Vanguard fund recommendations?

[MoneyCat]

Currently, I have my Roth IRA invested in two Vanguard funds (VGSTX and VDIGX) and one American Fund (CWGFX).  Now that I've maxed that out for the year, I'd like to start investing in taxed accounts with the extra funds.  I have about $3000 to invest and I was thinking about putting it in VDIGX, but I was wondering if anyone had any recommendations for other Vanguard funds I could invest in.  Any thoughts?

[Holyoak]

Any reason not to roll CWGFX?

[humblefi]

VDIGX is a good fund...I have it in my portfolio too. Couple things to watch out for...
+ This fund generates capital gains (both short and long term)...so, if you are in a high tax bracket, this is one disadvantage.
+ This fund has only 40+ stocks...so, not too diversified.

That said, I have to ask: what is your overall asset allocation strategy for your taxable account? Without knowing that, recommending a fund does not seem right.
For example, if income generation in your taxable account is your goal, then you could go many ways:
+ Munis (federal and possibly state tax free also) ..... good for a tax free income strategy
+ Dividend income....VHDYX (current dividend) and VDIGX(div growth)
+ Capital appreciation (VTCLX)....tax managed as well.
+ ....

I use a bunch of tax managed Vanguard funds. I am using my taxable account to generate passive income streams...primarily income producing funds, with a few shots of capital appreciation. So, my funds are tuned for that. If you need more info, you can look for passive income streams in my blog.

Hope it helps.

[MoneyCat]

VDIGX is a good fund...I have it in my portfolio too. Couple things to watch out for...
+ This fund generates capital gains (both short and long term)...so, if you are in a high tax bracket, this is one disadvantage.
+ This fund has only 40+ stocks...so, not too diversified.

That said, I have to ask: what is your overall asset allocation strategy for your taxable account? Without knowing that, recommending a fund does not seem right.
For example, if income generation in your taxable account is your goal, then you could go many ways:
+ Munis (federal and possibly state tax free also) ..... good for a tax free income strategy
+ Dividend income....VHDYX (current dividend) and VDIGX(div growth)
+ Capital appreciation (VTCLX)....tax managed as well.
+ ....

I use a bunch of tax managed Vanguard funds. I am using my taxable account to generate passive income streams...primarily income producing funds, with a few shots of capital appreciation. So, my funds are tuned for that. If you need more info, you can look for passive income streams in my blog.

Hope it helps.

I am looking for dividend income.  VHDYX looks interesting.  I would like to keep my taxes as low as possible, because I live in NJ, so I'm already taxed more than my fair share.  It looks like VTCLX requires a minimum buy-in of $10,000, so that might be one to look at in the future. 

[Hannah]

Replying to follow. I'm trying to learn about mutual funds too.

[TheMoneyBadger]

My new contributions go to VTSAX (Total Stock Market Index Fund).  That's the Admiral Shares version which requires an investment of $10,000 though you can get into the Investor Shares for $3,000 in VTSMX or the ETF with no minimum as VTI.  It's a simple core equity holding which captures the total US market.

[skyrefuge]

I am looking for dividend income.  VHDYX looks interesting.  I would like to keep my taxes as low as possible, because I live in NJ, so I'm already taxed more than my fair share.

Why are you looking for dividend income? If anything, in a taxable account, you should be trying to avoid dividend income! Even if you were already retired (I think that you are not), it would still be more-efficient to produce income by selling shares rather than having dividend payments forced upon you.

You'll likely be much better off with either a broad-based index fund or a tax-managed fund.

[CanuckExpat]

One thing that immediately jumped out at me is that you own relatively expensive funds, at least by Vanguard standards (compared to their index funds). Is there a reason for this? Without knowing your investment plan and why you want to hold these funds, the question can't be answered.
This is a good place to start: http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit

[MoneyCat]

I am looking for dividend income.  VHDYX looks interesting.  I would like to keep my taxes as low as possible, because I live in NJ, so I'm already taxed more than my fair share.

