Why Not Just Buy XLE And Be Done With It?

Summary

• ETFs are a great choice for those seeking instant diversification to a major trend that they might otherwise know little about.
• Energy Select Sector SPDR ETF is one of the most popular energy ETFs, and has a 5-star rating by Morningstar.
• While market-smashing returns can greatly accelerate your journey to financial freedom, it’s far from necessary for most investors, as long as you avoid making costly mistakes.
• This idea was discussed in more depth with members of my private investing community, Rhino Real Estate Advisors. Get started today »

This article was co-produced with Dividend Sensei.

A while back I wrote a Seeking Alpha titled "Why Not Just Buy Vanguard Real Estate ETF (VNQ) And Be Done With It?" The article performed extremely well and I even wrote a follow-up article last year titled, "So, Why Not Just Buy VNQ And Be Done With It?"

As many on Seeking Alpha know, Dividend Sensei and I have created a partnership of sorts, so that we can cover a broad range of dividend investing ideas, not just REITs.

Specifically, we collaborate on the energy-sector, a category that is aligned with my REIT wheelhouse. Many dividend-oriented investors own REITs and energy stocks, so today Dividend Sensei is collaborating with me to write up Energy Select Sector SPDR ETF (NYSEARCA:XLE), one of the most popular energy ETFs. That’s because it offers income investors both a generous yield (3.1%) and exposure to one of the greatest secular economic trends in history, America’s epic shale oil and gas boom.

ETFs are a great choice for those seeking instant diversification to a major trend that they might otherwise know little about. But there are also downsides to owning XLE, so let’s take a look at both the pros and cons of owning this low-cost ETF vs. investing in individual energy companies, especially one of my top recommendation today for conservative blue-chip investors, Exxon Mobil (NYSE:XOM).

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There’s A Lot To Like About XLE and Index Investing In General…

XLE is a 5-star Morningstar rated ETF that has a low expense ratio of 0.13% and yields 3.1% (about 50% more than the S&P 500). The ETF has low turnover (8% per year) and is highly tax efficient. It’s also highly concentrated into just 29 companies, almost all of them high-quality blue-chips or SWAN stocks.

(Source: Morningstar)

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.