Get Lazy with Dividend Exchange Traded Funds

It’s no secret that I believe a concentrated list of well-chosen dividend payers is the best way to secure healthy income and reap nice capital gains over time.

That’s especially true if you follow a long-term buy-and-hold strategy.

Why? Because you’ll pay only small brokerage commissions the few times you buy or sell, and you’ll avoid big tax bills or annual expenses the whole time you’re holding.

If you do your investing inside tax-sheltered accounts like IRAs, the strategy works even better!

However, maybe you’re not a big fan of watching stocks move up and down or making adjustments on a regular basis. That’s okay.

I’m a big fan of keeping things simple, too. And in the investment world, few things are simpler than exchange traded funds (ETFs).

These vehicles — which function like mutual funds but trade like stocks — are an easy way to get a broad stake in a particular asset class with minimal effort or expense.

In general, ETFs don’t require lots of micromanagement … you can simply “set them and forget them.”

In fact, some investors take this to the extreme by building so-called “lazy portfolios.”

Here’s how it works:

Step #1. Determine your targeted asset allocations. In other words, you figure out how much money you want to put into big U.S. stocks, how much into bonds, how much into foreign shares, and so on.

Step #2. Select a few ETFs that match up with those categories you’ve selected.

Step #3. Buy each ETF according to the predetermined proportion of your portfolio that it should take up.

Example: Say your overall portfolio is worth $100,000, and you want 10% invested in Chinese shares. You would simply buy $10,000 worth of the broad Chinese ETF you selected in step #2.

Step #4. You simply rebalance the portfolio’s allocations once every year or so.

In other words, if you’ve become less bullish on foreign shares, you might sell some of that ETF. Or if your big U.S. stocks have risen in value to the point where they are worth a greater percentage of your portfolio than you’d like, you sell some and put the proceeds into the other asset categories.

Here’s the best part …

Income Investors Can Now Use
A Huge Array of Dividend ETFs to
Follow This “Lazy” Strategy!

In the last few years, many new dividend ETFs have become available.

Some, such as the DVY, have been around for a while … others such as the SDY are tied to well-known benchmarks like the Standard & Poor’s SuperComposite 1500.

Meanwhile, another company — WisdomTree — offers a plethora of dividend ETFs that range from a broad U.S. focus to individual foreign markets such as Europe, Asia, and Japan. They even offer international sector funds focused on dividend payers.

To be sure, the number of choices is downright staggering. This table shows just a fraction of the dividend ETFs that are available right now!

But with a little time and effort you can easily put together a dividend-focused equity portfolio that covers most of the major stock classes.

One important note: When it comes to ETFs focused on dividends, you can expect above-average exposure to certain sectors, especially consumer staples, financials, and utilities.

But overall, I think you could build a nice, simple portfolio of quality dividend-paying stocks that is well diversified in terms of market capitalizations and geography. The overall portfolio’s yield would be pretty attractive. Plus, the annual expense ratios of most of these ETFs are downright reasonable.

And if you wanted to get a truly “balanced” lazy portfolio, all you’d have to do is add a fixed-income component (i.e., a couple bond ETFs), and maybe a precious metals ETF like the GLD.

­­By no means am I saying that a lazy ETF portfolio will outperform a concentrated, well selected list of individual stocks. But I do think it’s a good alternative for investors who don’t have enough capital to pursue a more targeted investment strategy.

Best wishes,

Nilus

P.S. Interested in learning more about the specific dividend shares I think will outperform the market (and broad ETFs)? Then check out Dividend Superstars … you can get 12 issues and a bunch of bonus reports for as little as $39. Click here for all the details.

About Money and Markets

For more information and archived issues, visit http://www.moneyandmarkets.com

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates
but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Christina Kern, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.

Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.