Was Vanguard High Dividend Yield ETF (VYM) the right choice?

[jeffreys]

In an effort to diversify some of our stock we cashed some of it out in February (scoring a high price just prior to the COVID crash) and invested in VYM (we should have waited 2 weeks as we bought at a high, but couldn't predict was what coming). We chose VYM as we liked the thought of a dividend ETF for retirement income. We are still at least a year from retirement (likely more because our jobs are going well) so now we're getting all this dividend income that we really don't need right now driving up taxes.

I'm wondering if it makes sense to consider selling in favor of an ETF that is more growth-oriented and doesn't throw off as much in dividends and perhaps when we reach retirement go back to VYM. If this is reasonable, can anyone suggest an ETF for us? And if not reasonable, I'd appreciate any insight.

[anon_investor]

In an effort to diversify some of our stock we cashed some of it out in February (scoring a high price just prior to the COVID crash) and invested in VYM (we should have waited 2 weeks as we bought at a high, but couldn't predict was what coming). We chose VYM as we liked the thought of a dividend ETF for retirement income. We are still at least a year from retirement (likely more because our jobs are going well) so now we're getting all this dividend income that we really don't need right now driving up taxes.

I'm wondering if it makes sense to consider selling in favor of an ETF that is more growth-oriented and doesn't throw off as much in dividends and perhaps when we reach retirement go back to VYM. If this is reasonable, can anyone suggest an ETF for us? And if not reasonable, I'd appreciate any insight.

Why not just stick with VTI (Vanguard Total Stock Market Index)?

[jeffreys]

In an effort to diversify some of our stock we cashed some of it out in February (scoring a high price just prior to the COVID crash) and invested in VYM (we should have waited 2 weeks as we bought at a high, but couldn't predict was what coming). We chose VYM as we liked the thought of a dividend ETF for retirement income. We are still at least a year from retirement (likely more because our jobs are going well) so now we're getting all this dividend income that we really don't need right now driving up taxes.

I'm wondering if it makes sense to consider selling in favor of an ETF that is more growth-oriented and doesn't throw off as much in dividends and perhaps when we reach retirement go back to VYM. If this is reasonable, can anyone suggest an ETF for us? And if not reasonable, I'd appreciate any insight.

Why not just stick with VTI (Vanguard Total Stock Market Index)?

I guess that is what I am asking. Is VTI your recommendation?

[Vanguard Fan 1367]

I did well with VYM. Bogleheads pointed out the tax issues with those dividends so I sold it March when I had losses to offset the capital gains. VTI, VOO, and VV are better choices for taxable accounts. (In my opinion)

[FelixTheCat]

I'm curious. Why did you choose VYM?

I set up an account for retirement income and thought monthly distributions instead of quarterly. I went with Vanguard's income series recommendation. Take a look at this link https://advisors.vanguard.com/iwe/pdf/FASINVMP.pdf

Here's a thread discussing yield viewtopic.php?f=10&t=329343 Rick Ferri has a recommended portfolio.

I am still recommending this portfolio: 60% BND, 20% VTIP, 20% VWEAX (or SHYG)

Rick Ferri

[jeffreys]

I'm curious. Why did you choose VYM?

No real good or researched reason.

As I stated in my original post, I thought it made sense to start building a dividend stream of income to reduce how much we'd have to pull from our 401k and IRAs. But, I'm wondering if we did that prematurely in that we don't need that now and it would just increase our taxes since we both work full time already. So I'm looking for advice as to if this was a wrong strategy and if so, what other investment might make sense for our post-tax money that we consider to be part of our retirement portfolio.

I'll also take a look at the two links you provided.

[FelixTheCat]

I thought it made sense to start building a dividend stream of income to reduce how much we'd have to pull from our 401k and IRAs.

I have the same strategy, I am still working and around a year from retirement. I've read many threads on income generation: CDs, Bonds, Dividend paying stocks. I wish there was a Boglehead wiki recommended income generation portfolio.

[dru808]

Probably not, I get it though, the whole “dividend compounding because it’s a bigger dividend, vym and sphds dividend will speed up my compounding”. Been there.

[AAA]

Was VYM the right choice? I can't answer since I don't know what VYM is.

