Tag Archives: etf

What Is An Exchange Traded Fund and How It Works

Guest Article By Shashank Pawar

Investors seeking exposure to an index can consider ETF investing as an option. Exchange traded funds are one of the many types of mutual funds available today and gaining popularity among various kinds of investors. While you may be familiar with equity mutual funds, debt funds or balanced funds, ETFs are yet another class of mutual funds that function a bit differently. ETFs are mutual funds designed to mimic popular market indices like the Nifty 100, BSE 100, Sensex etc. These are passively managed funds that simply hold the stocks of the index they are supposed to mimic exactly in the same proportion as the index. Since the fund managers don’t take active calls in security selection by holding the same stocks as included in the index, these funds are passively managed.

Exchange traded funds are suitable for first-time investors who would like to test the waters and may not be comfortable with the higher risk associated with regular mutual funds.

There are several advantages of investing in an ETF. Firstly, being passively managed they make fewer transactions as compared to actively managed funds where the fund manager must constantly look for securities that can help him outperform the scheme’s benchmark. This leads to higher portfolio turnover resulting in higher tax incidence. Funds pay taxes like STT (Securities Transaction Tax) and capital gains tax while buying or selling securities within their portfolio. Thus, ETFs are more tax efficient and have lower costs arising out of fund management.

Secondly ETFs also usually have lower expense ratio compared to actively managed mutual funds which must employ highly skilled fund managers for generating active returns.

Thirdly ETFs offer more convenience and liquidity to investors since they are listed on exchanges and trade like stocks. Investors can transact in ETF funds any time during market hours at real-time prices unlike actively managed mutual funds where NAV is computed only once a day after the market closes.

ETFs offer better diversification since they carry all the securities listed in the index which are periodically rebalanced. But the reduced risk arising out of greater diversification in exchange-traded funds comes at the cost of possibly lower returns as compared to other mutual funds. Actively run mutual funds are more likely to earn a better return over the long-term than passively managed funds since the fund manager uses his expertise and takes active calls to buy better-performing stocks and sell underperforming stocks. But in the case of an ETF that mimics an index, all kinds of stocks are held including the underperformers.

ETF investors should consider funds with lower tracking error as a key performance indicator. Tracking error shows the deviation in return of a fund from its benchmark. Since these funds mimic their respective indices, tracking error should be close to zero. However, zero tracking error is impossible since it must buy or sell securities to align with the index whenever the index undergoes a rebalancing and hence must bear some transaction costs. However, indices have no such constraints. Investors keen on lower expense ratio and higher liquidity can consider including ETFs in their financial planning.

You can read more about ETF funds on Mutual Funds Sahi Hai, an investor education initiative by AMFI.

Article Source: https://EzineArticles.com/expert/Shashank_Pawar/2571655

Article Source: http://EzineArticles.com/9980206

Harnessing Stock Market Volatility

Guest Article By Steve Selengut

If you were to Google “stock market volatility”, you would find a wide range of observations, conversations, reports, analyses, recipes, critiques, predictions, alarms, and causal confusion. Books have been written; indices and measuring tools have been created; rationales and conclusions have been proffered. Yet, the volatility remains.

Statisticians, economists, regulators, politicians, and Wall Street gurus have addressed the volatility issue in one manner or another. In fact, each day’s gyrations are explained, reported upon, recorded for later expert analysis, and head scratched about.

The only question I continue to have about all this comical hubbub is why don’t y’all just relax and enjoy it? If you own only high quality income generating securities, diversify properly, and adopt a disciplined profit-taking routine, you can make stock market volatility your very best friend (VBF).

Decades ago, a nameless statistics professor brought me out of a semi-comatose state with an observation about statisticians, politicians, and economists. “In the real world”, he said, “there are liars, damn liars, and any member of the groups just mentioned”. An economist or a politician, armed with a battery of statistics, is an ominous force indeed.

Well, now, all economists and statisticians have high powered computers and the ability to analyze volatility with the same degree of certainty (or is it arrogance) that they have developed with regard to individual-stock risk analysis, economic and geographical sector correlation dynamics, and future prediction in general.

  • But the volatility (and the uncertainty it either causes or results from, depending upon the expert you listen to) persists.

