Investing

9 Best Investment Tracking Apps in 2023

January 16, 2022 by Rob Berger

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The ideal investment tracking app makes managing investments a breeze. Investment apps can track not only the portfolio's performance, but also its fees, asset allocation and projected future growth. What follows are the best investment tracking apps based on numerous factors, including cost, features and ease of use.

Investment Tracking Apps — Best Investment Tracking Tools

Table Of Contents

Summary of Best Investment Tracking Apps
How to Choose the Best Investment Tracking App
Methodology
FAQs
Other Portfolio Management Apps I'm Tracking

Summary of Best Investment Tracking Apps

Personal Capital (Now Empower)

Empower (Personal Capital) is our Editor's Choice, and an investment tracking app that I've used for many years. It earns our top ranking for several reasons. First, once you link your investment accounts to Empower it automatically downloads all of your transaction, balance, and returns data. It can link both retirement and non-retirement accounts.

Second, in addition to performance data, it gives you data on the fees charged by each of your investments, and how those fees will affect your wealth over time. Third, It integrates all of your data into a robust retirement calculator you can use to plan your future retirement.

You can link bank accounts, credit cards, investment accounts and even the value of your home through Zillow. In this regard, Empower enables you to manage all of your finances, not just your investments.

Pros

Free
Automatically downloads all of your financial data
Tracks your asset allocation
Tracks your investment fees
Integrates with a robust retirement tool

Cons

Empower will contact you about their investment advisory services

Try Empower

Stock Rover

For those with more complicates stock portfolios, Stock Rover is an excellent option. There is a learning curve to this tool, but they provide video guides and plenty of help. Stock Rover provides a wealth of data on stocks, ETFs and mutual funds. And it also offers countless ways to evaluate individual investments or your portfolio as a whole.

The app enables you to connect all your investment accounts for automatic updates. Alternatively, you can enter your portfolio manually. It also offers pre-set portfolios you can use for evaluation purposes.

Pros

Robust tools and reporting
Connects to your brokerage and retirement accounts
Dividend income calendar
Countless charts to evaluate any investments

Cons

It requires an annual fee, although a reasonable one
Because of its rich features, there is a learning curve

Google Sheets

For those who don't want to connect their financial accounts to an app, Google Sheets is ideal. Using the Google finance function, you can pull in data on mutual funds, ETFs and stocks. This can include a fund or company's name, its price, performance, and its expense ratio.

For those that don't want to create their own, I've created a free investment tracking spreadsheet that you can use.

Pros

Free
Doesn't require connecting financial accounts to an app
Google Finance functions automatically download some fund and stock data

Cons

Share totals are not automatically updated
Asset allocation is limited
No retirement planning tool
No fee analyzer tool

Tiller

Tiller is without question my all time favorite budgeting app. What many don't know, however, is that you can also use it to track your investments. At present, you can connect all of your investment accounts and Tiller will download your transactions and account balances.

It also has a retirement add-on that can determine your path to retirement. I recently spoke with the folks at Tiller and understand that they are also working on another add-one that will give you insight into your asset allocation.

Pros

Very easy to use
Integrates not just investment tracking but also budgeting
Uses Google Sheets so it's ideal for those who love spreadsheets

Cons

Investment analysis tools are currently still limited
After a 30 day free trial it costs $79 a year

Morningstar

Morningstar is another tool that I've used for many years. In fact, I've created a YouTube video course that walks through how to use the robust tools offered by Morningstar. The tools include a portfolio tracker.

The one downside is that you have to enter your portfolio manually. You also have to update it manually. As a result, it takes a lot of work to keep your portfolio updated. On the plus side, Morningstar offers arguably the most robust amount of tools and analysis available today.

Pros

Excellent investment tools and analysis
Track performance to the penny, including dividend reinvestments
Excellent mutual fund and ETF analysis tools
Free for basic portfolio tracker

Cons

Data must be entered manually
Data must be updated manually
$199 annual fee to get access to all the morning stars data and tools

Quicken Premier

Quicken is arguably the longest surviving budgeting and personal finance software. I was using it more than 20 years ago. Today with Quicken Premier you can track your investments, including your performance and realized and unrealized gains. And it has tools to make preparing your taxes easier. It also pulls in data from Morningstar. On the downside, however, there's an annual fee for the software of approximately $75.