(my attempt to dissuade people from using acronyms without at least an initial translation)

[anon_investor]

In an effort to diversify some of our stock we cashed some of it out in February (scoring a high price just prior to the COVID crash) and invested in VYM (we should have waited 2 weeks as we bought at a high, but couldn't predict was what coming). We chose VYM as we liked the thought of a dividend ETF for retirement income. We are still at least a year from retirement (likely more because our jobs are going well) so now we're getting all this dividend income that we really don't need right now driving up taxes.

I'm wondering if it makes sense to consider selling in favor of an ETF that is more growth-oriented and doesn't throw off as much in dividends and perhaps when we reach retirement go back to VYM. If this is reasonable, can anyone suggest an ETF for us? And if not reasonable, I'd appreciate any insight.

Why not just stick with VTI (Vanguard Total Stock Market Index)?

I guess that is what I am asking. Is VTI your recommendation?

Yes. For US equity exposure VTI is probably the best choice, it is basically the entire US stock market. Very tax efficient.

[jeffreys]

Was VYM the right choice? I can't answer since I don't know what VYM is.

(my attempt to dissuade people from using acronyms without at least an initial translation)

Thanks. I actually dislike acronyms without an initial definition as well. Given most users here use or at least know of Vanguard, I figured most would have an idea it's a ticker symbol. Still, better safe than sorry, and in the interest of getting more responses, I have edited the subject.

[retired@50]

I'm curious. Why did you choose VYM?

No real good or researched reason.

As I stated in my original post, I thought it made sense to start building a dividend stream of income to reduce how much we'd have to pull from our 401k and IRAs. But, I'm wondering if we did that prematurely in that we don't need that now and it would just increase our taxes since we both work full time already. So I'm looking for advice as to if this was a wrong strategy and if so, what other investment might make sense for our post-tax money that we consider to be part of our retirement portfolio.

I'll also take a look at the two links you provided.

Maybe it was the right strategy, implemented too early.

There is nothing wrong with dividends, although many Bogleheads prefer the total return approach and will periodically sell off tiny pieces of their portfolio to meet spending needs. If you prefer to use dividends to meet spending needs, so be it.

Regards,

[michaelingp]

Was VYM the right choice? I can't answer since I don't know what VYM is.

(my attempt to dissuade people from using acronyms without at least an initial translation)

Good luck on changing that behavior. In every single internet forum I've participated in, members have developed and used mysterious acronyms. On BH (see?), the Vxxxx symbols for funds is not surprising, and easy to Google. But there are a lot of others, like "FI" that are really difficult to Google. The ones I really hate are the ones related to family, like "FIL" and a bunch that start with "D" that I'm not sure what they mean. I'm sure there are PhD theses on why groups develop these secret languages. I think it's kind of a passive/aggressive way to identify like-minded people and keep outsiders out. But you might as well piss in the wind as try to change this behavior. Try some of the car forums. You can read entire threads without knowing even what the subject is.

[tibbitts]

I thought it made sense to start building a dividend stream of income to reduce how much we'd have to pull from our 401k and IRAs.

I have the same strategy, I am still working and around a year from retirement. I've read many threads on income generation: CDs, Bonds, Dividend paying stocks. I wish there was a Boglehead wiki recommended income generation portfolio.

There probably won't be one because in general Bogleheads don't endorse "income generation portfolios" vs. total return portfolios.

[jeffreys]

There is nothing wrong with dividends, although many Bogleheads prefer the total return approach and will periodically sell off tiny pieces of their portfolio to meet spending needs. If you prefer to use dividends to meet spending needs, so be it.

I would love to read a Boglesheads discussion on this. I'll attempt some searches but if you happen to have any links to some good forum threads, I'd appreciate that.

[suemarkp]

There are three similar Vanguard Dividend funds I have been watching:

• Vanguard Dividend Appreciation Index Fund VDADX / VIG

• Vanguard Dividend Growth Fund VDIGX / (no ETF)

• Vanguard High Dividend Yield Index Fund VHYAX / VYM

I'm one of those rare Bogleheads that has an Edward Jones account (there are other threads for why...) and I complain to him about the funds EJ selects and why they don't choose Vanguard funds. They actually can, and I got out of one high cost fund and he put me in VYM. Just because it was Vanguard I said OK, but I don't think it was the best choice. I wonder if the EJ guy is putting me in a crappy performing Vanguard fund so he can say "look, the fund I would have selected for you (with the .7 ER and 12b-1 kickback) did better than VYM.

