Hello all,
Assuming that there are 2 very similar ETFs with varying divided yields and expense ratios.
If dividends are reinvested, which ETF would you choose?
ETF A
Expense Ratio: 0.50%
Dividend Yield: 4.65%
ETF B
Expense Ratio: 0.23%
Dividend Yield: 3.81%
Is there a simple formula to use to work it out?
Which ETF is better? Yield vs Expense Ratio
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Re: Which ETF is better? Yield vs Expense Ratio
Bond funds or stock funds? Taxable or tax-advantaged account? Dividends don't matter much with stock funds, apart from taxes. If a bond fund, why are the dividend yields different? Risk?boglehooligan wrote: ↑Sat Oct 24, 2020 12:38 am Hello all,
Assuming that there are 2 very similar ETFs with varying divided yields and expense ratios.
If dividends are reinvested, which ETF would you choose?
ETF A
Expense Ratio: 0.50%
Dividend Yield: 4.65%
ETF B
Expense Ratio: 0.23%
Dividend Yield: 3.81%
Is there a simple formula to use to work it out?
All else being equal, I would go with the lower expense. But often, all else is not equal.
And dividend yield is after expenses are taken out.
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Re: Which ETF is better? Yield vs Expense Ratio
With stock funds dividend yield is meaningless what matters is total returns. If the funds are tracking the same underlying index you generally choose the one w lower ER. Big "if" though.boglehooligan wrote: ↑Sat Oct 24, 2020 12:38 am Hello all,
Assuming that there are 2 very similar ETFs with varying divided yields and expense ratios.
If dividends are reinvested, which ETF would you choose?
ETF A
Expense Ratio: 0.50%
Dividend Yield: 4.65%
ETF B
Expense Ratio: 0.23%
Dividend Yield: 3.81%
Is there a simple formula to use to work it out?
With bond funds generally higher risk. Those sorts of yields are high yield junk bond yields OR emerging market bonds.
You want to think carefully about your tolerance for risk and analyse max drawdown in 2008/9 and March 2020 before you commit a lot to funds with that sort of yield.
Re: Which ETF is better? Yield vs Expense Ratio
I would be suspicious of any fund, equity or bond, that had a yield significantly greater than 2%.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Which ETF is better? Yield vs Expense Ratio
These are a preferred ETFs where one is a UCIT and the other is US and both dividends are calculated as NET
Im trying to learn how both Yield and ER impact an investors total return over a long period
Im trying to learn how both Yield and ER impact an investors total return over a long period
Re: Which ETF is better? Yield vs Expense Ratio
boglehooligan,boglehooligan wrote: ↑Sat Oct 24, 2020 9:48 am These are a preferred ETFs where one is a UCIT and the other is US and both dividends are calculated as NET
Im trying to learn how both Yield and ER impact an investors total return over a long period
For bond ETF's I like to look at:
Average Duration...I usually go for intermediate duration...but you your duration should match your time frame.
% of AAA/AA/A bonds...I want it to be high quality
SEC Yield
Expense Ratio
Distribution Yield
If the ETF is paying out over say 2.5%, it may not be high enough quality for me.
Bottom Line...a very low expense ratio is good; high yields usually mean high risk
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Re: Which ETF is better? Yield vs Expense Ratio
Equity fundsboglehooligan wrote: ↑Sat Oct 24, 2020 9:48 am These are a preferred ETFs where one is a UCIT and the other is US and both dividends are calculated as NET
Im trying to learn how both Yield and ER impact an investors total return over a long period
Yield only matters if you pay tax on the dividend income. Then higher yield, all other things being equal, is lower performance. That's why Warren Buffett (Berkshire Hathaway) has never paid a dividend - see his letters to shareholders on same.
Bond funds
Yield is a sign of risk. Higher yield, higher risk. Since US Treasury bonds are currently yielding less than 1%, any yield above that means more risk is being taken on.
Both types of funds
Expense ratios matter a lot. Generally the higher the expense ratio, the worse the performance. Try to keep all your ERs under 0.5% (50 basis points) and especially so for bond funds - the yields on bonds are now so low that you don't want to be paying away half the yield of the fund in expenses.
0.1% on $100k invested is $100 pa, but compounded then for the whole time you own the fund (you didn't get the return on that $100 next year, or the year after, or the year after ...). If you convert expense ratios into amount of your money paid away, it helps conceptualising them.