Pros

Tracks performance of investments
Tracks cost basis
Makes taxes easier

Cons

Quicken is somewhat outdated
Costs approximately $75 a year

I've used Quicken Premier to track investments, but today I prefer several Quicken alternatives for both investment tracking and budgeting.

Mint.com

Mint allows you to track all of your investments online. Similar to Empower you connect both investment accounts as well as banking accounts and Mint downloads transactions and balances for you.

It comes with portfolio tracking for investments. It will keep track of your portfolio's performance, and any investment fees you're being charged. One big downside to Mint.com is it uses an advertising model. As a result, sometimes it can feel like you're being bombarded with ads. For this reason, there are several Mint alternatives to consider.

Pros

It's free
Can manage all of your finances
Automatically downloads transactions and balances

Cons

Advertising based
Limited investment and portfolio analysis tools

Fidelity Full View

The last investment tracking app on our list is Fidelity Full View. Fidelity's tool is powered by eMoneyAdvisor, a finance app used exclusively by financial planners. I have access and use eMoneyAdvisor through a financial planner I work with (although I manage our own investments). With Fidelity Full View, however, you can get many of eMoneyAdvisor's tools without going through an advisor.

For example, Full View enables you to track your portfolio's performance and asset allocation. You can track your net worth and spending as well. It doesn't, however, offer the same reporting that eMoneyAdvisor offers.

Pros

Free
Tracks asset allocation
Monitors spending
Tracks net worth

Cons

Limited reporting
Reports and graphs could be better

Kubera

Kubera is the newest investment app in the list. I've added it for its simplicity and a few features no other app on our list offers. First, understand that Kubera has very few features. You can connect investment accounts, your home's value (via Zillow) and even the value of internet domains you own.

Its visual presentation is clean and simple. You can organize your investments in buckets. For example, you could separate retirement, taxable, HSA and real estate. It provides a net worth summary with graphs. You can also track insurance policies, store important documents in its virtual “Safe Deposit Box,” and add “beneficiaries” who can receive all the information in your account should you die.

What Kubera doesn't offer, however, is any analysis of your investment portfolio. There's no asset allocation or fee analysis, and there is no retirement planner. On top of these limitations, Kubera costs $15 a month.

Pros

Clean, simple interface
Connect investment accounts
Track real estate, domains and insurance policies
Tracks net worth

Cons

$15/month or $150/year
No investment analysis
Graphs and charts limited

How to Choose the Best Investment Tracking App

The best way to track your investments depends on the complexity of your portfolio. For those with just a single account, a portfolio tracking app isn't necessary. If all of your investments are in a 401k at work, you can simply track and manage your investments through the brokerage that holds your 401k. Likewise, if you have a single IRA account, you can track that investment easily wherever it is being held.

If you're looking to open an IRA here are the best IRA accounts available today.

If, like me, you have multiple investment accounts, a tracking app is the best way to manage your investments. That's particularly true if you hold investments at different brokers. This is common when individuals open up IRAs at brokers and have 401k's elsewhere. It's also common with spouses who often have retirement accounts at different financial institutions.

For these types of portfolios, an investment tracker that automatically downloads transactions and balances is ideal. Here, you want to look for an investment app that offers tools to help you analyze your portfolio. The most important tools give you insight into your asset allocation, investment fees and retirement readiness.

We rate Empower as the absolute best investment tracking app, because it does all of this for free. The other apps in our list are also good options.

Methodology

The methodology used in selecting the best investment tracking apps was simple–I've used each and every one of them, along with dozens of other options not listed. In most cases, I've used the software for years.

I based the selection on several factors:

Cost
Automation
Investment analysis tools
Retirement planning tools
Ease of use
Dashboards, charts and reports

FAQs

What is the best investment tracking app?

In my view, the single best investment tracking tool is Empower. It's free, automated, and has a wealth of investment analysis tools.

Are investment tracking apps hard to use?

Some are and some are not. With tools like Empower or Quicken, It's simply a matter of connecting your investment accounts. Once connected, the tools analyze all of the data and present it in a way that's easy to understand.

Some software that must be downloaded, however, has a much higher learning curve. And for that reason did not make our list of the best options.

How do I set up investment tracking alerts with many of the tools on our list?

You can get notified when any transactions occur in your account. Empower, for example, will email you every day, week or month to notify you of any transactions in your linked accounts.