Why are you looking for dividend income? If anything, in a taxable account, you should be trying to avoid dividend income! Even if you were already retired (I think that you are not), it would still be more-efficient to produce income by selling shares rather than having dividend payments forced upon you.

You'll likely be much better off with either a broad-based index fund or a tax-managed fund.

I guess my reasoning has been to get the dividends and reinvest them so I can buy more shares in addition to the ones I buy with additional purchases as I go along.  I'm trying to snowball the funds to having enough investments to live off the proceeds of other people's work, like any respectable wealthy person.


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[skyrefuge]

I guess my reasoning has been to get the dividends and reinvest them so I can buy more shares in addition to the ones I buy with additional purchases as I go along.  I'm trying to snowball the funds to having enough investments to live off the proceeds of other people's work, like any respectable wealthy person.

Dividends are not necessary to achieve the snowball. Compounding works even if corporations hold onto their cash rather than giving it to you. In fact, in a taxable account, it works better, because if the company reinvests their money themselves, you don't pay any taxes like you do when you reinvest it on your own. Your portfolio value will rise the same, but rather than increasing because you hold more shares, it will increase because each share's value will rise.

In addition to the negative tax implications, a dividend-focused approach generally suffers from a lower diversification. That's why a total-return approach is generally recommended. When you reach the point where you actually need cash from your investments to live, you can use whatever dividends your total-market index fund produces, and then sell some of the appreciated shares to make up the rest.

[MoneyCat]

I guess my reasoning has been to get the dividends and reinvest them so I can buy more shares in addition to the ones I buy with additional purchases as I go along.  I'm trying to snowball the funds to having enough investments to live off the proceeds of other people's work, like any respectable wealthy person.

Dividends are not necessary to achieve the snowball. Compounding works even if corporations hold onto their cash rather than giving it to you. In fact, in a taxable account, it works better, because if the company reinvests their money themselves, you don't pay any taxes like you do when you reinvest it on your own. Your portfolio value will rise the same, but rather than increasing because you hold more shares, it will increase because each share's value will rise.

In addition to the negative tax implications, a dividend-focused approach generally suffers from a lower diversification. That's why a total-return approach is generally recommended. When you reach the point where you actually need cash from your investments to live, you can use whatever dividends your total-market index fund produces, and then sell some of the appreciated shares to make up the rest.

I'll have to think about this, because right now dividends have been the only thing preventing me from taking a loss over the past two months of market dives.

[humblefi]

Dividends are not necessary to achieve the snowball. Compounding works even if corporations hold onto their cash rather than giving it to you. In fact, in a taxable account, it works better, because if the company reinvests their money themselves, you don't pay any taxes like you do when you reinvest it on your own. Your portfolio value will rise the same, but rather than increasing because you hold more shares, it will increase because each share's value will rise.

I have noticed that there are mainly two camps:
+ make money mainly by capital appreciation and no dividends (ex google like stocks)
+ make money mainly by dividends and minimal capital appreciation (ex Dividend Aristocrats: http://www.dividend.com/dividend-stocks/25-year-dividend-increasing-stocks.php)

If one is in a high tax bracket, then it seems like sticking to only capital appreciation stocks seems similar to sticking to only dividend stocks i.e. lack of diversification.
Most of the Dividend Aristocrat stocks have very minimal capital appreciation.

So, I prefer an approach which takes both types of investments for the following reasons:
+ Dividends are taxable, but qualified dividends are taxed at 15% (varies on AGI)...much less than the high tax rate for ordinary income.
   If I am getting getting taxed at 15%, there is some gains coming into my pocket.
+ Any gain from the dividends may be tax-loss harvested against any loss...so, maybe the fund manager will do his job and we do not have to pay tax :-)
+ If one were to wait to get into a lower tax bracket (say closer to retirement) to get into dividend stocks, one can fail to dollar-cost-average on some nice dividend stocks and build a reasonable fund over the years.

Please share your thoughts. Thanks!

