When putting money to work in your retirement portfolio, investors are better off with low-cost, index-based exchange traded than actively managed funds that could end up significantly diminishing overall returns.
In a recent discussion with analysts, Vanguard Group founder John Bogle argues that fees are all that matters when it comes to a retirement plan’s success, reports Mitch Tuchman for MarketWatch.
Bogle contends that the exorbitant fees found in active ETFs do not justify the off chance that the manager would beat the market. Specifically, Bogle points out that fees could wipe out the benefits of yields on stocks, or over 63% of an investor’s money.
Research has shown that stocks have generated an annualized return of between 6.5% and 7% after inflation. Supporting the higher returns relative to other investment types, reinvested dividends have helped juice gains. Over the years those reinvested dividends amount to a hefty sum as the compounding effect accelerates.
Even though Bogle has been a staunch critic of ETFs, Vanguard offers two of the most popular dividend stock ETFs on the market.
The Vanguard Dividend Appreciation ETF (NYSEArca: VIG) is the largest dividend-related stock ETF, with almost $20 billion in assets under management. VIG provides exposure to high-quality stocks with steady income growth, tracking stocks that have raised their dividends for at least 10 consecutive years. The ETF comes with a 1.98% 12-month yield. [Income-Generating ETFs for a Long Retirement]