At current valuations, we expect the major indices to deliver rather poor returns over the next decade. We have made individual cases for rather extreme valuations in recent articles (see here), but the indices overall, are also very expensive.
In such an environment, a passive investor must ask what are relatively good choices for him or her? Notice our question here. It is important you understand what exactly is being asked. If you misunderstand the question, you will likely mess up the answer.
The question is not "What will deliver great returns?", but rather "What will outperform the indices?" When examined from that perspective, we think the fund we are about to talk about today is a good choice.
Vanguard High Dividend Yield ETF (NYSEARCA:VYM)
VYM is an older ETF that has been around since 2006. It aims to track the performance of the FTSE High Dividend Yield Index. This index measures the investment return of common stocks characterized by high dividend yields. Before we go further, we do want to point out that "High" is a very relative term, VYM's "High" is a lot lower than what most people would associate with the term.
Dividend Yield
VYM's dividend yield comes to about 3.4%. While that is nothing to sneeze at in a world where the S&P 500 (SPY) pays 1.63% and the Invesco QQQ Trust (QQQ) is flirting on the border of half a percent, it is definitely not the yield one associates with "high yield."
This yield though is fully internally generated. The fund's 30-day SEC yield, comes in at almost 3.6%, suggesting forward payout is likely to be even better than the current yield.
Source: Vanguard
This is the opposite of some funds like the Pimco Enhanced Short Maturity Active ETF (MINT) or the iShares 1-3
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