The Winner Is... Vanguard
For my retirement portfolio I have chosen to go exclusively with Vanguard products. They are one of the best names in the investing business as well as having some of the lowest fees when it comes to ETFs. If you have a Vanguard account you can also trade their mutual funds and ETFs for free. This is an extremely important advantage because additional investments for me will be in smaller increments. If I had to pay $5 to buy $100 worth of investments I would be putting myself at -5% from the moment I invest. Do yourself a favor and find a platform that allows free investing, they are out there now.
ETFs All The Way
Here are my choices for a perpetual passive income machine:
- Vanguard Long-Term Corporate Bond Fund [VCLT] - The prevailing idea for retirement income is traditionally a shift from holding volatile stocks to income generating bonds. VCLT is a corporate bond fund currently yielding 4.4%. The value may go up and down but the income is the key here. Of my three picks, I am the least attached to this one. There is a possibility that I move into a different bond space in the future however for now the yield and performance are attractive (my second pick would be Vanguard Total Bond Index with a current yield of 2.9%).
- Vanguard High Dividend Fund [VYM] - This is where I start to diverge from that prevailing idea of bonds. I want the ability to reap some of the rewards of the broader stock market. VYM is a collection of top yielding stocks from big name companies. 395 companies to be precise. With a current yield of 2.9% you are getting that percentage of passive income along with the value growth of companies like Johnson & Johnson, Microsoft, and Exxon. It is diverse exposure to the "blue chip" stocks on the market and income in one package.
- Vanguard Real Estate Fund [VNQ] - This is a risky investment but also possibly my most lucrative pick for my retirement portfolio. I love the idea of real estate as an asset. As a country we are making more people, but we aren't making more space. Land is a finite resource and as the population continues to increase the value of land and buildings will continue to go up as well (in my opinion). Containing 185 REITs and yielding 4.4%, I am confident that this pick will be a great income and value producer.
As Easy as 1, 2, 3
With these three ETFs I have a broad exposure to stocks, bonds, and real estate with an emphasis on dividend yields for a future of passive income. Administrative overhead is cut down as there is only one broker to interface with for withdrawals, monitoring, and taxes. I do run the risk of Vanguard itself become a bad company or going out of business which I consider unlikely. The funds are passive and track indexes so the chances of them dissolving are minuscule. I do have to pay the fees associated with the ETFs which although low, are money that I could be keeping myself. That said I would not be able to get as much diversification with the amounts of money that I have to invest. The fees are well worth it to me for ease of administration. Any investment has risks and I'm comfortable with the risks involved with these investments and the chance for them to produce the lifestyle that I would like to have in retirement.
Are you running something similar or have reservations about a setup like this? Leave a comment so it can be discussed. We learn the most from talking to other investors and taking in their unique perspectives. As always please do your own due diligence before making any investment decisions, you are responsible for your own investments. I am long VCLT, VYM, and VNQ.
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