Other Portfolio Management Apps I'm Tracking

The above apps are the best I've found, but I am evaluating other stock tools:

Stock Rover: I've been using this tool for several weeks and really like it. It can be used for index fund investors, stock traders, and everybody in between. It includes tons of research data, useful historical data, and even asset allocation portfolios you can examine.

EquityStat: Another stock tracker with a clean interface. It's ideal for tracking the performance of an investment portfolio. Unfortunately, it doesn't give you any insight into the asset allocation of a portfolio.

The 7 Levels of Financial Freedom

December 9, 2021 by Rob Berger

The Financial Independence, Retire Early (FIRE) movement has underscored the power of financial freedom. It's the central theme in my book, Retire Before Mom and Dad. Indeed, financial freedom is the guiding principle of how I manage money.

While financial freedom sounds good, however, many see it as a destination that's at best 30 or 40 years away. To them, it's just a fancy way of describing retirement.

I couldn't disagree more.

While it's true that we can and should define what ultimate financial freedom looks like (see below), we can begin to reap the benefits in a very short period of time. Financial Freedom is more of a journey than a destination.

It's for this reason that my book walks through what I call the 7 Levels of Financial Freedom. And that's what we'll cover in this article. Be sure to check out the free financial freedom calculator near the end of the article.

Table of Contents

4 Key Foundational Principles of Financial Freedom

First, there’s value to money that you never spend. This is counter to what must people think. Even retirement savings will eventually be spent, even if it's decades later. Until the money is spent, and even for money we never spend, however, there is tremendous value.

What's the value? Our freedom.

Second, the benefits of financial freedom are experienced much sooner than retirement. The ability to retire is an empowering feeling, but it’s not the only kind of empowerment that savings can afford. Lesser tiers of financial freedom can change someone’s mindset and options for the better. The seven levels below will explain this more clearly.

Third, the levels of financial freedom are calculated based on monthly expenses, not income. The focus should be on how many months of living expenses our savings can cover. That's real freedom. As a result, we focus on what percentage of our income we can save.

Finally, we use Bill Bengen’s 4% withdrawal rule when calculating Level 7 Financial Freedom. In other words, we achieve the ultimate financial freedom when are savings equals 25x our annual expenses. For example, a retiree who spends $54,000 a year in retirement would need $1,350,000 to reach Level 7.

The 4% rule has come under fire lately. Some say that given high stock valuations and low bond yields, it's no longer viable. Morningstar recently released a report claiming 3.3% is the new “safe” withdrawal rate. Time will tell who is right. For our purposes, we'll continue to use 4% for planning purposes only.

The 7 Levels of Financial Freedom

For each level you'll find how many months it will take to reach the level if you save 10%, 15%, 20% or 30% of your income. Keep in mind that the number of months won't change for different income levels. In each case, it's your savings rate that determines your time to each level.

You can run your own numbers with the financial freedom calculator here (described in more detail below).

Level 1: One Month of Expenses Saved

Level 1 might not seem like Financial Freedom, but it’s an important start to your journey. It’s here that you stop living paycheck-to-paycheck. You may only have a one-month cushion, but that’s a big deal. It gives you breathing room for when—not if—the unexpected happens.

Studies show that most people cannot come up with $400 for an emergency. According to a study by the Federal Reserve, 4 in 10 Americans couldn’t cover a $400 emergency with their savings. In other words, most Americans have not achieved Level 1 Financial Freedom.

Time to Level 1:

Savings Rate	Months to Level 1
10%	9
15%	5.5
20%	4
30%	2.3

Assumes a 5.0% Rate of Return (very conservative)

Note that saving 20% cuts by more than half the time to Level 1 as compared to saving 10%. That's because as we save more we spend less. We thus get the double benefit of saving more money and need less money to meet our goal of one month of expenses. I call this the Boomerang Affect in my book.

Also note that compounding has very little to do with reaching Level 1. We haven't yet saved enough money over enough time to see the benefits of compounding. That comes around Level 4 and after, when the majority of our wealth is from compounding.

Level 2: Three Months of Expenses Saved

At Level 2, we reach what most financial gurus say is the minimum emergency fund you should have. You now have enough money in the bank to handle most emergencies. The money could even help you survive during a short-term job transition.