Modern computers are so powerful, in fact, that economists and statisticians can now calculate the investment prospects of just about anything. So rich in statistics are these masters of probabilities, alphas, betas, correlation coefficients, and standard deviations, that the financial world itself has become, mundane, boring, and easy to deal with. Yeah, sure it has.

Since they can predict the future with such a high degree of probability, and hedge against any uncertainty with yet another high degree of probability, why then is the financial world in such a chronic state of upheaval? And why-o-why does the volatility, and the uncertainty, continue?

I expect that you are expecting an opinion (yet another opinion) on why the volatility is as pronounced as it seems to be compared with years past. Frankly, Scarlett, I can’t really make myself give a damn. The uncertainty that we are asked to believe is caused by volatility just simply is not. Uncertainty is the regulation playing field of the investment game… and of life, actually.

The more you invest in higher risk securities, the more you speculate on future directional change, the more you ignore growing income, and focus only on market value, the more uncertain your investment environment becomes. So risk, speculation, poor diversification, low income generation, and up only market value expectations combine to exacerbate uncertainty, but nothing can eliminate it… only that is certain.

Volatility, on the other hand is simply a force of nature, one that needs to be embraced and dealt with constructively if one is to succeed as an investor.

But this machine driven, hyper-volatility that we have been experiencing recently, has been magnified by the darkest forces of the “dismal science” and the changes that it has encouraged in the way financial professionals view the makeup of the modern investment portfolio.

On the bright side, enhanced market volatility actually enhances the power of the equity and income security trading disciplines and strategies within the Market Cycle Investment Management ( MCIM ) methodology… an approach to market reality that embraces market turbulence, and harnesses market volatility for results that leave most professionals either speechless or in denial.

  • MCIM focuses on the highest quality equity securities and well diversified income security portfolios, creating a lower than normal risk environment where price fluctuations can be dealt with productively, without panic. Higher prices generate profit taking transactions; lower prices invite additional investment. The underlying quality, diversification, and income generation create a more tolerable “uncertainty quotient” than other methodologies.

But, with no statistical data necessary (or available) to support the following opinion, consider this simplistic rationale for the hyper-volatility of today’s stock market.

Volatility is a function of supply and demand for the common stock of a finite number of dirty, evil, greedy, polluting, congress corrupting, job creating, product and service providing, innovation and wealth developing, foundation supporting, gift giving, tax-collecting corporations.

Those of us who trade common stocks in general, Investment Grade Value Stocks in particular, owe a debt of gratitude to the real volatility creators: the hundreds of thousands of derivative products that bring an entirely speculative kind of indirect supply and demand to the securities markets.

Generally speaking, the fundamental, emotional, political, economic, global, environmental, and psychological forces that impact stock market prices have not changed significantly, if at all.

Short term market movements are just as unpredictable as they have ever been. They continue to cause the uncertainty you need to deal with, by using proven risk minimization techniques like asset allocation, diversification, and profit taking.

The key change agents, the new kids on the block, are the derivative betting mechanisms (Index ETFs, for example) and their impact on the finite number of shares available for trading. Every day on the stock exchange, thousands of equities are traded, a billion shares change hands. The average share is “held” for mere minutes. No one seems to we seek out analysts who spin tales of “fundamental” brilliance, profitability, or income production.

On top of derivative trading in real things such as sectors, countries, companies, commodities, and industries, we have a myriad of index betting devices, short-long parlor games, option strategies, etc. What’s a simple common share of Exxon to do? I’ve heard financial talk show hosts warn listeners to never, not ever, buy an individual equity!

  • Is today’s movement in any individual equity the result of demand for the company shares themselves, or demand for the multiple funds, indices, and other derivatives that track or include the company in their “model”? How many derivative owners have a clue what’s inside their ETF?

We are in an environment where investors feel smarter dealing in sectors than in companies; where 401k “retirement” plans (they really are not retirement plans, you know) are banned by regulators from offering even reasonably high yielding investment opportunities, and where government fiscal policies have forced millions of actual retirement savings accounts to seek refuge in the shark infested waters around Wall Street.

Market volatility is here to stay, at least until multi-level and multi-directional derivatives are relocated to the Las Vegas casinos where they belong, until regulators realize that 7% after higher expenses is better than 2% after minimal expenses, and until interest rates are allowed to return to somewhat normal levels… and this is what feels to some like an elevated level of uncertainty.

