5 Reasons To Invest In VFIAX Dividend
If you’re looking to earn consistent dividend income, but you don’t want to pay high management fees or put your money in volatile stocks, other options are available. One of the best choices is the Vanguard Dividend Growth Fund (VFIAX), which offers clients access to a balanced portfolio of stocks that grow their dividends every year. Let’s look at five key reasons you should consider investing in this fund today!
It takes courage to choose hope over fear.
1) It’s Low Cost
Not only is VFIAX one of my favourite stock funds, but it’s also among my favourite low-cost index funds. Its annual expense ratio of 0.12% is meagre compared to other broad stock index funds. For example, if you had $10,000 invested and earned a 10% return on it before fees and taxes, VFIAX would have an expense ratio of just $12 per year on that $10K. The average expense ratio for broad stock index funds as of July 2017 was 0.27%. That difference can add up over time! It Has Been Around for a Long Time: I like looking at how long certain mutual funds have been because it helps me understand how much experience they’ve had investing in stocks. As of July 31, 2017, VFIAX has been around since 1982. It has grown from less than $100 million in assets under management to more than $30 billion today—a fantastic feat considering thousands of other stock mutual funds are competing with them. This fund has survived multiple market cycles and should continue to do so well into the future based on its strong track record. It’s Got an Excellent Track Record: If you’re new to investing or want to invest in your 401(k), make sure your money is going into a diversified mix of investments rather than putting all your eggs in one basket. VFIAX tracks an index of large U.S.-based companies that pay dividends, which means it’s already diversified by sector and company size. Over its lifetime, VFIAX has returned 6.56% per year through June 30, 2017, versus 5.64% for the S&P 500 (SNPINDEX:^GSPC). That may not seem like much at first glance, but that extra 1%-2 % returns every year can add up over time—especially when compounded over decades!
2) The Tax Advantages Are Better Than Other Funds
The fund uses some of its assets to buy dividend-paying stocks that count as qualified dividends according to IRS rules. Practical tips are subject to a maximum tax rate of 20 percent and therefore receive favourable treatment relative to other types of income. Because qualified dividends aren’t subject to a three-percent surtax for high earners, tax-wise, VFIAX ends up being more tax-efficient than additional funds even though it pays an annual dividend yield of 2.0%. Investors who are able or willing to wait for their income will also avoid paying state taxes on qualified dividends; there’s no state tax in Pennsylvania, where Vanguard is based. That gives VFIAX a tremendous advantage over funds like Fidelity’s Contrafund (FCNTX), which doesn’t pay qualified dividends and loses out on that big tax break. If you’re living in New York City, though, you’ll be happy to know that your federal capital gains won’t be taxed either: Mayor Bill de Blasio has proposed eliminating them beginning next year. VFIAX is likely to remain somewhat tax-efficient than many competing funds, thanks mainly to its regular payments of qualified dividends, even without factoring in any potential changes to your federal or state taxes. And if you happen to live somewhere with higher local taxes—say California—things could get even better!
In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.
3) Liquidity In VFIAX Dividend
With VFIAX, you can always withdraw your money if you need it. That makes it an excellent fund for investors who want to balance some riskier holdings with more conservative stocks. VFIAX also invests in many large, liquid companies — meaning they’re easy to buy and sell quickly — so you can move on from any position without losing much value. And while there’s no guarantee that you’ll have access to your cash when you need it, history has shown that dividend stocks are among some of the most stable investments available. Between its focus on income and tax efficiency, there’s a lot to like about VFIAX. If you’re looking for an income-focused stock fund that still gives you plenty of options, then VFIAX is worth looking at. It may not be as exciting as other funds, but sometimes boring is good. And right now, there’s nothing better than sticking with a solid plan. After all, at least one investor knows what they are doing: Warren Buffett has invested heavily in VFIAX over the years, too. You can learn more about his thinking here. In short, his rationale was simple: He wanted a way to invest in American businesses while getting paid just for owning them. Thanks to dividends, that’s precisely what he got with VFIAX. As long as those payments keep coming in, Buffet should continue raking in profits — even if markets hit. Consider following Buffet’s lead with a stake of your own for anyone looking for high yields and predictable payouts. You might not get as many returns as Mr. Market, but you’ll still do well by holding onto quality names. Just make sure to stick with quality blue chips. They tend to offer both consistent performance and steady payouts year after year. Of course, past performance doesn’t guarantee future results. But considering how well these stocks have performed historically, it’s hard to argue against their staying power — especially if you’re looking for steady growth over time rather than huge gains overnight.
