VHDYX: Fantastic Equity Mutual Fund For Long Term Investing
Summary VHDYX has great sector exposure with a low expense ratio. Well created equity index for anyone planning for long term retirement. Fund is focused on a high dividend and invested in the large companies in the U.S. market. Saving for retirement can be a daunting task when choosing where to invest money. If the ability to save for the long haul is available use it to your advantage. Some portfolios may look too volatile and risky but time is often a great answer. The fund we will be looking at for long term investing is the Vanguard High Dividend Yield Index Fund Investor Shares (MUTF: VHDYX ). Expense Ratio The expense ratio for VHDYX is .18%, which looks great for a mutual fund. Diversification The following chart shows the top ten holdings and also gives a good idea of what we’re looking at in this fund: I would like to see an index with 436 stocks have less than 30% of its holdings in the top ten. That being said, I still like the broad range of sector exposure. The index does invest 98.94% into domestic companies. There are some global giants among the holdings so there will be some international exposure. I stress some because if international exposure is really important for a portfolio I don’t think this index will be enough. Great diversification here with no sector being over 15%. Technology and health care are the two equity sectors that I would look into investing more in. With the advancement and cost effectiveness of automating jobs I tend to favor having technology around 14%. Health care should be a strong sector with the rising age of the population for the next couple of decades. Beyond baby boomers, people are also living longer which is magnifying poor health habits. With a pure equity index I was glad to see telecommunications and basic materials so low. Telecommunications does have the ability for some serious upside but the problem is knowing where it will come from. Everyone wants to sell you their new phone. The competition is rising and causing the sector to really buckle down and intelligently decide what to do next. We have seen some major flops even by the telecommunication giants and now would be a bad time to fall behind. There are plenty of good arguments for who will come out on top but I’m sure we’re all in for a few surprises. With companies working on snazzy new features and trying to be the first one to market breaking technology it’s not a position I want to be heavily invested in. Risk Even though there are hundreds of stocks in this index it is still an equity fund. There is going to be quite a bit of volatility with the market and therefore a lot of risk on a short term basis and there is a chance that a handful of years could take rough swings. There is a high correlation between VHDYX and the S&P 500 and I would invest in them both the same way – long term. Below is a comparison with VHDYX and its benchmark: These returns do look good but I would not use this information to invest if I wanted to retire in five years and could not handle losses. There is the option of diversifying the risk to your liking but if it were me I would make sure I could invest for at least ten years. Yield The yield at 3.29% is what makes this index a winner for me. So many investors plan on a long term goal which involves taking some money out of their portfolio. Where many mistakes happen is watching an index drop and then deciding to pull their position. The high yield here allows you to invest and leave it alone for years while collecting dividends. Conclusion There is a lot to be positive about when looking at this mutual fund. There’s ten sectors to be diversified in and the amount allocated is well thought out. The high yield allows investors to put the money in the index and then leave it alone. The correlation to the S&P 500 should continue with the funds current holdings of only large U.S. companies. On the flip side there is some risk involved; especially if your goals aren’t long term. There is very little international exposure and almost 31% of the holdings in the top ten companies. I would like to see heavier weights for the smaller holdings while maintaining similar sector allocations. I’m heavily debating making it a part of my portfolio. I would want to invest with a long time horizon, such as 15 years, so that I could ride out any bumps in the economy while reinvesting dividends to grow the position