[innerscorecard]

One of the benefits of the dividend growth investing camp, even though it academically makes no sense, is that dividends (though imperfect) are a more stable proxy for intrinsic value than simply price, for many of those stocks that pay dividends that such investors focus on.

[skyrefuge]

I'll have to think about this, because right now dividends have been the only thing preventing me from taking a loss over the past two months of market dives.

That is incorrect. The payment of dividends has not affected the market value of your portfolio. If the dividends had not been paid, the market value of the companies you hold would be higher than it is now (by the amount of their total dividend payments) because they would have retained that cash. Dividends are merely a transfer of value from the company to you, not a creation of new value.

[skyrefuge]

I have noticed that there are mainly two camps:
+ make money mainly by capital appreciation and no dividends (ex google like stocks)
+ make money mainly by dividends and minimal capital appreciation (ex Dividend Aristocrats: http://www.dividend.com/dividend-stocks/25-year-dividend-increasing-stocks.php)

I disagree. The second camp definitely exists, but there really is no "anti-dividend" cult. For example, I'm not aware of any funds explicitly designed to avoid dividend-paying stocks. The "other camp" in reality is simply "dividend-indifferent". For us, dividend payments are not a factor when selecting stocks/funds, since dividend-payment is not a factor in predicting returns.

[Scandium]

Wow, VDIGX has a 0.31% ER and 49 (!) stocks. Apart from the dividend fallacy others have addressed above, I would not want to a) pay that much in fees and b) get so little diversification. The yields is about the same as the total market so although dividends are bad in a taxable account, it's actually not that much worse than TM.

I guess an anti-dividend fund would be a large cap growth fund or something, as they usually don't pay them out. (That doesn't mean it's a good idea though)

[MoneyCat]

Wow, VDIGX has a 0.31% ER and 49 (!) stocks. Apart from the dividend fallacy others have addressed above, I would not want to a) pay that much in fees and b) get so little diversification. The yields is about the same as the total market so although dividends are bad in a taxable account, it's actually not that much worse than TM.

I guess an anti-dividend fund would be a large cap growth fund or something, as they usually don't pay them out. (That doesn't mean it's a good idea though)

VDIGX frequently outperforms the Total Index, which I suppose is why it's 0.31%.  It's not very diversified, but the stocks included in it are mostly high growth companies that cater to poor people -- like Walmart and Altria.  Those should be good investments for the foreseeable future, especially since labor unions are nearly extinct in the United States.  If there's going to be misery, I may as well get my piece of the pie.

[skyrefuge]

VDIGX frequently outperforms the Total Index

If by "frequently outperforms" you mean "underperformed in 4 of the last 5 years", then, sure. Yes, its outperformance in the previous 5 years balanced its more-recent underperformance, but I'm just pointing out that "frequently outperforms" is not particularly reflective of reality.

which I suppose is why it's 0.31%.

Er, what? Are you suggesting that Vanguard sells VDIGX at a higher cost because it can, due to the fund's outperformance? That's not how expense ratios work (at least not at Vanguard). The ER is simply a reflection of the actual costs to run the fund. VDIGX costs more to run than an index fund because it has to pay its managers.

the stocks included in it are mostly high growth companies that cater to poor people -- like Walmart and Altria.

What? Wal-mart and Altria are considered "value" stocks, not high-growth. The "growth" in the name of the fund refers to growth of the dividends, not growth of the companies.

Furthermore, VDGIX doesn't even hold Altria at the moment!

Those should be good investments for the foreseeable future, especially since labor unions are nearly extinct in the United States.  If there's going to be misery, I may as well get my piece of the pie.

You can invest however you'd like, but I hope that seeing all the basic factual errors you've made in this thread about investing will at least make you reconsider the skill you think you have in the far more-difficult challenge of knowing more than the market does about the future! "A deck of cards has only 33 cards and 6 different suits...I can totally beat these professional poker players!"

[MoneyCat]

VDIGX frequently outperforms the Total Index

If by "frequently outperforms" you mean "underperformed in 4 of the last 5 years", then, sure. Yes, its outperformance in the previous 5 years balanced its more-recent underperformance, but I'm just pointing out that "frequently outperforms" is not particularly reflective of reality.

which I suppose is why it's 0.31%.