For the discernible future, we’ll need to find a way, a methodology, that makes both of them our VBFs.

My articles always describe aspects of an investment process I have been using since the 1970’s, as described in my book, “The Brainwashing of the American Investor”. All the disciplines, concepts, and processes described therein work together to produce (in my experience) a safer, more income productive, investment experience. No implementation should be undertaken without a complete understanding of all aspects of the process.

Article Source: https://EzineArticles.com/expert/Steve_Selengut/12786

Article Source: http://EzineArticles.com/9932902

Searching For A Healthcare ETF

As I reviewed my investment portfolio I noticed that I am still missing an ETF for the healthcare sector. Personally, I’ve been leaning toward the Vanguard Health Care Index Fund ETF ($VHT). But I was interested to see what else was being offered so I did a bit more research.
I searched out for healthcare ETFs with these different Fund Families:

  • Fidelity
  • Invesco
  • iShares
  • Vanguard

The search resulted in about 11 different funds for review. I narrowed it down to 9 funds because Invesco S&P SmallCap Health Care ETF ($PSCH) and Invesco DWA Healthcare Momentum ETF ($PTH) does pay out dividends. Dividends are a key focus of mine so these 2 funds are automatically out. So now I look at the other funds and review the factors that I use for selecting ETFs that I’m interested in investing in. I look at dividend payout, dividend yield, and stock price. Based on those criteria, I eliminated the following funds:

$FHLC – this was the only healthcare fund being offered by Fidelity. Even though the price is very economical at $56/share, the dividend is too low to be worth the investment ($0.70/share) even though the dividend yield is around 1.23%. To be honest most of the fund in this list are paying out pretty close to this yield amount. Even if the stock price dropped close to its 52 week low range of $35, the yield would still be under 2%.

Then there’s $IEIH, an iShares fund that is trading at around $32/share. But it’s also paying out a low dividend of $0.40 for a yield of 1.22%. Even if the share price dropped to its 52 week low of $22.07/share the yield would still be under 2%.

Now we come to $IHF. This fund is trading at the high end of its 52 week range at about $228/share. Even if the price dropped to its 52 week low of $134.50, the current yield of 0.73% would not get that much better. It would only increase to 1.24%. Way below my criteria of 3% minimum.

That leaves us with the Invesco funds of $PBE, $PJP, and $RYH. I’m not going to detail these individually because they are all low dividend yield funds that pay out pennies per share. Their yields range from 0.04% to 0.82%. They’re all trading at the high end of their 52 week range so the yields will not be getting any better.

So, out of the 9 funds that were left, I eliminated 6 of them based on my criteria. Now I need to decide between:

$IHE – iShares U.S. Pharmaceutical ETF

$IYH – iShares U.S. Healthcare ETF

$VHT – Vanguard Health Care ETF

$IHE is the least expensive of the 3 funds. It’s trading at the high end of its 52 week range at about $176/share with a dividend payout of about $2.14 (for a yield of 1.22%). At its low end range it would still only have a yield of 1.86%. The expense ratio for this fund is 0.42%. Morningstar rates this fund as average risk with below average returns.

Next we have $IYH that is also trading at its 52 week high range of $242/share while its dividend payout is $2.86 for a yield of 1.19%. The yield would be similar to $IHE if the shares traded at the low end of the 52 week range. Expense ratio of 0.43% with a Morningstar rating of a below average risk and average return.

Lastly, we have $VHT. This fund is also trading at its high end of its 52 week range at about $220/share. The dividend payout is $2.55 (for a yield of 1.16%). Again, if the price dropped to the low end of the 52 week range the yield would be 1.86%, also, like the others. However, the key difference is the expense ratio, While the other funds have their expense ratio north of 0.40%, this fund has an expense ratio of only 0.10%. And the Morningstar rating is below average risk and average return. Similar to $IYH.

I have outlined how I go about reviewing and deciding which ETF to invest in. This may not work for you because you may have a different set of criteria or you may be looking at a different set of data. That’s fine because you are the one that has to decide the best way to invest in your money. I’m not a financial professional and nothing in this post is to be taken as investment advice. If you are unsure of what you need to do or how, seek the advice of a professional.