4) Diversification In VFIAX Dividend
This fund is part of a diversified family of investment options offered by fund giant Vanguard. That means you’ll have access to more than 8,000 different investments, including domestic stocks, international stocks, bonds and short-term instruments. If you’re unsure how much money you want to invest or how much risk you can stomach, it’s wise to start small. The VFIAX has a meagre minimum investment of $3,000 and allows investors to round up their paycheck contributions if they wish. If all goes well, that’s just $30 per month that could be growing into thousands when retirement rolls around. Is it any wonder why so many people love passive index investing? It takes care of itself! Plus, with over 3,600 five-star reviews on Vanguard’s website, it’s clear that there are plenty of satisfied customers out there. Its five-year annualized return was 6.75 percent as of December 31, 2017. There isn’t a stock picker alive who could match those returns consistently over time—and there aren’t many mutual funds with lower fees either. It seems like an obvious choice for newbie investors looking for simplicity and consistency while also earning solid returns on their savings year after year. No-load: With no load, you won’t pay a commission to buy or sell shares of VFIAX. While most mutual funds do charge a burden at some point, Vanguard doesn’t trust them unless you redeem your shares within six months. After that, there’s a 1 percent fee levied on every sale—but don’t worry too much about getting hit with that fee since only 0.28% of shareholders had to pay it last year, according to Morningstar data. So what does that mean for investors? They get to keep more of their earnings!
Great things in business are never done by one person. They are done by a team of people.
5) Stability In VFIAX Dividend
One of VFIAX’s most enormous benefits is its consistency. Although it isn’t always one of the top-performing funds, it tends to be relatively stable, making it an excellent core holding for your portfolio. After all, you can never predict how markets will perform on any given day or month; what you can depend on is that VFIAX will grow dividends consistently. With moderate risk and volatility compared with other stocks and bonds, VFIAX could be a good pick if you don’t want big swings in your portfolio value. Some people choose not to invest in individual stocks because they worry about market fluctuations—and those investors often turn to mutual funds instead. If you prefer mutual funds over individual securities, investing in VFIAX may make sense. It’s important to note that there are no guarantees when investing—no matter whether you’re putting money into an individual stock or a mutual fund—but VFIAX does tend to produce higher dividend yields than many other options out there. While higher yields don’t necessarily translate into higher returns over time, they mean more money going into your pocket every year. And while you should never base your investment decisions solely on yield, it certainly doesn’t hurt to have a little extra cash coming in each quarter. The bottom Line: If stability is high on your list of priorities, then consider adding VFIAX to your portfolio. You’ll get consistent growth from quality companies without worrying about sharp declines or risky investments.
Bottom Line On VFIAX Dividend
There are five good reasons to invest in VFIAX: historical performance, low turnover, expense ratio, tax efficiency and recent dividend increases. And if you’re looking for a solid long-term investment choice, it could be worthwhile to consider investing a portion of your portfolio in VFIAX. Remember that investing is not an exact science, and there are no guarantees – you may get back less than you invested and see negative returns. The information presented here was current as of February 10, 2016, but is subject to change due to factors outside of Financial Samurai’s control. Always do your research and consult with a licensed financial professional before making any investment decisions.
Subscribe To Our Newsletter
Join our mailing list to receive the latest news and updates from our team.