Er, what? Are you suggesting that Vanguard sells VDIGX at a higher cost because it can, due to the fund's outperformance? That's not how expense ratios work (at least not at Vanguard). The ER is simply a reflection of the actual costs to run the fund. VDIGX costs more to run than an index fund because it has to pay its managers.

the stocks included in it are mostly high growth companies that cater to poor people -- like Walmart and Altria.

What? Wal-mart and Altria are considered "value" stocks, not high-growth. The "growth" in the name of the fund refers to growth of the dividends, not growth of the companies.

Furthermore, VDGIX doesn't even hold Altria at the moment!

Those should be good investments for the foreseeable future, especially since labor unions are nearly extinct in the United States.  If there's going to be misery, I may as well get my piece of the pie.

You can invest however you'd like, but I hope that seeing all the basic factual errors you've made in this thread about investing will at least make you reconsider the skill you think you have in the far more-difficult challenge of knowing more than the market does about the future! "A deck of cards has only 33 cards and 6 different suits...I can totally beat these professional poker players!"

Oops, Altria is in my CWGFX holdings.  Simple mistake.  As for your comments, shut up.  I'm profiting pretty well so far, even with the market being shitty for the past two months.

[humblefi]

This is a very interesting discussion.

IMO, there are two questions here:
+ Is VTSMX (total market index) better than VDIGX?
+ Is VDIGX a good fund for taxable account?

Lets me see what the answer is to the first question of VDGIX vs VTSMX.

1.
Comparing VDIGX vs VTSMX in Morningstar over a 10 year period, here is what I get when I plot the growth chart: http://quote.morningstar.com/fund/chart.aspx?t=VTSMX&region=USA&culture=en-US&statePara=%7Bsecurities%3A%5B%7Bn%3A%22Vanguard%20Total%20Stock%20Mkt%20Idx%20Inv%22%2Cids%3A%22FOUSA00FQU%7C0P00002SY4%7CCU%24%24%24%24%24USD%7C1%7C1%7CFO%7C1992-4-26%7C%7C%7Cfalse%7CUSA%7C19%22%7D%2C%7Bn%3A%22Vanguard%20Dividend%20Growth%20Inv%22%2Cids%3A%22FOUSA00FUG%7C0P00002T1Q%7CCU%24%24%24%24%24USD%7C1%7C1%7CFO%7C1992-5-15%7C%7C2003-2-28%7Cfalse%7CUSA%7C19%22%7D%5D%2CchartType%3A%22GrowthChart%22%2Crange%3A%222005-2-5%7C2015-2-5%22%2Cperiod%3A9%2Cregion%3A%22USA%22%2Ctc%3A%22USD%22%2CisD%3A%220%22%2CisR%3A%220%22%2CrM%3A60%2Cscale%3A%221%22%2CbMenu%3A%22%22%2Csma%3A%220%2C0%2C0%22%7D

According to this chart, I see two wins for VDIGX:
+ VDIGX seems to outperform VTSMX
+ VDIGX seems to have a smaller loss than VTSMX in the 2008 downturn.

2.
Comparing VDIGX vs VTSMX in Morningstar over a 5 year period, here is what I get when I plot the growth chart:http://quote.morningstar.com/fund/chart.aspx?t=VTSMX&region=USA&culture=en-US&statePara=%7Bsecurities%3A%5B%7Bn%3A%22Vanguard%20Total%20Stock%20Mkt%20Idx%20Inv%22%2Cids%3A%22FOUSA00FQU%7C0P00002SY4%7CCU%24%24%24%24%24USD%7C1%7C1%7CFO%7C1992-4-26%7C%7C%7Cfalse%7CUSA%7C19%22%7D%2C%7Bn%3A%22Vanguard%20Dividend%20Growth%20Inv%22%2Cids%3A%22FOUSA00FUG%7C0P00002T1Q%7CCU%24%24%24%24%24USD%7C1%7C1%7CFO%7C1992-5-15%7C%7C2003-2-28%7Cfalse%7CUSA%7C19%22%7D%5D%2CchartType%3A%22GrowthChart%22%2Crange%3A%222010-2-5%7C2015-2-5%22%2Cperiod%3A8%2Cregion%3A%22USA%22%2Ctc%3A%22USD%22%2CisD%3A%220%22%2CisR%3A%220%22%2CrM%3A60%2Cscale%3A%221%22%2CbMenu%3A%22%22%2Csma%3A%220%2C0%2C0%22%7D