Even though I tend to lean toward Vanguard ETFs, I did a search of other fund families in order to make sure that I wasn’t locked into my bias toward them. I will probably purchase $VHT when the funds are available and thus will have a position in the healthcare sector. $VHT because of its lower expense ratio. If I had to select a second choice it would probably be $IHE because, even though the expense ratio is 0.40+, it is very slightly lower than the other iShare funds.

But do you own due diligence and make sure that you are the one that is formulating and controlling your investment strategy.

7 Ways on How to Invest For Your Retirement

Guest Article By Kivale Joshua

Investment Plan for Your Retirement

There so many investment plans available out there. The following points will guide you to choose the most appropriate one for you with lesser risks and commitments to manage. The points are based on the fact that, after a while they are going to be appreciating business ventures for your retirement.

1. Annuity

Annuity is a plan whereby an insurance company in exchange for purchase price enters into a contract to pay an agreed amount of money every year while the annuitant is still alive.
Annuitant- is the person on whose life the contract depends.
Annuity- is the amount of money paid to the annuitant.

The benefits of an annuity especially when used in connection with retirement provision is that it would ensure that the retiree has an income for a convenient number of years. The best type of annuity is deferred annuity because it gives you life time benefits.

2. Bonds

A bond is a loan to either a government or a corporation, whereby the borrower agrees to pay a fixed sum of interest usually semi-annually, until your investment in full. Treasury bonds are secure, medium to long-term investments that typically offer you instant payment every six months throughout the bond maturity. Treasury bonds have a fixed rate meaning that the interest rate determined at auction is locked in for the entire life of the bond. This makes treasury bonds predictable, long term source of income.

3. Exchange Traded Funds (ETFs)

Exchange traded fund is an investment fund traded on stock exchanges just like stocks. An ETF holds assets such as stocks, oil future, foreign currency, commodities or bonds and generally operates with an arbitrage mechanism to keep its trading close to its net asset value, although deviations can occasionally occur. These assets are divided into shares where shareholders do not directly own or have direct claim to the investments in the fund.
ETF shareholders are entitled to a proportion of the profits such as earned interest or dividends paid.

4. Stocks

In Kenya the main stock market is Nairobi Stock Exchange (NSE). A stock market is a place where public limited companies and other financial institutions, come to buy and sell bonds and other derivatives. NSE acts as a third-party broker and allows investors to buy and sell shares independently through share dealing platforms. You can directly and indirectly invest in stocks. Direct investment means that you buy shares from a company and become a shareholder while indirect means you invest in more than one company therefore spreading the risk. Indirect investment is done through an open-ended fund and the money is secure so that even the company defaults the money is still safe.

5. Mutual Funds

Mutual funds are some of the most overlooked yet probably the easiest way to invest much more than both stocks and bonds. A mutual fund is a pool of money, often from similar minded investors. You can sell your shares when and if you want. All shareholders of the fund benefit from the fund and share in any losses. There are five categories of mutual funds where you can choose the one which best suits you.

6. Real Estate

Real estate is a retirement investment plan you should never overlook. Landon said ‘look for what’s going to give you the most bang for your back’. Real estate as a front is a very lucrative opening. However, one must research the market and know the current and emerging trends in the sector. The location of the real estate matters a lot and should be well selected. Some of the major locations can be near universities, developing towns or big company sites. In any investment capital becomes the main organ to jump start the investment. Research on different financial organizations and try to compare their payment and funding terms. You can still opt to become a Real Estate Trader. A real estate trader is one who buys property with the intention of holding them for a short period and sell to make a profit.

7. Pension Plan

Pension plan is a retirement plan that requires an employer to make contributions into a pool of funds aside for a worker’s future benefit. The pool of funds is invested on the employee’s behalf, and the earnings on the investment given to the worker upon retirement. In Kenya even self-employed workers can still contribute to the social security fund to help them when time comes.

Retirement is a process where every living worker must come to terms to. Retirement is just like any other investment but a more crucial one since when you retire you productivity goes low due to health and age. You can start now and by the time you retire have significant benefits that can help you live a befitting like after retirement. Take a step today and plan to invest for your retirement now and be a happy retired worker living a good life and building the economy even at old age.

