The exponential growth of ETFs have allowed investors to tap into their growth potential for individual retirement accounts (IRAs). One ETF to consider for IRAs is the Vanguard Dividend Appreciation Index Fund ETF Shares (VIG).
‘One of the biggest advantages IRAs have over employer sponsored retirement plans is that IRAs generally offer far more choices in terms of what’s available for you to buy,” a Muscatine Journal article said. “Of course, that advantage can quickly turn into a disadvantage if analysis paralysis sets in and keeps you from making a decent decision in a timely manner.”
“A good way to get past that risk is to first think about what your strategy is and then find low-cost ETFs that align with your strategy,” the article added.
Enter VIG, which seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that have a record of increasing dividends over time. The fund employs an indexing investment approach designed to track the performance of the Nasdaq US Dividend Achievers Select Index, which consists of common stocks of companies that have a record of increasing dividends over time.
The adviser attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
Overall, VIG:
- Seeks to track the performance of the NASDAQ US Dividend Achievers Select Index (formerly known as the Dividend Achievers Select Index).
- Provides a convenient way to track the performance of stocks of companies with a record of growing their dividends year over year.
- Follows a passively managed, full-replication approach.
A Track Record of Dividends
Everything comes with a cost. Thankfully, VIG’s strategy involving a track history of dividends doesn’t come with a hefty price tag. The fund is at the very low end of its category average.
“If you buy that ETF inside your IRA and set your dividends to reinvest, you’ll potentially have the chance to benefit from both sources of compounding — owning more shares and getting higher dividends over time,” the article explained further.
“The Vanguard Dividend Appreciation ETF offers that potential with a mere 0.06% expense ratio,” the article added further. “That means investors get virtually all the benefits of owning the underlying companies, with almost no overhead. Of course, dividends are never guaranteed payments, but companies with long histories of increasing their dividends often try to keep that streak going. That gives a reason to believe the trend could continue.”
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