According to this chart, I see one win for VMSMX:
+ VTSMX seems to outperform VDIGX

Note that this is a growth comparison for a fixed amount...what I am not sure is if dividends were involved in the comparison i.e. is this a total return (dividends+capital gains).

3.
So, I went to Vanguard site itself and compared the two funds. The above conclusions seem to hold up. In the last 3-5 yr range, VTSMX is better; in the last 10 yr range, VDIGX is better.

4.
Past performance is not a predictor of future performance, but Wellington family (VDIGX manager Don Kilbride comes from here) has a good reputation. So, assuming there is some meaning in past performance, here is what I see:

+ In a Bull market, VTSMX performs better, but in a dip, VDIGX seems better and in a dip+bull market, VDIGX seems to come out ahead.
+ If you had started investing in VDIGX before the dip, you probably are making tonnes of money...ahhh I wish I were a little bit smarter in life :-(

What do you guys think?

[humblefi]

This is a very interesting discussion.

IMO, there are two questions here:
+ Is VTSMX (total market index) better than VDIGX?
+ Is VDIGX a good fund for taxable account?

Lets me see what the answer is to the second question of VDGIX/VTSMX for a taxable account. I have VDIGX in my taxable account portfolio, but understanding the context is probably important as well.

I try to invest in different strategies for my taxable account, with two buckets for each strategy...to spread the risk a bit more. I have invested in appx 5 different strategies.
+ MUNIs...federal+state tax free
+ Balanced fund....VTMFX...federal tax free + some state tax free
+ Dividend Investing: current high div (VHDYX) and div growth (VDIGX)....100% qualified dividends (15% tax) + AMT free
+ Capital growth (VTCLX, VTMSX)..does generate some capital gains
+ International (VTMGX)...does generate dividends...almost 100% qualified dividends (15% tax), gets some foreign tax deduction.

So, VDIGX takes the place of a dividend growth fund in my portfolio in my taxable account. The advantages that I considered were
+ 49 stocks appx...less diversification...but a longer term approach...almost a buy+hold strategy...i.e. limits short term capital gains
+ good fund family...Vanguard/Wellington
+ Considered a solid fund for a down market
+ appx 10% is foreign market...so, some diversification across geographies.

Coming down to brute force numbers, here is the dividend distribution for the last year.

VTSMX
---------
Distribution    Most Recent
Type            Distribution    Record Date    Reinvest Date    Payable Date    Reinvest Price    Distribution Yield    SEC Yield
Dividend       $0.25800    12/18/2014    12/19/2014    12/22/2014    $51.75    —    1.76%  B
Dividend       $0.21100    09/22/2014    09/23/2014    09/24/2014    $49.58    —    —
Dividend       $0.19000    06/20/2014    06/23/2014    06/24/2014    $49.49    —    —
Dividend       $0.19200    03/21/2014    03/24/2014    03/25/2014    $47.08    —    —
                   --------
         $0.851
         tax = $0.851 * 15% = $.12765