KIVALE JOSHUA
https://www.upwork.com/o/profiles/users/_~017745077c7c727711/
visit my profile on the above link to contact me for more well researched content writing.

Article Source: https://EzineArticles.com/expert/Kivale_Joshua/2502529

Article Source: http://EzineArticles.com/9862753

My Current Investment Positions

I am fairly pleased with my current portfolio since I developed my own investment strategy. My investment activity is still not as accelerated as I’d want it to be but slow and steady is good. I got rid of all but one of the first stocks I bought before I really knew what I was doing and have been focusing my effort on investing in dividend stocks.

I have been investing at least $200/month. I wish it could be more but reality is a bitch. Reality is what we normal people have to deal with regardless of what the so-called “investment experts” on the internet say.

But so far, my portfolio as increased 13.51%. My holdings:

$ABR
$ACRE
$KO
$O
$OBLN
$T
$VDE
$VNQ
$VYM

I’m also looking to diversify my portfolio a bit more by buying some bond EFT’s (i.e. either $VTIP or $VTEB). Also, with the current pandemic it might be good to invest in a pharma company. But which one? I might look to buy some $VHT, an ETF that invests in pharma companies within the Healthcare sector.

When Do I Sell?

I haven’t been investing for that long of a time. I’ve acquired a few company stocks and ETF’s. But my sales have been few. Right now I’m looking for sell all of my Obalon (OBLN) stock because it is one of the first ones that I bought when I was first starting out. At that time I really didn’t have a clear idea of what I wanted to do. I didn’t have a strategy. I bought Obalon and and a couple of others because they were companies that were in the healthcare industry. That was it. None of them paid any dividends and there wasn’t any real growth with them.
After developing my own investment strategy I decided that the money I had invested in those companies could be better used with other investments. I sold the others at a bit of a profit but held Obalon because it was trading under what I paid for it. I decided to wait to see if the price would come back.

When I first started investing I opened an investment account with Robinhood. When I did that I received a free stock for Lyft. I decided to hold that one for a little while. When I was given that share of stock the price was around $42/share. It also wasn’t paying any dividends. I held that stock for a little while and the price dropped down to the low $30’s per share. The stock fluctuated in that neighborhood for a while. I finally decided to sell my share and put the money to better use.

Now I have developed my own investment strategy and I feel confident that I know more than I did when I first started. I now invest in dividend stocks. If a company doesn’t pay dividends then I don’t have a real interest in investing my money with them. Am I missing out on windfall returns? Maybe. But I’m also missing out on catastrophic losses. I’m at an age when I can ill afford to lose money because I don’t have as much time to recover from major losses. Also, if I am going to be investing in a company for the long term then I want to get paid for my time that I am waiting for the stock to grow, thus the dividend payout. The dividend payout is the company’s payment to me for being patient and sticking it out with them.

So, based on all of the above when do I sell my stock? I will only consider selling my stock when either of the two conditions below are met:
1. The company drastically cuts their dividend payout 2 times or more in a row.
2. The stock price increases 200%+.

So far I’ve been lucky in that none of my investments have had their dividend payouts cut. But I will tolerate 1 such payout cut but if they go to 2 in a row, they’re history.

VHT vs. VGT; Adding a New Sector To My Portfolio

For those that follow my blog and my Twitter feeds, you are aware that my current portfolio is heavy with ETFs, About 82% of my investment portfolio consists of ETFs and the balance of 17% are individual company stocks. Within those ETFs I have the following areas invested in:

  1. Real Estate – VNQ (Vanguard Real Estate ETF).
  2. Energy – VDE (Vanguard Energy ETF)

The other 2 Vanguard funds are concentrated on high value & high dividends across many sectors (VFIAX & VYM).

