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I really like these ETF's and I'm very interested in investing in one soeday. My only problem is it would most likely have to be in a taxable account. Would investing in DLN in a taxable account be stupid? Would VIG be better as far as taxes are concerned? Would it be best not to invest in either in a taxable account?
Roughly how much would you be investing? If it's hundreds of thousand to millions you might increase your tax bill by a few thousand which in that case wouldn't be that much to you anyway.
Let's say you want to invest $50,000. You would end up with maybe $1,200 in dividends and your tax bill would go up by maybe $300. Is that worth a second thought?
Thanks guys. It would be approx. 10-15K. It's not for income. I'd reivest all dividends at some point each year. It's just a way to invest in high quality US multinationals. Companies that for the most part I know, I understand, and feel comfortable with. The companies that each of these ETF's invest in seem to hold up better in down markets than most.
I could always invest in Vanguards fund VDIGX but with my brokerage account its not a NTF so I'd be hit with a $50 fee anytime I invested more. I dunno....I'm just kicking some ideas around. I never really considered an ETF before but with 10-15K to invest maybe it's not a bad idea. Maybe DLN's tax bill wouldn't be as bad as I initially thought.
@NickF, they are not both tracking the same index and their performance will be reflective of their indices, so they are not directly comparable that way. DLN's index is WisdomTree's own large cap dividend index that does not try to be tax efficient and aims to maximize dividends. VIG uses a Nasdaq index that selects for consistency of dividends over magnitude and avoids things like REITs because they are not tax efficient.
They fit different needs and hence need to be evaluated in that context. DLN is better for total returns if tax efficiency is not a concern as may happen in the accumulation phase or in a tax-advantaged account. VIG is better for a tax efficient, consistent income need as may happen in a drawdown phase.
Calculate the total return for DLN and VIG using Yahoo's Adjust Close Price history data,
For the trailing 5 year (3/20/09-3/20/14), the total return are DLN: 264.25% ~ 1.2164^5 VIG: 244.88% ~ 1.1976^5
If extend the trailing period to the max. of the available Yahoo history data common to both DLN and VIG, 6/16/06-3/20/14, VIG actually has a higher total return as compare to DLN. DLN: 159.31% VIG: 178.31%
Its not always only about total return. No doubt DLN is a solid ETF in this space. VIG has lower volatility and went down -26.50 to DTN's -35.9 in 2008. I hold VIG and to add to return in a similar category (but not identical), I have OYEIX.
If you measured last year, including 2008, VIG comes out even better and if you do the same measurement next year without a crash until then, DLN will likely come out better. This is the limitation of single metrics such as total returns. And we have not even gone into risk-adjusted returns!
It is far more important to understand what the funds are and why they behave the way they do and use the best fund for an application than get religious about it. Even then nothing is guaranteed. It is just a best guess.
Hence, my recommendation of DLN for accumulation phase based on an assumption of enough bull years over a longer time period to make it more likely to have a good total return and VIG as a more conservative fund when consistency and capital preservation becomes more important as in draw down period. Between these two extremes, it becomes a crap shoot. Pick whatever rocks your boat.
I recently learned about SCHD whick is also a good looking choice. I'd be replacing FPACX in my taxable account if I ever decide to go this route. VIG only lost 6% more than FPACX in '08 which is pretty darn impressive considering FPACX only invest %50-60% in stks. At least I think so and I'd be the one taking the risk.
No offense. I frequently use Yahoo history data to confirm what I learn from MFO discussions. When I find inconsistency, I bring it up to your attention.
The difference of Max. Drop Down between VIG and FPACX is ~15% based on Yahoo Adjust Price history data. VIG: 071009-090309 -46.82% FPACX: 080605-081120 -31.63%
~15% is the max. drop down difference during the great recession, while ~6% is the 2008 drop down difference. Pick your preference for your analysis:-).
Comments
Let's say you want to invest $50,000. You would end up with maybe $1,200 in dividends and your tax bill would go up by maybe $300. Is that worth a second thought?
DLN will have higher total returns and be less tax efficient than VIG which will be more tax efficient and smaller but more consistent income.
Other than that, you would need to consider the impact on your taxes based on how much dividend you expect each year as @dryflower suggests above.
Personally, I really like VIG. I like vanguard as an organization and I have a hard time seeing why I would go with someone else for an index fund.
They fit different needs and hence need to be evaluated in that context. DLN is better for total returns if tax efficiency is not a concern as may happen in the accumulation phase or in a tax-advantaged account. VIG is better for a tax efficient, consistent income need as may happen in a drawdown phase.
DLN 21.64% VIG 19.76%
Lipper ratings:
Total return: DLN 5 VIG 4
Consistent return: DLN 3 VIG 4
Tax efficiency: DLN 1 VIG 5
For the trailing 5 year (3/20/09-3/20/14), the total return are
DLN: 264.25% ~ 1.2164^5
VIG: 244.88% ~ 1.1976^5
If extend the trailing period to the max. of the available Yahoo history data common to both DLN and VIG, 6/16/06-3/20/14, VIG actually has a higher total return as compare to DLN.
DLN: 159.31%
VIG: 178.31%
Its not always only about total return. No doubt DLN is a solid ETF in this space. VIG has lower volatility and went down -26.50 to DTN's -35.9 in 2008. I hold VIG and to add to return in a similar category (but not identical), I have OYEIX.
If you measured last year, including 2008, VIG comes out even better and if you do the same measurement next year without a crash until then, DLN will likely come out better. This is the limitation of single metrics such as total returns. And we have not even gone into risk-adjusted returns!
It is far more important to understand what the funds are and why they behave the way they do and use the best fund for an application than get religious about it. Even then nothing is guaranteed. It is just a best guess.
Hence, my recommendation of DLN for accumulation phase based on an assumption of enough bull years over a longer time period to make it more likely to have a good total return and VIG as a more conservative fund when consistency and capital preservation becomes more important as in draw down period. Between these two extremes, it becomes a crap shoot. Pick whatever rocks your boat.
Don't have positions in either.
The difference of Max. Drop Down between VIG and FPACX is ~15% based on Yahoo Adjust Price history data.
VIG: 071009-090309 -46.82%
FPACX: 080605-081120 -31.63%
http://performance.morningstar.com/fund/performance-return.action?t=FPACX®ion=USA&culture=en-US
When I find inconsistency, I bring it up to your attention.
When I find someone straying from the topic, I bring it up to your attention.