Put the three funds above in Portfolio Visualizer and you'll see that VDADX/VIG has the best return of the three over the last few years. VDIGX was second. VYM is the worst of the three and still has a negative return. Maybe I'm buying low???

I don't care if a fund kicks out dividends or has NAV growth. I just want return. I think I'm going to ask the EJ guy to swap me from VYM to VIG. EJ won't do VTSAX (it is too broad...), so I need to pick smaller fund slices there and I already have an S&P 500 ETF there too.

[btenny]

VYM is the trading symbol for Vanguard High Dividend ETF. It is a good fund focused on value stocks that pay a high dividend. For the last 10 years it has under performed total stock funds like Vanguard Total Stock Index, symbol VTI. VYM returned 9% per year while VTI earned 13.9% per year over the last 5 years, a 4.9% miss. Over the last 10 years VYM under performed VTI by 2.2% (14% vs 11.8%)/ I own some VYM but I also own some VTI.

Many Bogleheads recommend a simple 3 fund portfolio made up of Total US Stock VTI and total US Bond BND and Total International VEU. It is high performance and easy to manage and a simple portfolio.

And for those that hate acronyms. DH means dear husband, DW means dear wife, DD means dear daughter etc...

[Angst]

And for those that hate acronyms. DH means dear husband, DW means dear wife, DD means dear daughter etc...

What?!
I always assumed DH meant duh husband, DW duh wife and DD duh dawter! Doh

[Vanguard Fan 1367]

And for those that hate acronyms. DH means dear husband, DW means dear wife, DD means dear daughter etc...

What?!
I always assumed DH meant duh husband, DW duh wife and DD duh dawter! Doh

I thought it meant either dear husband or dumb husband!

[AAA]

Good luck on changing that behavior. In every single internet forum I've participated in, members have developed and used mysterious acronyms. On BH (see?), the Vxxxx symbols for funds is not surprising, and easy to Google.

True, the starting V is a giveaway that it's a Vanguard fund but this thread already has over 1000 views. Why make potentially hundreds of people look it up rather than simply defining it when first used? Thanks to OP (original poster) for modifying the title.

[retired@50]

There is nothing wrong with dividends, although many Bogleheads prefer the total return approach and will periodically sell off tiny pieces of their portfolio to meet spending needs. If you prefer to use dividends to meet spending needs, so be it.

I would love to read a Boglesheads discussion on this. I'll attempt some searches but if you happen to have any links to some good forum threads, I'd appreciate that.

Here's one... I haven't read this one but it popped on my search.

viewtopic.php?f=1&t=245558

Regards,

[22twain]

There is nothing wrong with dividends, although many Bogleheads prefer the total return approach and will periodically sell off tiny pieces of their portfolio to meet spending needs. If you prefer to use dividends to meet spending needs, so be it.

I would love to read a Boglesheads discussion on this. I'll attempt some searches but if you happen to have any links to some good forum threads, I'd appreciate that.

In the search box at top right enter:

dividends vs total return

click the magnifying glass icon and you'll get enough reading to keep you occupied for a while. Yes, I checked just now.

The box says "Google", because it uses a Google search that's restricted to the domain bogleheads.org. Usually the results are forum threads, but sometimes a Bogleheads wiki article shows up, too.

[venkman]

Put the three funds above in Portfolio Visualizer and you'll see that VDADX/VIG has the best return of the three over the last few years. VDIGX was second. VYM is the worst of the three and still has a negative return. Maybe I'm buying low???

VDADX/VIG and VDIGX focus on companies with a history of growing their dividend, without regard to the dividend yield. They have a mixture of value and growth stocks and are classified as blend funds.

VYM specifically focuses on stocks that have a current high dividend yield, so it contains mostly value stocks, which have dramatically underperformed growth stocks over the last few years. If/when that trend reverses and value stocks start to outperform, you can expect VYM to do better than VIG and VDIGX.

[suemarkp]

Yes, that's why I said maybe I'm buying low. But how long to wait... I've been hearing that value is going to flow for a while now. I sold my growth stock fund (VIGAX) early this year and have been kicking myself for that. When is it going to happen? Will it go long enough that I can jump in once I see it is occurring?