I would like to add a healthcare ETF and a technology ETF to my portfolio. I am looking at VGT and VHT. Both are pricey by my standards but both are paying decent dividends, and that what I in this for. So, I now have to go through the decision process of which one do I invest in first. I will be investing in both but it’ll be completed over the next few months. I do have other expenses that I am obligated to handle first.

medical caduceus black white outline clipart

I looked at the data for VHT (Vanguard Health Care ETF) via my TD Ameritrade account. Currently the fund is trading at $204.84 per share which is a bit high for my purposes. In looking at this fund’s 52 week range you see that its share price is at the end of the high range. The chart shows the fund’s value is increasing so I doubt that the price will be dropping drastically, barring any unforeseen circumstances. But now for the key question. What about the dividends? VHT has an annualized payout of $2.55/share (a 1.24% yield). If the share price were to drop to the other end of the price spectrum of $138.11 the yield would then be 1.85%. The average 5 year dividend growth rate is 23.01%.

According to Morningstar the risk factor for this fund shows that it’s rated as Below Average and the returns are rated as Average. Both of which are a positive factor for me. Morningstar has the fund designated as a Large Blend fund. The one thing that I am not happy with for this fund is that the Net Expense Ratio is about 0.10%. This is the maximum I would prefer.

The market Return for the funds is 6.39% so far for 2020, For 2019 it was 21.86%. Some of the company stocks that are included in this fund are:

  1. JNJ – Johnson & Johnson
  2. UNH – UnitedHealth Group
  3. PFE – Pfizer Inc
  4. MRK – Merck & Co Inc
  5. ABT – Abbott Laboratories
  6. TMO – Thermo Fisher Scientific Inc
  7. ABBV – AbbVie Inc
  8. AMGN – Amgen Inc
  9. BMY – Bristol-Myers Squibb Co
  10. MDT – Medtronic PLC

cloud computing clipart

The other Vanguard fund that I checked out on TD Ameritrade was VGT (Vanguard Information Technology Index Fund ETF). This fund is another pricey one that is trading at its 52 week high range of $313.59, Morningstar has this fund rated Below Average risk and Above Average return. They also have it designated as a Large Growth fund.

In digging into the data for this fund I find that the dividend payout is annualized at $3.00/share (a 0.96% yield). In screening just for high paying dividend stock with a yield greater than 5%, this fund would not have shown up on my radar. But is still pays a decent dividend even if the share price makes it a challenge for the average person to purchase more than just a couple of shares. The Net Expense ratio is also at the maximum preferred ratio of 0.10%.

The returns for this fund for 2020 so far are 21.33%. For 2019 the returns were 48.61. Some of the company stocks that are included in this fund are:

  1. AAPL – Apple
  2. MSFT – Microsoft
  3. V – Visa
  4. MA – Mastercard
  5. NVDA – Nvidia
  6. PYPL – PayPal
  7. ADBE – Adobe
  8. INTC – Intel
  9. CSCO – Cisco
  10. CRM – Salesforce

I really like both of these funds but I can’t afford to buy both of them at this time. So, I have to make a decision which one I want to buy first. It comes down to 2 factors: a) share price, and b) dividend payout (after all, that’s what I’m interested in). They’re both pretty close in both of these areas.

The final decision at this time for me will be that I will be buying the funds in this order:

  1. VHT (Vanguard Health Care ETF)
  2. VGT (Vanguard Information Technology Index Fund ETF)

My ETF Portfolio

I was glad to see that my Vanguard ETF portfolio grew in value. Even though I’m investing for the long term benefits, I just wanted to check and see what the funds were doing. I have another portfolio of individual stocks I am invested in but the ETF portfolio hold the most promise. My ETF portfolio currently holds the following ETFs:

  1. VDE – Vanguard Energy
  2. VNQ – Vanguard Real Estate
  3. VYM – Vanguard High Dividend Yield

Yes, they are all Vanguard funds. I have a preference for Vanguard. This is not to say any others one, like Fidelity, are worse but I just prefer Vanguard. Checking today’s market value and I find that the portfolio has increased by +3.07%. I won’t have a comparison with the S&P 500 or the NASDAQ Composite until the end of the day. I’ll be check back then.

I only started on my investment journey since the beginning of the year with ETFs and stocks. Last year I started my 401K with my employer. What’s in my 401K?

  1. VFIAX – Vanguard 500 Index Fund Admiral Shares

Now, I look at other factors with my funds to decide if I increase my position with any or all of them or look for another investment (except the VFIAX, which is automatically invested into).

