The High-Yielding Vanguard ETF That Belongs in Every Investor's Portfolio
Key Points
The Vanguard High Dividend Yield ETF gives investors exposure to a diverse mix of dividend stocks.
The fund can be particularly helpful if you want dividends, as it can minimize your exposure to any one stock.
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Holding exchange-traded funds (ETFs) in your portfolio can be a great way to balance out your risk. You can have a couple of ETFs that provide you with some stability and dividend income, where you can allocate the bulk of your money, and then, with the remainder of your funds, invest in individual stocks.
That can give you the best of both worlds, as it gives you some strong pillars in your portfolio, which, in turn, enables you to take on some risk with smaller-sized investments.
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One ETF that can be an excellent option for this type of strategy is the Vanguard High Dividend Yield ETF (NYSEMKT: VYM). As its name suggests, it's an enticing dividend investment. Here's why it can be suitable for any portfolio.
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The low-cost fund provides a ton of stability and diversification
As is normally the case with Vanguard funds, this ETF has an extremely low expense ratio of only 0.04%. Fees may not be a huge consideration for short-term investments, but they shouldn't be overlooked when you're considering investments that you plan to hang on to for years, potentially decades. Like returns, fees can add up over time, but with this Vanguard ETF, you won't have to worry about them.
The fund is also highly diversified, which is crucial for a dividend investment. Time and time again, seemingly safe dividend stocks announce cuts to their payouts or changes to their policies that can impact your recurring income. The best defense against this is to simply invest in many dividend stocks to spread out your risk.
The Vanguard High Dividend Yield ETF has a position in 562 stocks, and its largest holding is Broadcom, which accounts for 7% of the entire portfolio. The exposure to any individual stock is fairly low with this fund, which is important to ensure you aren't taking on too much risk.
The fund makes for an ideal investment under any conditions
Whether the market is doing well or not, the Vanguard High Dividend Yield ETF can be a great investment to hang on to. Many sectors account for more than 10% of its overall holdings, including financials, healthcare, and industrials. This can give you some excellent diversification for your portfolio, enabling you to benefit from the economy's long-term growth.
Although the ETF has underperformed the S&P 500 over the past decade, with total returns (which include dividends) of around 200% versus over 300% for the S&P 500, it can potentially be less vulnerable in the event of a market crash or correction, due to its focus on blue chip dividend stocks. If you need a long-term investment that you don't have to worry about, the Vanguard High Dividend Yield ETF is an excellent option to consider today.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard High Dividend Yield ETF. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
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