These Cheap Investments Just Got Cheaper
Jun 12th 2012 12:17PM
Updated Jun 12th 2012 12:18PM
As countless investors have learned the hard way, not all mutual funds are created equal. Many fund shops are more concerned with collecting their management fees than they are with investing your money correctly. These are the funds you want to avoid at all costs. Fortunately, there are some shining examples of fundholder friendliness out there in the fund world that make up for all the subpar offerings you need to sidestep.
Vanguard is one fund shop where investors don't have to wonder if they are being fleeced. At Vanguard, a wide array of simple investment options, low costs, and a fundholder-first mentality earn them a spot in the top tier of fund managers, in my opinion. And there's more good news -- Vanguard just announced that they have cut the fees on a number of their funds. Below, I'll highlight some of the best options in this group of newly cheap investment offerings.
In a long, drawn-out era of rock-bottom interest rates, it's easy to see why dividend investing has been so popular as of late. Yield-hungry investors have turned en masse to dividend-producing stocks in an effort to bolster the flagging income they are receiving from their bond portfolio. Dividend-seekers will be glad to know that Vanguard has lowered the price of some of their best dividend offerings.
If actively managed funds are your thing, the price of admission for Vanguard Dividend Growth (VDIGX) has been lowered from 0.34% to 0.31%. Run by Wellington Management, the fund looks for companies with an established competitive advantage and long histories of generating cash to fuel an increasing dividend payment. But manager Don Kilbride doesn't like to overpay for high-quality companies. Instead, he frequently waits until the companies he is interested in undergo some temporary stumbles and fall in price as he did last year, buying more Microsoft (NAS: MSFT) when tepid sales for Windows pushed the stock price down, as well as adding to his position in Wells Fargo (NYS: WFC) which got punished along with the rest of the financial sector in 2011. Over the long run, results here have been excellent, with the fund posting an annualized 2.8% return over the past five-year period, landing it ahead of 98% of all large-cap blend funds.
If you prefer a more passive dividend investing strategy, you might want to check out the Vanguard Dividend Appreciation Index (VDAIX), whose expenses have been chopped from 0.30% to 0.25%, or the exchange-traded fund version, Vanguard Dividend Appreciation ETF (NYS: VIG) , which has fallen a few pegs from 0.18% to 0.13%. Both funds track the performance of the Mergent Dividend Achievers Select Index, so you'll get exposure to a wide swath of top-quality, financially stable dividend payers.
Less for more
Another great option that has recently undergone a fee facelift is the Vanguard REIT Index (VGSIX), which is also available in ETF form with the Vanguard REIT Index ETF (NYS: VNQ) . These funds are available with new price points of 0.24% and 0.10%, respectively. Both funds provide exposure to more than 100 publically traded real estate investment trusts, so you'll get a good read on the state of the commercial real estate market. This asset class has had a pretty good run, so don't expect the returns we saw in 2009 and 2010 to repeat in the near future. However, a small allocation to real estate can be a great portfolio diversifier over the long run.
Lastly, the Vanguard High-Yield Corporate Fund (VWEHX) has seen its fee cut from 0.25% to 0.23%. Unfortunately, Vanguard recently closed this fund to new investors as a result of all the money pouring into its coffers. However, if you have access to this fund through an employer-sponsored retirement plan like a 401(k), you may still be able to get in the door. If you can buy the fund, seriously consider it. It's one of the better high-yield bond funds around.
There are a lot of fund shops out there that will charge you an arm and a leg for the privilege of investing your money with them, but Vanguard isn't one of them. If you are looking for some of the best, most inexpensive funds in the business, take a closer look at what Vanguard has to offer.
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At the time this article was published Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. Amanda owns shares of Vanguard Dividend Appreciation ETF. The Motley Fool owns shares of Microsoft and Wells Fargo and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Microsoft and Wells Fargo, as well as creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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