The Case for an ETF for my Next Fund Purchase

Lately I have been considering an ETF purchase for my re-booted dividend investing fund.  That may seem to go against the point of the fund - namely, investing in high-quality dividend aristocrats and other companies that raise their dividend year after year.

At the same time, while I am so early on in the re-establishment of the fund, and because the market is at such historic highs, I do want to "play defense" and establish some built-in diversification in a way that I cannot do with small, monthly stock purchases.

A good place to start as I consider the decision is what, exactly, my investment strategy is.  For me, that is fairly easy.  I think that the majority of my stock purchases will continue to be in those high quality dividend payers that I have identified, and they will be the foundation of the fund for years to come.  Ideally, most of the purchases will be in companies that I will actually buy and hold forever.

However, I do want to have a defensive mindset and select opportunities for broad diversification, inclusive of index funds, ETFs, and perhaps even actively traded mutual funds.

Another consideration is that this fund serves quadruple: not only is it a long term savings fund, it is a supplemental income fund for retirement along with social security and a pension, a lifetime income fund for my son and his eventual caregivers as we age or pass on, but it is also an emergency fund of sorts for his medical expenses and therapies, or other things that naturally come up.  Because of this, I need to keep costs down, and liquidity high.

Looking forward at my next purchases, which I will begin to make at $1,000 intervals, I have in mind several dividend aristocrats that will help me to build out my base: Coca-Cola, Johnson and Johnson, PepsiCo, etc.  They are the "usual suspects" that everyone owns.  However, share prices are very high, yields getting relatively lower, and I am frankly afraid of buying into this high market, feeling that a correction will occur at some point in the future.  I fear losing 10, 20, or 30% of the value of the fund should this drawback happen.  That is why I feel that buying a few high quality ETFs might be a good option at this point.  In consideration for my next purchase, which may be in the $2000 range as I am due extra income from side work throughout January, is the Vanguard Dividend Appreciation EFT (VIG), which seeks to track the performance of the NASDAQ US Dividend Achievers Select Index.

It would provide me with instant exposure to a number of the best companies in the world, stocks that I would, given the money, own individually, such as:

So I am throwing this idea out there for feedback from you, the dividend growth investing community.  Do you see value in owning ETFs, or do you focus solely on creating pure, individual stock funds for yourself?  

Thank you, and good luck!


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