Reaching this point should taste sweet. If an unexpected expense pops up, there isn’t a need to borrow money to cover it. This is important given avoiding high-interest debt is essential to reaching financial freedom.

Time to Level 2:

Savings Rate	Years to Level 2
10%	2.1
15%	1.4
20%	1.0
30%	0.6

Assumes a 5.0% Rate of Return

The effect of compounding interest is still in its nascent stage by Level 2. The example shows that around 5% of the ending balance comes from investment returns. Building wealth takes time.

The numbers do change when the savings rate changes. Changing the savings rate in the example to 20% instead of 10% halves the time it takes to reach Level 2. As an investor lives further and further below their means, their journey toward greater financial freedom becomes exponentially faster.

Level 3: Six Months of Expenses

Level 3 is simply the upper bound of an emergency fund, with 6 months of expenses. The balance should be able to cover the unfortunate possibility of all insurance deductibles coming due simultaneously. An extended unemployment period also would be manageable. Compound interest begins to become noticeable.

Time to Level 3:

Savings Rate	Years to Level 3
10%	2.1
15%	1.4
20%	1.0
30%	0.6

Assumes a 5.0% Rate of Return

Level 4: One Year of Expenses

Level 4 is when things start to get interesting. Two things happen.

First, with one year of expenses saved, you can handle a significant bout of unemployment. Today the average person will change jobs 12 times during their lifetime. While we hope these transitions go smoothly, Level 4 Financial Freedom will help you ride out any bumps in the road.

Second, we start to see the benefits of compounding, something I call the Money Multiplier in my book. As we now know, most of our Freedom Fund doesn’t come from putting aside money each month. That’s how it starts, of course, when we are trying to reach Level 1, 2, or even 3.

Eventually, however, the money we save starts to earn a nice return. In fact, if done right, our investments will produce far more income than our jobs. That takes time, and it’s here at Level 4 that we start to get a glimpse of the power of the Money Multiplier.

Time to Level 4:

Savings Rate	Years to Level 4
10%	7.5
15%	5
20%	3.7
30%	2.2

Assumes a 5.0% Rate of Return

Level 5: Five Years of Expenses

At Level 5, you’ve already exceeded the savings that most will achieve in a lifetime. Assuming $50,000 in annual expenses (the round number makes the math easier), for example, you’ve amassed $250,000 in savings and investments. At a 9.3% return (the average return of an 80/20 portfolio over the last 90 years), your Freedom Fund will generate almost $25,000 in returns over the next 12 months. In other words, your investments are generating income approaching 50% of your annual spending.

Level 5 also represents a danger point. It’s here that some may become complacent. With so much money saved, it’s easy to return to old habits or to lose focus. Knowing that now will help you avoid this danger when you reach Level 5.

At this point you may be wondering what Level 5 Financial Freedom feels like. After all, one could say this is nothing more than traditional retirement savings. Oh, but it’s so much more!

Let me tell you a story.

In the middle of my career, I had a job that at times was very unpleasant. I have a vivid memory of a meeting with the boss. He was yelling at an employee on the phone. He was out of line. It was then I understood the true power of Financial Freedom.

While my wife and I hadn’t reached Level 7 at that time, we were right around Level 5. I knew I could walk out of that job if I needed to and we’d be fine financially. I wasn’t stuck. And it was a great feeling.

Less than a year later, I took a pay cut to pursue a new opportunity. I took that risk because I could; I wasn't chained to my job or to the salary. It turned out to be the best career move of my life. And it was made possible because of Level 5 Financial Freedom.

This is an example of how money saved and never spent can have a profound effect on our lives.

Time to Level 5:

Savings Rate	Years to Level 5
10%	23.6
15%	17.7
20%	13.9
30%	9.2

Assumes a 5.0% Rate of Return

Level 6: Ten Years of Expenses

Level 6 is an important milestone. It’s here that your investment income will begin to equal and then exceed how much you are spending each year.

Let's again assume you spend $50,000 a year. At Level 6, you will have a Freedom Fund totaling $500,000. A 9.3% return will generate returns of $46,500 over the next 12 months, bringing your Freedom Fund to $546,500. The following year, with a Freedom Fund totaling almost $550,000, you will on average generate just over $50,000 a year.