VDIGX
-----
Distribution    Most Recent
Type                Distribution    Record Date    Reinvest Date    Payable Date    Reinvest Price    Distribution Yield    SEC Yield
Dividend            $0.21800    12/19/2014    12/22/2014    12/23/2014    $23.37    —    2.10%  B
ST Cap Gain    $0.07300    12/19/2014    12/22/2014    12/23/2014    $23.37    —    —
LT Cap Gain    $0.24700    12/19/2014    12/22/2014    12/23/2014    $23.37    —    —
Dividend            $0.19900    06/19/2014    06/20/2014    06/23/2014    $22.18    —    —
Dividend            $0.02300    03/20/2014    03/21/2014    03/24/2014    $21.40    —    —
ST Cap Gain    $0.01200    03/20/2014    03/21/2014    03/24/2014    $21.40    —    —
LT Cap Gain    $0.01600    03/20/2014    03/21/2014    03/24/2014    $21.40    —    —
                        --------
                        $0.788
              tax = $.703*15% (div + long term cap gains portion) + .085*33% (short term cap gains)
                              = $.10545 + 0.02805
                    = $.1335

Here is my conclusion: Just based off of the dividends and capital gains distribution over the last year, VDIGX pays a bit more tax, assuming short term cap gains max bracket of 33%. Note that the .31% expense ratio also is a downer for VDIGX. VTMSX wins this round in the short term.

So, would I change my VDIGX fund investment? Not now for two reasons:
+ It is a portfolio diversification for me in the dividend growth bracket...all companies in VDIGX are not in the index.e.x, 10% is foreign inv.
+ It is a less volatile fund...a good fund to keep during market dips...if you consider the last 5+ years of bull market, then a market dip is logical in the next year or two.
   Lets hope VDIGX earns its expense ratio.

What do you guys and gals think about this?

PS: This thread has been a learning experience for me. Thanks for the question and the comments from diff people. It is always good to revisit ones assumptions and test them once in a while :-)

[Scandium]

Whatever the past numbers (and only the past 10 years which is not that long) VDIGX just seems like a crappy fund. You pay six times as much to hold companies that are already in VTSAX anyway. It's probably a bunch of value stocks, which isn't' the worst you can do, but will likely underperform overall. Just for some tax-inefficient dividends? I really don't see the point. If you really want a recommendation buy VTSAX. Done.

If you want  protection in a downturn; get more bonds.

If you want dividends; don't.

"poor people shop at walmart, and there will be more poor people" is not a solid economic analysis, and predicts nothing about how the fund or economy will perform in the future.

[NinetyFour]

I have not read this thread carefully, so sorry if this has already been mentioned:

https://personal.vanguard.com/us/insights/article/money-magazine-best-funds-012015

[skyrefuge]

Note that this is a growth comparison for a fixed amount...what I am not sure is if dividends were involved in the comparison i.e. is this a total return (dividends+capital gains).

Yes, Morningstar's "Growth of 10k" charts are total-return charts (one of the reasons why they're so useful!)

In the last 3-5 yr range, VTSMX is better; in the last 10 yr range, VDIGX is better.

And then, in the last 20-year range, VTSMX is better again.

+ In a Bull market, VTSMX performs better, but in a dip, VDIGX seems better and in a dip+bull market, VDIGX seems to come out ahead.

A tempting simplification, and one that I don't really disagree with ("VDIGX is lower-risk, lower-reward" is something I could sign up for). But the "better in a dip" theory is much-less convincing when you look at the early-2000s dip. VDIGX dropped 41% peak-to-trough, while VTSMX dropped 44%. Close enough that they look basically the same, and making it so that being in VTSMX before that dip would have been better than being in VDIGX.

So, would I change my VDIGX fund investment? Not now for two reasons:
+ It is a portfolio diversification for me in the dividend growth bracket...all companies in VDIGX are not in the index.e.x, 10% is foreign inv.
+ It is a less volatile fund...a good fund to keep during market dips...if you consider the last 5+ years of bull market, then a market dip is logical in the next year or two.
   Lets hope VDIGX earns its expense ratio.

What do you guys and gals think about this?

Seems reasonable to me. I always question people about their dividend-focused approaches not because I think a dividend fund is a particularly bad choice, but because the desire for dividends almost always reveals that they have a basic technical misunderstanding about how the stock market and investing works. My goal is to help make them better investors in the future by revealing their misunderstandings now.

