Pursue Long-Term Wealth Generation by Acquiring This Index Fund and Maintain Ownership Permanently.
Pursue Long-Term Wealth Generation by Acquiring This Index Fund and Maintain Ownership Permanently.
There are numerous dividend-paying stocks in the market, making it a challenge for numerous investors to choose the best income investments for their portfolios. If you're aiming to earn a passive income without constant monitoring, an index fund that invests in dividend-stocks might be more suitable for you, either as a replacement or in conjunction with investing in high-quality dividend stocks separately.
One such index fund that deserves your attention is the Vanguard High Dividend Yield ETF (VYM -0.55%), which could offer a stress-free method not only to generate a passive income stream but also to increase the value of your portfolio over time. Here's a summary of the ETF's key features and benefits:
Vanguard High Dividend Yield ETF: An Overview
As suggested by its name, the Vanguard High Dividend Yield ETF invests in stocks offering high dividend yields.
More specifically, the ETF follows an index consisting primarily of large-cap stocks expected to maintain above-average dividend yields. Currently, the index contains 536 stocks, with a median market cap of $148.5 billion. It is a weighted index, with larger companies making up more of the ETF's assets, but no single stock accounting for more than 4% of the total portfolio.
Among the ETF's top holdings, you'll find well-known companies such as JPMorgan Chase (NYSE: JPM), ExxonMobil (XOM -0.01%), and Procter & Gamble (NYSE: PG). However, you'll also find tech-focused companies like Broadcom (NASDAQ: AVGO) and Cisco Systems (NASDAQ: CSCO), showcasing the ETF's diverse investment strategy.
Currently, the ETF offers an annualized yield of approximately 2.7%, but it's essential to note that due to passing on dividends from the underlying stakeholdings, its yield can fluctuate between quarterly periods.
Similar to most Vanguard funds, the High Dividend Yield ETF is low-cost, charging an expense ratio of just 0.06%. This implies that for every $1,000 invested, your annual investment costs would amount to $0.60. Keep in mind that this isn't an actual fee, but rather a reflection of the ETF's performance over time.
A balance of growth and income
Although a 2.7% yield may not seem overly exciting, it's essential to consider that this ETF is designed to generate both capital appreciation and income growth. It should be regarded as an investment for the total return, and in the last decade, it has managed to yield an annualized return of 10.2% for investors.
For context, a $10,000 investment compounded at this rate would be worth approximately $26,400 after 10 years, around $69,800 after 20 years, and close to $184,300 after 30 years. While past performance cannot guarantee any level of future returns, the point is that this isn't merely a solution to create an income stream; it can also build substantial wealth in your portfolio over time.
Incorporating the ETF into your investment strategy could provide a balanced approach, as the Vanguard High Dividend Yield ETF aims to offer both capital appreciation and income growth. This is achieved through its investment in stocks with high dividend yields, which has led to an impressive annualized return of 10.2% over the last decade.
For those considering investing in this ETF, it's important to note that while the current yield is around 2.7%, this can fluctuate between quarterly periods due to dividend pass-throughs from the underlying stocks.
[Reference(s):]VYM: Vanguard High Dividend Yield ETF (0.55%)JPM: JPMorgan Chase (NYSE: JPM)XOM: ExxonMobil (NYSE: XOM)PG: Procter & Gamble (NYSE: PG)AVGO: Broadcom (NASDAQ: AVGO)CSCO: Cisco Systems (NASDAQ: CSCO)