Retirement Strategy: ETF Portfolio Vs. The Stock Only Portfolio: Surprise, Surprise!

by: Regarded Solutions


Our ETF portfolio (ETFOP) is for passive investors who let the ETFs do their "thing" while the investor just watches and sips a beverage.

Our "Buy The Dips Portfolio" (BTDP) is for active portfolio managers who want to control their holdings.

Our third update has some surprises!

Well, we now have one entire quarter, or 3 months, under our belt to see how the ETFOP challenges the BTDP in both dividends earned and total portfolio value.

Let's go straight to the results.

ETFOP Had A Good Month

The ETFOP currently consists of the following ETFs: Vanguard High Dividend Yield Index Fund (NYSEARCA:VYM), SPDR S&P Dividend ETF (NYSEARCA:SDY), WisdomTree LargeCap Dividend Fund (NYSEARCA:DLN), Vanguard Dividend Appreciation ETF (VIG) and Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD).

These ETFs are widely recognized to be the best of breed for dividend growth investors who seek to have a position in a very wide assortment of stocks without having to do anything but own the ETF. The passive nature of this approach lends itself to many folks who do not care to be bothered with managing their own portfolios, and will leave the decision making up to the ETF manager.

This type of portfolio is also appealing to those folks who are already retired and might be feeling the stress of aging when it comes to being actively involved in portfolio management. The allocation and diversification in each ETF is extremely spread out and offers unique opportunities for dividend-seeking investors to have positions in many more stocks than most individual investors, without the stress of managing them.

Here's how this portfolio has performed after three months of this experiment:

Symbol Shares Yield Dividend Yrly Income Share Price Tot. Cost Tot.Value 30-May Div/Cash
VYM 350 2.80% $1.75 613 $62.44 21854 22918 $65.48 $0
SDY 350 2.45% $2.09 1004 $73.18 25613 26415 $75.47 $0
DLN 350 1.00% $0.48 168 $66.71 23349 24409 $69.74 $0
VIG 350 1.84% $1.39 486 $75.44 26399 27013 $77.18 $0
SCHD 350 2.47% $0.90 315 $36.61 12764 13307 $38.02 $0
x Totals 2.10% x 2586 x 109979 114062 x $0

Even though no ETF has a dividend scheduled for June, according to Yahoo, the month shows a decent increase in value of about 1.2% from last month's total value of $112,514. As far as I'm concerned any increase is a good increase.

Overall, through three months of an investor doing absolutely nothing, the portfolio increased about $4,000 from our initial investment. That translates into a 3.80% increase, including dividends in three months. Not bad at all for not lifting a finger.

The BTDP Had A Blah Month

The BTDP consists of the following stocks: AT&T (NYSE:T), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), Altria (NYSE:MO), McDonald's (NYSE:MCD), Chevron (NYSE:CVX), Apple (NASDAQ:AAPL) General Electric (NYSE:GE), Ford (NYSE:F), Microsoft (NASDAQ:MSFT), Wal-Mart (WMT) and Pfizer (NYSE:PFE).

We made no moves within this portfolio for the month, although as an active portfolio manager, we could have chosen to make as many changes as we might want. Ironically, the active portfolio manager was just as passive as the ETF investor.

Symbol Shares Orig.Yield Dividend Yrly Income Share Price Tot.Cost Tot. Value 30-May Div/Cash
T 300 5.60% 1.84 552 31.95 9585 10641 $35.47
XOM 100 2.80% 2.76 276 90.05 9005 10053 $100.53
JNJ 100 3.10% 2.8 280 86.78 8678 10145 $101.45
KO 200 3.00% 1.22 244 37.21 7442 8180 $40.90 $61
PG 100 3.10% 2.41 241 75.71 7571 8078 $80.78
GE 300 3.60% 0.88 264 24.35 7305 8001 $26.67
MCD 100 3.50% 3.24 324 93.02 9302 10143 $101.43
CVX 100 3.60% 4.28 428 111.14 11114 12278 $122.78
AAPL 15 2.25% 13.16 197 526.45 7897 9844 $632.56
MO 100 5.20% 1.92 192 37.71 3771 4155 $41.55 $48
F 400 3.20% 0.5 200 15.15 6060 6572 $16.43
MSFT 200 2.80% 1.12 224 40.16 8032 8190 $40.95
WMT 100 2.50% 1.92 192 76.11 7611 7676 $76.76
PFE 200 3.20% 1.04 208 32.18 6436 5926 $29.63
Div.Cash x x x x x 633
x x 3.60% x 3822 x 109809 120,515 x $109

I added a new line item to make the dividends easier to track in the stock portfolio and the total amount is included in the total value. The good news is that we had another positive month, and two stocks will go ex-dividend in June which we have added in the total.

The blah news (any increase is good, not bad!) the total value only increased by a measly $385 including the $109 in dividends paid. The portfolio actually would have been in the red if not for Apple. A "blah" month indeed with less than a .30% increase from last month's total of $120,130. Yuck.

There has been some positives however. Our dividend income increased once again, thanks to CVX, to $3,822 from $3,794 last month. Increasing dividends is a focus, right? The ETF portfolio has fallen behind a bit, but it is early.

Now over the entire 3 month period, the BTDP increased by about $11,000 or roughly 10%. This is $7k more than the ETFOP over three months, and beats it by about 6%. Of course the BTDP $3,800 annually in dividends also outpaces the $2,600 from the ETFOP.

I'm not going to spin this in any way. Look at the numbers and let me know what you think.

Maybe next month our active manager will make some changes.

Disclosure: I am long AAPL, CVX, F, JNJ, KO, MCD, MO, MSFT, T, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.