The Boglehead way seems to be don't try and market time and just buy across the sub classes. So the blend funds may be the better solution over time. The dividend achievers are also supposedly more resilient companies (why they have been able to maintain or increase their dividends for so long) and may hold their value during downturns.

[jeffreys]

I would love to read a Boglesheads discussion on this. I'll attempt some searches but if you happen to have any links to some good forum threads, I'd appreciate that.

Here's one... I haven't read this one but it popped on my search.

viewtopic.php?f=1&t=245558

Regards,

Thanks, that was an excellent discussion.

If I want to sell my VYM ETF is there a length of time I need to have owned it in order to be subject to capitol gains tax vs ordinary income taxes? I'm trying to find that answer on my own, but if anyone knows or can provide a link I would appreciate that.

[sycamore]

I would love to read a Boglesheads discussion on this. I'll attempt some searches but if you happen to have any links to some good forum threads, I'd appreciate that.

Here's one... I haven't read this one but it popped on my search.

viewtopic.php?f=1&t=245558

Regards,

Thanks, that was an excellent discussion.

If I want to sell my VYM ETF is there a length of time I need to have owned it in order to be subject to capitol gains tax vs ordinary income taxes? I'm trying to find that answer on my own, but if anyone knows or can provide a link I would appreciate that.

Hold at least one year to get long term capital gains. One source is: https://www.bogleheads.org/wiki/Timing_ ... term_gains

[nisiprius]

My view is that dividends are almost entirely irrelevant. On the other hand, sticking to a plan, if it is a reasonable plan, is important.

I firmly believe that dividends are essentially equivalent to an uncontrolled leakage, as if some invisible committee decided to make withdrawals from your portfolio and move them into your settlement account without asking your opinion. But this uncontrolled leakage is somewhat consistent and may be useful.

There are many "systematic withdrawal plans" proposed for drawing more or less stable monthly income from an investment portfolio. "Choose high dividend stocks and spend the dividends" is one of them. One advantage is that since you aren't in control, you can't kid yourself into overspending. One characteristic that may be an advantage or a disadvantage is that you are no longer holding the whole market, you are restricting yourself to high dividend payers. The characteristics of these stocks are a little different from the market as a whole. Basically, you are incorporating a "value tilt."

Naturally, when something is different, some think it is different and better, some think it is different and worse. I don't want to go down the rabbit hole of different kinds of dividend strategies, whether dividend paying imposes discipline and is a sign of a better company, etc. or any of that.

If you have already decided that you like the idea of using a stock dividend stream to supply some of your living income in retirement, then one reasonable strategy is to stick to it and, if you don't need or want to spend the dividend income yet, keep reinvesting it into the fund. Is it possible to set your account up to do this automatically? Check.

Here is the total return of VYM (blue) and plain vanilla Total Stock, VTI (orange). These charts include the dividends and assume it is being reinvested. Notice how similar they were up until 2019. Both funds were making about the same amount of money, it's just that they were getting their return from different sources. VYM has fared badly this year. It's no different from the kinds of things that often happen when you choose some kind of tilt or flavor or strategy, sometimes it does better, sometimes it does worse. You should not base your actions on a single year.

Source



Here's a long-term look at the total return of two funds. VEIPX, the Vanguard Equity-Income fund (blue), has a long history. It is actively managed, but still shows us the total return results of a strategy intended to generate income from stock dividends. It is actually older than Total Stock so I'm comparing it with 500 Index (orange). Again, please don't focus on the differences. the point is that they are about the same. There isn't any magic or free lunch in dividends, but they don't hurt you, either. As I say, they just represent somewhat-variable withdrawals that someone else makes for you.

Source



Both charts should convince you that facile claims of "downside protection" from dividend stocks is a myth.

[Valuethinker]

Was VYM the right choice? I can't answer since I don't know what VYM is.

(my attempt to dissuade people from using acronyms without at least an initial translation)

+1 x 1000 million times

I think a lot of "investment" boards encourage this sort of thing. Makes one look more "knowledgeable" and "experienced" and "sophisticated "

Like all usage of acronyms and technical jargon what it really does is cut your audience

Look i don't even know the tickers for my *own* European funds, let alone US listed ones.