Author Topic: Invest in High Dividend Index or Total Index?  (Read 3182 times)


  • Stubble
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Invest in High Dividend Index or Total Index?
« on: April 30, 2017, 01:41:05 PM »
I just received 10k cash and I'm looking for a place to put it. I currently already stash $1k/mo in VTSAX so I'm wondering if I should diversify slightly in a different fund (I still want high return possibilities). I was reading MMM posts on dividend funds and contemplating VDADX, but when I look at the dividend payouts, they are lower than VTSAX. Am I reading this right? Is this only "temporarily" paying out higher dividends because the market has increased so much over the last few years?

(Note the above is all taxable money separate from already maxing out retirement/tax deferred and Roth investments, if that would make a difference in your advice)


  • Magnum Stache
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Re: Invest in High Dividend Index or Total Index?
« Reply #1 on: April 30, 2017, 02:11:26 PM »
Dividend yield on that fund is a bit higher than VTSAX (2.1% vs 1.9%, roughly).  I personally wouldn't bother with it - costs more and there's no reason it should provide substantially better returns than VTSAX over the long term.


  • Pencil Stache
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Re: Invest in High Dividend Index or Total Index?
« Reply #2 on: April 30, 2017, 02:13:09 PM »
Simplifying things a bit, your money is indifferent on whether 1K gets put into something over ten months or 10K right now; therefore, if your plan was to keep investing in VSTAX I don't believe the windfall should change that plan.


  • Magnum Stache
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Re: Invest in High Dividend Index or Total Index?
« Reply #3 on: April 30, 2017, 07:21:40 PM »
"contemplating VDADX, but when I look at the dividend payouts, they are lower than VTSAX."

That way, you appreciate the dividends you get more.... but actually as another poster mentioned the 2.04% VDADX dividend is slightly higher than 1.87% of VTSAX.  I visited the first page for each fund on Vanguard's site to look at their "yield":
If you visit the "distributions" page with details, it's the same situation.

VTSAX captures all the diversification you need for U.S. stocks.  But even better would be purchasing 2/3rds VTSMX and 1/3rd VGTSX.  With less than $10k in each, you'd go with investor shares until you built up to $10k.  But the diversification is better, which is worth more (in my view) than the 0.10% higher cost of mixing.

If you must have the lowest expense ratio, you could use ETF versions VTI and VXUS.  The expenses are lower since Vanguard doesn't deal with purchases and sales - that happens on the stock market during trading hours.  At Vanguard, Vanguard ETF shares are $0/trade, just like Vanguard mutual funds.


  • Walrus Stache
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Re: Invest in High Dividend Index or Total Index?
« Reply #4 on: April 30, 2017, 08:18:49 PM »
If you are going to diversify, now is a good time to do it.  You get better Vanguard rates when you put $10k in a fund.

I opened up our first fund and started filling it up until I hit the $10k mark.  Then I went to the next fund I wanted to use and filled it up to the $10k mark.

Then I played around with my contributions to get them to the actual asset allocation I want to have as I contributed more.


  • Stubble
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Re: Invest in High Dividend Index or Total Index?
« Reply #5 on: April 30, 2017, 10:20:46 PM »
There is nothing wrong with buying VDADX, per se.  However, it does not result in a more diversification.  The underlying stocks on VDADX are already in VTSAX.  You are still invested in the total U.S. stock market by virtue of holding VTSAX and VDADX but now slightly skewed towards dividends instead of straight market cap weighting.

If you want more diversification, you would need to pick up a different asset class with your planned purchase, E.g., bonds, foreign developed, foreign emerging.


Mr Mark

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Re: Invest in High Dividend Index or Total Index?
« Reply #6 on: May 01, 2017, 04:57:55 AM »
Congrats on the windfall (and for wanting to invest it rather than drive to Vegas in your new leased Caddy Esplanade to paaaarty!)

The question "What should I do with a windfall $?" is a great test we can all do to check how happy we really are with our asset allocation. If the money is a relatively small amount* (compared to your FIRE target) you should have no problem simply adding it to your 'stach in line with your planned (and preferably written down) asset allocation and overall investment & tax optimisation strategy.

As per the stickies, you should know your investment order as well as the asset types you want. Typically that means ensuring you first get the free 401k match (if there you have access to one), then use all your IRA deduction, maybe HSA, then into taxed accounts.

In your case, your 'stach seems to be still at the stubble stage (my assumption), so I can imagine it can be a bit more of a quandry balancing planned diversification vs getting some funds from 'Investor' to 'Admiral' status to lower fees for example. At the beginning stage it's not really a huge issue that your detailed allocation is perfect - all VTSAX or some % of international and/or bonds if you're that way inclined. IE If your desired AA is say 70% US equity, 20% International and 10% Bonds, but you don't have at least a 30k 'stash, you will have difficulty doing that in Vanguard until you can meet the fund minimums. So what. At this stage just getting it saved is what counts more IMHO. Either stick it all in VTSAX until you hit a level that supports more diversification, or consider putting it all in a long time horizon life fund (say 2060 or something so the bond % is low).

WRT your specific question I would not go for the high yield but keep to VTSAX which gives you low cost with massive diversification wrt USA. I like to add a % skew towards Small Cap in my equities (more growth in the good times, more volatility tho') and have bonds and REITs. I stick with the advice of Bogle and JLCollins that there is no real need to add international equity as USA already has large international exposure indirectly.

If you are young and some time away from FIRE, it's hard to beat just regularly plugging it into 100% VTSAX... meanwhile ignore the market and never sell.

If 100% VTSAX (or equiv) is your asset allocation, but the thought of putting a big lump sum into the market makes you uncomfortable - that to me means there's an underlying issue with your decision on AA and risk tolerance.

*if it's a HUUUUUGE amount, then blindly sticking it into your current AA may not be the right move. If the extra money takes you from the situation of being in pure 'stach accumulation mode for years and straight into full FI and then some, that would probably be a good reason to adjust your AA accordingly, by adding more bonds and looking at RE for example. You can think about that on your way to Vegas of course, while your boss reads your resignation letter. #niceproblemstohave