-1&keywords=shareholder+yield and the accompanying ETFs SYLD and FYLD (SYLD - US, FYLD - Foreign).

Shareholder yield (dividends + share buybacks + debt paydown) is a much better way to look at yield based strategies vs dividends alone. The main reason being US companies don't pay dividends like they used to, it is tax advantageous to buy back shares instead. You may only have a dividend yield comparable to the market (~2%) but the shareholder yield could be more like 5-8%. Not to mention, the guy who created the ETF (Meb Faber) has 50% of his wealth invested in it. It's always nice to see someone eat their own cooking.

[wtjbatman]

I'll be a little different and recommend reading http://www.amazon.com/Shareholder-Yield-Approach-Dividend-Investing/dp/0988679906/ref=sr_1_1?ie=UTF8&qid=1401719918&sr=8-1&keywords=shareholder+yield and the accompanying ETFs SYLD and FYLD (SYLD - US, FYLD - Foreign).

Shareholder yield (dividends + share buybacks + debt paydown) is a much better way to look at yield based strategies vs dividends alone. The main reason being US companies don't pay dividends like they used to, it is tax advantageous to buy back shares instead. You may only have a dividend yield comparable to the market (~2%) but the shareholder yield could be more like 5-8%. Not to mention, the guy who created the ETF (Meb Faber) has 50% of his wealth invested in it. It's always nice to see someone eat their own cooking.

So you're recommending he invest in a fund that's only a year old, has a 50% higher expense ratio than the dividend iShares funds, faces trading commissions when bought through Fidelity, and doesn't meet his criteria of income/dividends and instead relies on total return?

I've read plenty about Shareholder yield, although I'm hardly an expert, and I'm not dismissing it. I just don't think that's what the OP was looking for.

[foobar]

What are you going to do when the fund underperforms or overperforms? Seems like just adding an item to the budget is a much easier way.

And for what it is worth, the best way to maximize income is to maximize return.

[NewStachian]

Seems like just adding an item to the budget is a much easier way.

She plays polo. There are no costs right now for the hobby, but at some point down the road this hobby would cost $1-2k a month (owning horses, boarding them, etc). I'm trying to find the best way to prepare for this. My DW works and gets to ride other people's horses for free since she works so hard at maintaining them, but eventually, she's going to need her own to keep up with the sport. She can't really pick up a side gig making money through the sport because she receives a ton of non-monetary benefits from the people who own all the horses and she'd be competing with them which is not a place she wants to be. Compared to what the normal customers pay, it's a steal that she gets to play polo as much as she does for free, so stepping on their toes by charging other people wouldn't fly. My goals here are twofold:

1) Prepare now for a cost down the road while we're not paying any money
2) Motivate her to invest more by having tangible progress to a goal other than generic FIRE (Like I said, she's great with saving, but doesn't really feel like our saving is moving her toward this long-term goal)

A part of me knows that maximizing overall returns is the best long-term strategy (I'm 95% stock / 5% bonds in my normal investing), but as I said in the original post, I have very little experience receiving distributions from an account. I'm still struggling with the best way to approach this. The "autopilot dividends" is an attractive option knowing that you don't have to think about it and just have money show up, but I know this will be suboptimal over time. Maybe I should just do what I do with my other retirement accounts and build them up until they're fully able to support themselves. Should I just go with an S&P index and let it ride out over time? (pun totally intended)

Ugh. Thanks for the help, guys. This is uncharted territory for me.

[foobar]

Somehow I knew it was a horse. Woman tend not to buy planes, boats or race cars:) . The question is why don't you up your retirement budgets by the 1-2k that you need.   Lets say you have 400k in the horse fund and that is enough to pay for the expenses out of divs. What do you do when the fund drops 30% for 3 years? Turn the horses into glue? Some how I don't think that is going to be the solution:) Or the other way and now the horse fund is putting out 4k/month. Are you going to up the horse spending or use that money to subsidize retirement?  Thinking of the money as one big pile helps you optimize the investment and withdrawals to maximize your money. Paying an extra 2k in taxes because some money is in a horse fund but you need cash in the repair the roof fund doesn't strike me as a good idea. Maybe it would be motivating but it could easily go the other way. You stick 50k in there and it drops 30%, she isn't going to feel good.

Seems like just adding an item to the budget is a much easier way.

She plays polo. There are no costs right now for the hobby, but at some point down the road this hobby would cost $1-2k a month (owning horses, boarding them, etc). I'm trying to find the best way to prepare for this. My DW works and gets to ride other people's horses for free since she works so hard at maintaining them, but eventually, she's going to need her own to keep up with the sport. She can't really pick up a side gig making money through the sport because she receives a ton of non-monetary benefits from the people who own all the horses and she'd be competing with them which is not a place she wants to be. Compared to what the normal customers pay, it's a steal that she gets to play polo as much as she does for free, so stepping on their toes by charging other people wouldn't fly. My goals here are twofold:

1) Prepare now for a cost down the road while we're not paying any money
2) Motivate her to invest more by having tangible progress to a goal other than generic FIRE (Like I said, she's great with saving, but doesn't really feel like our saving is moving her toward this long-term goal)

A part of me knows that maximizing overall returns is the best long-term strategy (I'm 95% stock / 5% bonds in my normal investing), but as I said in the original post, I have very little experience receiving distributions from an account. I'm still struggling with the best way to approach this. The "autopilot dividends" is an attractive option knowing that you don't have to think about it and just have money show up, but I know this will be suboptimal over time. Maybe I should just do what I do with my other retirement accounts and build them up until they're fully able to support themselves. Should I just go with an S&P index and let it ride out over time? (pun totally intended)

Ugh. Thanks for the help, guys. This is uncharted territory for me.