  1. VDE is currently trading at $48.85. This toward the low end of its 52 week range. I may end up buying a couple of more shares of this fund. The expense ratio is high for my liking (0.10%) but the fund pays $2.74/share (a yield of 5.61%). VDE invests in giant-cap and large-cap U.S. energy stocks.
  2. VNQ is trading at $80.71 which is right in the mid-range of the 52 week range. This one is one that I’ll keep an eye on. I’m not overly happy with the expense ratio of 0.12% but the dividend paid is $3.11/share (a yield of 3.85%). Situations do change so this one will stay on HOLD.
  3. VYM is my pride & joy. I love this fund. Currently it’s trading at $82.47 and that puts it on the high side of its mid-range of the 52 week range. The dividend is $2.96/share (yield of 3.58%) and the expense ratio is a happy 0.06%. This is one that I may increase my position by a few shares.

I don’t have much to say about VFIAX because it is on auto-pilot within my 401K account. I am still fairly new to this investment process so I don’t have much on how I am doing on the amount of dividends I have been paid. Stay tuned for new updates as they develop.

More About My Investing Strategy

I’m going to expand on the details of my investing strategy. Previous posts I have stated which stocks I prefer and basic outline of my criteria in selecting specific stocks to buy. Again, I’m going to state that I am a dividend investor and not a value investor. In my mind, the essential difference is that the value investor focuses on share price of the stock. The dividend investor focuses on whether the company issuing the stock pays dividends or not. I know that this is a very simplistic view, but bear with me.

As a dividend investor the price per share isn’t ignored. But it isn’t the primary importance. Just like the value investor, the dividends paid are not ignored, either, it’s just not as important as the price. The value investor looks for pure growth (i.e. increases in share price) even though they may plan on holding the stock for years. That’s how they view their stock holdings.

Dividend investors, at least for me, look at stocks growing in value also, but I also look at increasing the number of shares increasing by reinvesting those dividends that I receive. Value investors look to increase their stock ownership by additional purchases of the stock, especially during a DIP (Drop In Price). Again, this is another oversimplification.

To me the goal is to increase the number of shares I won with the minimal cost to me. Like a value investor, I will buy additional shares of stock on a DIP, otherwise I maintain my Divident ReInvestment Plan (DRIP). Basically, maximizing benefits and minimizing costs. When I review any potential stock to purchase I look at many factors.

  1. Does the company issue dividends? If no, I then move on to the next potential stock.
  2. If the company pays dividends, how much does it pay?
  3. How frequently does it pay dividends? Quarterly, monthly?
  4. What is the 5 Yr dividend growth?
  5. How long has it been paying dividends?

Once I get the answers to these basic questions, I look at the stock price. I then go through the similar analysis that a value investor goes through to determine if it is a stock to invest in or not. The stock may be one that I don’t feel is right for me at this point in time so I may put it on my Watchlist. Additionally, my strategy doesn’t just deal with buying stocks, I also have a strategy for when I should be selling. Because I am a dividend investor, dividends are key. If a company cuts/reduces their dividends two (2) period in a row, it becomes a prime candidate to be sold. I will now review the numbers in a different light and look at the stock to determine if there is a chance for the dividends to rebound. If in the they reduce it a third time or eliminate dividends, it becomes an automatic sell.

That’s my strategy for dividend investing in a nutshell. You may agree with it or you may not, but it is MINE. I really don’t have a hard and steadfast set of numbers for any of the quantitative elements. It really comes down to what I am comfortable with when I look at the numbers. To me stock selection is a subjective process, unique to the person. I may decide one way about a certain stock and you may decide another way. It has to do with how much risk you are willing to tolerate. Part of my strategy is to avoid high risk investments. How much risk am I willing to take on? Again, it’s subjective. I prefer ETFs over individual stocks for that very reason. If I buy individual stocks, I prefer an established company to a start-up. My tolerance of risk is tied to my timeline, which is now short. So, I don’t have much time to recover from any massive losses that I may incur. And lastly, my investment strategy is a “living thing”. As I progress and learn my investment strategy evolves and changes.

You can look at investment strategies from multiple people and take-away what you feel comfortable with and what lines up with your goals. Don’t let anyone else dictate what your strategy should be because if you find someone that tries to pressure you into adopting their strategy, keep digging and you’ll find out what their hidden agenda is.