In your case, it sounds like you aren't in the fund for the divdends, you're in it because it's a proxy for a value-oriented fund. That seems reasonable.

PS: This thread has been a learning experience for me. Thanks for the question and the comments from diff people. It is always good to revisit ones assumptions and test them once in a while :-)

Glad to see that at least someone took the opportunity to learn something from this thread! :-)

[astvilla]

I'm actually interested in this topic as well. I do agree with most other posters though moneycat that vtsmx is much likelier the better choice long-term (which is what we're here for hopefully), 2 months isn't a long time horizon (coincidentally is how long I've been investing too) that walmart can be good company but bad investment. IBM is a company in the VDIGX fund too and it dropped quite a bit, but that was before you probably bought the fund.

I was actually thinking along the same lines as moneycat. That a fund like VDIGX would psychologically be better in case of up/down markets because of the dividend. But if I'm reading correctly, it only pays dividends twice a year?! That doesn't seem a lot. I'm not good with the math but compared to VTSMX which is quarterly, it would seem dividends reinvested quarterly would be better than semi-annually as you could get shares at a lower price. VDIGX also overlaps with VTSMX with more emphasis on 49 companies.

Another question I have for your mustachians is what's the difference between VDAIX and VDIGX? They have similar holdings, VDAIX is more diversified (160 or so as opposed to 49) and lower ER with Admiral class available too. But do they meet different investor goals? If I wanted to pick a fund that would give good dividends no matter the economic climate, would VDAIX be better than VDIGX? The fund sizes seem medium sized too, 25 billion or so. Most of my holdings are total stock or international total stock and bond. I'm looking at dividend funds as just a small complement and to experiment a bit what it'd be like having a dividend fund.

[tj]

Another question I have for your mustachians is what's the difference between VDAIX and VDIGX? They have similar holdings, VDAIX is more diversified (160 or so as opposed to 49) and lower ER with Admiral class available too. But do they meet different investor goals? If I wanted to pick a fund that would give good dividends no matter the economic climate, would VDAIX be better than VDIGX? The fund sizes seem medium sized too, 25 billion or so. Most of my holdings are total stock or international total stock and bond. I'm looking at dividend funds as just a small complement and to experiment a bit what it'd be like having a dividend fund.

I like VDIGX better than VDAIX. VDAIX may have more holdings, but VDAIX is more concentrated in the top 10 holdings. VDIGX has 49 holdings with the top 10 representing 26% of the fund, VDAIX has 163 holdings with the top 10 representing 35% of the fund. Dividend Growth has a higher return with lower standard deviation since the inception of the index fund in 2007 which suggests the manager has added alpha after expenses, but were I to invest in VDIGX, I would pay attention to any management changes and act accordingly. As such, I'd prefer to hold this type of fund in a tax-advantaged account where I would not be subject to large capital gains in the event of management change.

https://www.portfoliovisualizer.com/asset-correlations?s=y&numTradingDays=60&endDate=01%2F23%2F2015&timePeriod=4&symbols=VDIGX+VDAIX

However, Neither VDIGX nor VDAIX would be a fund for current income, these are dividend growth funds rather than dividend income funds.

If you are looking for current income out of your stocks, I'd go with a combination of Vanguard High Dividend Yield Index (if in a tax advantaged account, I'd consider Vanguard Equity Income) and Vanguard High Yield Corporate. Vanguard's junk bond fund is less junky than others and could almost be considered to have a lot in common with a 'conservative stock' fund. It is not a substitute for a conservative bond fund, which should be in treasuries or perhaps muni's.

[tj]

Whatever the past numbers (and only the past 10 years which is not that long) VDIGX just seems like a crappy fund. You pay six times as much to hold companies that are already in VTSAX anyway. It's probably a bunch of value stocks, which isn't' the worst you can do, but will likely underperform overall. Just for some tax-inefficient dividends? I really don't see the point. If you really want a recommendation buy VTSAX. Done.

If you want  protection in a downturn; get more bonds.

If you want dividends; don't.

