Mutual funds, ETF’s, bonds and DGI?

[Robandcindy2]

If you need a SWAN (Sleep Well At Night) approach then instant diversification with mutual funds or ETFs.

But I feel this is a better way:

http://theconservativeincomeinvestor.com...very-year/


Further info:


http://seekingalpha.com/article/2374945-...e-for-july

http://seekingalpha.com/article/2329435-...n-mini-etf

[daat99]

(08-19-2014, 07:04 AM)Slowlife Wrote: I'm not saying I want to add ETF's or bonds. I don't really know much about them and I was curious if other people who subscribe to the dgi strategy use them. Sounds like the overwhelming answer is no. Many of the books I've been reading, especially the older books, suggest diversifying using bonds or funds. They don't seem to fit with the strategy I've developed, but being new to this type of investing I wanted to know if other dividend growth investors use them. I'll have to take a look at that seeking alpha article, but I think I already know what it's going to say...

As it was already explained the ETFs are much less efficient than buying specific good valued and solid companies for dividend growth investing.

The benefit of ETFs however is the instant diversification it provides.
If your account is small and you can't diversify it enough just by buying dividend growth stocks than I would prefer having at least 10-20% in ETFs just to protect myself from picking a really bad company and wiping myself out of business before I even get started.

Once you get the diversification using dividend stocks (in my opinion ~20 companies is a good start) than I would sell the ETFs and open another 2-4 new positions using the money I just freed up.

[KenBob]

You are talking about essentially two different issues.

The larger issue is bonds versus stocks. My goal is to provide a growing income stream. Accumulating either stocks or bonds will get you there; however, good dividend stocks currently have a better inflation adjusted yield than the bond market. VYM (dividend) ETF has approximately a 2% greater yield than the VCIT (intermediate term corporate investment quality bond) ETF when adjusted for inflation.

I would consider buying the VCIT ETF if the inflation adjusted yield was higher than the VYM ETF. For corporate bonds, a mutual fund or ETF is the only practical option. Treasuries and municipal bonds are different, but I have my own biases against them.

For stocks, the decision to use an ETF or buy individual stocks will depend upon your inclination and ability to actively manage your stock portfolio. If you have the inclination, a young person should be able to actively manage a stock portfolio and do better than an ETF.

I am in my late fifties. Currently, I have individual stocks, but I plan on transitioning at least part of my portfolio to ETFs for retirement. The primary motive for this is that my wife does not have the inclination to actively manage the portfolio, so ETFs will be better if I suddenly die. In addition, we all will have less ability to actively manage a portfolio as we age.

[Robandcindy2]

For further reading:

http://seekingalpha.com/article/1714932-...th-proxies

http://finance.yahoo.com/news/why-buy-in...37540.html


http://seekingalpha.com/article/2083233-...ual-stocks