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It’s no secret that I believe a concentrated list of well-chosen dividend payers is the best way to secure healthy income and reap nice capital gains over time.
That’s especially true if you follow a long-term buy-and-hold strategy.
Why? Because you’ll pay only small brokerage commissions the few times you buy or sell, and you’ll avoid big tax bills or annual expenses the whole time you’re holding.
If you do your investing inside tax-sheltered accounts like IRAs, the strategy works even better!
However, maybe you’re not a big fan of watching stocks move up and down or making adjustments on a regular basis. That’s okay.
I’m a big fan of keeping things simple, too. And in the investment world, few things are simpler than exchange traded funds (ETFs).
These vehicles — which function like mutual funds but trade like stocks — are an easy way to get a broad stake in a particular asset class with minimal effort or expense.
In general, ETFs don’t require lots of micromanagement … you can simply “set them and forget them.”
In fact, some investors take this to the extreme by building so-called “lazy portfolios.”
Here’s how it works:
Step #1. Determine your targeted asset allocations. In other words, you figure out how much money you want to put into big U.S. stocks, how much into bonds, how much into foreign shares, and so on.
Step #2. Select a few ETFs that match up with those categories you’ve selected.
Step #3. Buy each ETF according to the predetermined proportion of your portfolio that it should take up.
Example: Say your overall portfolio is worth $100,000, and you want 10% invested in Chinese shares. You would simply buy $10,000 worth of the broad Chinese ETF you selected in step #2.
Step #4. You simply rebalance the portfolio’s allocations once every year or so.
In other words, if you’ve become less bullish on foreign shares, you might sell some of that ETF. Or if your big U.S. stocks have risen in value to the point where they are worth a greater percentage of your portfolio than you’d like, you sell some and put the proceeds into the other asset categories.
Here’s the best part …
Income Investors Can Now Use
A Huge Array of Dividend ETFs to
Follow This “Lazy” Strategy!
In the last few years, many new dividend ETFs have become available.
Some, such as the DVY, have been around for a while … others such as the SDY are tied to well-known benchmarks like the Standard & Poor’s SuperComposite 1500.
Meanwhile, another company — WisdomTree — offers a plethora of dividend ETFs that range from a broad U.S. focus to individual foreign markets such as Europe, Asia, and Japan. They even offer international sector funds focused on dividend payers.
To be sure, the number of choices is downright staggering. This table shows just a fraction of the dividend ETFs that are available right now!
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SELECT DIVIDEND EXCHANGE-TRADED FUNDS
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| NAME | TICKER |
RECENT YIELD
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| Domestic Dividend ETFs | ||
| Claymore/Zacks Yield Hog | CVY |
6.75%
|
| iShares Dow Jones Select Dividend Index | DVY |
5.14%
|
| PowerShares Dividend Achievers | PFM |
2.65%
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| First Trust Morningstar Dividend Leaders Index | FDL |
6.26%
|
| First Trust Value Line Dividend | FVD |
3.32%
|
| SPDR S&P Dividend | SDY |
4.87%
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| Vanguard High Dividend Yield | VYM |
3.58%
|
| International Dividend ETFs | ||
| iShares MSCI EAFE Value Index | EFV |
6.19%
|
| PowerShares International Dividend Achievers | PID |
4.04%
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| WisdomTree Emerging Markets SmallCap Dividend Fund | DGS |
4.73%
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| WisdomTree Europe Total Dividend Fund | DEB |
2.51%
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| WisdomTree Japan High-Yielding Equity Fund | DNL |
1.98%
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But with a little time and effort you can easily put together a dividend-focused equity portfolio that covers most of the major stock classes.
One important note: When it comes to ETFs focused on dividends, you can expect above-average exposure to certain sectors, especially consumer staples, financials, and utilities.
But overall, I think you could build a nice, simple portfolio of quality dividend-paying stocks that is well diversified in terms of market capitalizations and geography. The overall portfolio’s yield would be pretty attractive. Plus, the annual expense ratios of most of these ETFs are downright reasonable.
And if you wanted to get a truly “balanced” lazy portfolio, all you’d have to do is add a fixed-income component (i.e., a couple bond ETFs), and maybe a precious metals ETF like the GLD.
By no means am I saying that a lazy ETF portfolio will outperform a concentrated, well selected list of individual stocks. But I do think it’s a good alternative for investors who don’t have enough capital to pursue a more targeted investment strategy.
Best wishes,
Nilus
P.S. Interested in learning more about the specific dividend shares I think will outperform the market (and broad ETFs)? Then check out Dividend Superstars … you can get 12 issues and a bunch of bonus reports for as little as $39. Click here for all the details.
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