Buy These Shares When Fears Run High

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If you’re unfamiliar, the Vanguard High Dividend Yield ETF (NYSEARCA:VYM) is an exchange-traded fund (ETF) for long-term investors.

Not just for every investor in it for the long haul, mind you. But for those that are growing uneasy with the continually rising market or are simply looking for a solid total return play for the foundation of their portfolio.

There are a few key reasons that VYM is a good choice.

Why Pick VYM?
First, as a Vanguard fund, it has one of the lowest management fees in the industry, at 0.08%. According to Vanguard, that’s lower than 92% of similar ETFs in the same space.

Expense ratios, or management fees, are the place many investors don’t bother to look and it can be costly.

ETFs as well as open-end mutual funds have fees for the maintenance of the funds.

Usually, the more active the funds’ trading, the higher the fees.

Nowadays, most funds have opted for more passive funds that track indexes like the S&P 500, or a specific sector.

But you have to weigh performance relative to the fees, especially if you’re looking at total return picks that are more long-term oriented.

Without going into too much detail, if you can get a good fund that has low fees, that’s the way to go. And Vanguard is famous of its consistently low fees and quality funds.

Second, the fund is well diversified at the current moment. Many times, ETFs like these will end up skewing toward one or two sectors in the market where stocks are offering above average yields on good companies.

That happened in the early 2000s when the banking sector was throwing off solid yields and growing at a strong clip. Then the crash happened and ETFs like VYM were overexposed to the worst possible sector.

In 2008, the S&P 500 dropped 37% and VYM lost 32%.

But now, VYM holds a nice mix of tech, financials, pharmaceuticals, industrials, consumer staples and energy companies in its top 10 holdings. If anything happens to the markets, it won’t devastate all the sectors across the board.

Third, VYM is a bargain right now. The large-cap value stocks it holds are not the hot stocks in the market, but they are well positioned in terms of size and strength.

Basically, VYM gathers all the dividend paying stocks in the market and then puts them in order by dividend yield. Then it takes the top have of those and market cap weights them.

Bottom Line on the VYM ETF
Right now, this has provided some of the best individual companies you would want for hedging your portfolio — Procter & Gamble Co (NYSE:PG), AT&T Inc (NYSE:T), Microsoft Corporation (NASDAQ:MSFT) and Exxon Mobil Corporation (NYSE:XOM), to name a handful.

– Richard Band