Should You Buy A Dividend ETF Or Manage Your Own Portfolio Of Individual Dividend Stocks?

One of the big questions many dividend investors face early on is whether or not it’s worth managing a portfolio of individual dividend stocks instead of keeping things easy and buying a dividend ETF.

In fact, I recently emailed with a reader who was interested in comparing the performance of our Conservative Retirees dividend portfolio with the PowerShares S&P 500 High Dividend Low Volatility Portfolio ETF (SPHD), for example.

While total return is certainly a very important consideration, there are a number of other factors that can swing the decision one way or the other. Let’s start by taking a closer look at SPHD, which is one of my favorite dividend ETFs.

The SPHD fund was launched in October 2012 and seeks investment results that generally correspond to the price and yield of the S&P 500 Low Volatility High Dividend Index.

This index essentially takes the 75 highest-yielding stocks in the S&P 500, sorts them based on lowest realized price volatility over the past year, and selects the top 50, with the number of stocks from each sector capped at 10.

The reader I emailed with noted that the performance of our portfolio was more or less the same as the returns generated by SPHD since our inception in June 2015.

This is admittedly too short of a period of time to glean any real insights, but it’s better than nothing. All else equal, why not go with SPHD?

With similar returns, a somewhat longer track record (dating back to October 2012), an easy-to-understand benchmark, and no incremental portfolio management work required, SPHD offers a number of benefits.

I believe that the choice to go with an ETF or build a portfolio of individual stocks is largely a personal preference, and it involves more than just total return potential. I wrote an article about the tradeoffs that you can read here, if you are interested.

What’s nice about ETFs is that they are completely passive – there is nothing for you to actively manage, and you know the performance of ETFs will generally track their underlying benchmark for only a small fee.

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Disclosure: None. 

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