"poor people shop at walmart, and there will be more poor people" is not a solid economic analysis, and predicts nothing about how the fund or economy will perform in the future.

Not really. VDIGX isn't even a high dividend fund. Only High Dividend Yield (and Equity Income, which nobody has mentioned) is strongly focused on dividends; the other Vanguard dividend funds choose companies which grow dividends, not necessarily companies which pay high dividends.

VDIGX was known as The Vanguard Utilities Income fund until 12/6/2002, investing only in utility stocks, so the data from before that is not really relevant in the comparison. The current manager has been in place since 2006.

From 12/6/2002 through 12/31/2014, VDIGX has outperformed with lower volatility, which again, suggests the fund manager has generated alpha. That is factual based on the data. Will that continue? Nobody knows.
                                                               
Name                                                                    Ticker    Annualized Return    Daily Standard Deviation    Monthly Standard Deviation    Annualized Standard Deviation
Vanguard Total Stock Market Index Fd Admiral       VTSAX    8.14%                                        1.93%                                           4.21%                14.78%
Vanguard Dividend Growth Fund                            VDIGX    8.33%                                        1.58%                                           3.45%                12.06%

Of course, if you change the time period to 1/01/2009 to 12/31/2014, VTSAX crushes VDIGX, but I guess that's expected in a long bull market ---> https://www.portfoliovisualizer.com/asset-correlations?s=y&numTradingDays=60&endDate=02%2F06%2F2015&timePeriod=4&symbols=VTSAX+VDIGX&startDate=01%2F01%2F2009


Edited to add: Just in case people were wondering, when changing the start date to 1/1/2009, VDIGX still outperformed VDAIX over that time period, which is the index that the fund manager is getting paid to beat. It did what it was supposed to do. That it didn't beat VTSAX is not all that relevant as VTSAX obviously has a different goal.

[RyeWhiskey]

In my personal opinion, the best fund from Vanguard is the Total World Stock Index VTWSX/VT and I put my money where my mouth is as this is currently the only fund I own. Reasons:
- Most diversified equity fund in the world with over 6,000 stocks.
- Balanced at 50/50 domestic international.
- No manager risk.
- No sector risk.
- No country risk.
- Low cost at 0.30%/0.15%, ER will almost assuredly drop as asset base grows.
- TTM Yield: 2.38% (ironically, VDIGX's TTM Yield is 1.93%).

I'll wager that this fund outperforms all equity funds over the next 50 years.

[tj]

In my personal opinion, the best fund from Vanguard is the Total World Stock Index VTWSX/VT and I put my money where my mouth is as this is currently the only fund I own. Reasons:
- Most diversified equity fund in the world with over 6,000 stocks.
- Balanced at 50/50 domestic international.
- No manager risk.
- No sector risk.
- No country risk.
- Low cost at 0.30%/0.15%, ER will almost assuredly drop as asset base grows.
- TTM Yield: 2.38% (ironically, VDIGX's TTM Yield is 1.93%).

I'll wager that this fund outperforms all equity funds over the next 50 years.

 Total World Stock Index is not balanced at 50/50 international. It goes up and down based on how America and everybody else does. A few years ago it was 60% international. Now it's closer to 50/50. I'm a fan of Total World Stock, but there's certainly no guarantee that it outperforms. I would say that there is a lot of country risk, it's just not concentrated solely on USA. THere's obviously some currency risks too. Swiss stocks got hammered recently because of what happened with the Swiss Franc. The Australian and Canadian dollars are worth much less than they were a year ago, so if you're an American investing in Australian and Canadian corporations, which in VTWSX, is a good 7% of the fund, the currency devaluation effects you.


There's not one answer. Total World, and index funds in general, make a lot of sense to me in the accumulation phase, but 3-factor investing makes some sense too.

I'm a fan of funds like Dividend Growth and Equity Income in the withdrawal phase. I'm also a fan of using those types of funds in IRA's and 401K.


My 401K is currently entirely in DFA Global Allocation 60/40, which is index-like, but has a lot of small value tilting, whereas I use straight index funds in my taxable account.