Talk about a great feeling! You are working hard, earning an income, and spending $50,000 a year. At the same time, your Freedom Fund is generating returns equaling the same amount. Like a snowball rolling downhill, your wealth is multiplying before your very eyes.

Time to Level 7:

Savings Rate	Years to Level 6
10%	34
15%	26.9
20%	22
30%	15.5

Assumes a 5.0% Rate of Return

Level 7: Twenty-Five Years of Expenses

Level 7 is the Ultimate Financial Freedom. It’s here that you can completely retire from work if you so choose. Or, if you’re like me, you can work on projects you love while still earning an income. The choice is yours.

Level 7 enabled me to retire from the practice of law at 49. Following my retirement, I continued to run my personal finance blog, newsletter, and podcast. Two years later I sold my blog, but I still record a podcast each month, and I became a Deputy Editor at Forbes for a couple of years. These activities generated income. But I did them because I’m passionate about personal finance and investing.

When you reach Level 7, you can pursue your passions. That may mean keeping your job. There’s nothing wrong with that if that’s what you love. It may mean starting a business. Here’s the point—you decide for yourself what you’ll do when you reach Level 7. It’s a beautiful feeling.

Time to Level 7:

Savings Rate	Years to Level 7
10%	50
15%	41.9
20%	35.9
30%	27.4

Assumes a 5.0% Rate of Return

A Simple Financial Freedom Calculator

I've created a free financial freedom calculator in Google Sheets. The tool is simple to use. You simply input the following four things:

Rate of return
After-tax income
Savings rate
Current savings

From there the tool estimates how long it will take you to reach each level of financial freedom.

The tool has an investment rate of return of 5% input by default. This roughly represents the historical post-inflation return of a 60-40 stock/bond portfolio. You can change the assumption to whatever you like.

Debt is conspicuously missing from the spreadsheet. This is because debt payments are accounted for in the after-tax income section. Debt repayment is considered a recurring monthly expense. It’s possible to be financially free while having some debt and the calculations reflect that.

The baseline savings rate is listed at 10%. That number is in line with conventional retirement advice. Over an average 40-45 working life an investor would be on track to retire at 65 given a 10% savings rate. Again, that figure can be changed in the spreadsheet.

Finally, be sure to alter the current savings section. Many will be starting at more than zero. The number should include emergency short-term savings as well as retirement or brokerage account balances.

Final Thoughts

Financial freedom is the best thing money can buy. As I was working toward the goal, I viewed every dollar I saved as buying my financial freedom. At first it starts off slow, but it quickly builds to the point that compounding generates far more money than we could ever make at work. The key is to get started now.

And for those that want to track their progress with a more sophisticated tool, check out Empower. It's free and the best overall net worth, investment and retirement planning tool available today.

4 Best Target Date Retirement Funds in 2023

December 2, 2021 by Rob Berger

Target date retirement funds make investing in a 401(k) or IRA easy. Simply pick a fund that corresponds with when you plan to retire, and the fund does the rest. In this article we'll look at several of the best target date retirement funds available today.

Table of Contents

Target date retirement funds can be great tools for long-term investors. There are, however, factors that differentiate great target date funds from others I would not recommend. I've researched dozens of funds to identify the best options, as well as an example of a target date fund you should avoid.

4 Best Target Date Retirement Funds

For each of the target date funds below, we'll explore the 2050 version. A 2050 fund is designed for those retiring around the year 2050. Each of these fund families offer funds in five-year increments (e.g., 2020, 2025, 2030).

M1 Finance Target Date Retirement Funds

M1 Finance retirement funds make the top of my list for several reasons. First, for each retirement year (e.g., 2020, 2025, 2030), M1 Finance offers three different funds. All of the other options below only offer one. Specifically, M1 Finance offers investors Aggressive, Moderate and Conservative options for each retirement year.

For example, the M1 Finance 2050 Aggressive Target Date Retirement Fund allocates just 3% to bonds, while its 2050 Conservative fund allocates 19% to bonds.

Second, each of M1 Finance's funds (they call them Pies) include broad stock and bond exposure across more than a dozen low cost ETFs. Here, for example, are the ETFs used in the 2050 Aggressive fund:

Third, unlike the other funds in my list, there is no elevated expense ratio to pay. M1 Finance doesn't charge a fee. The only fees are those associated with the low cost ETFs M1 uses in each portfolio, and these are lower than the fees a target date fund charges.

Finally, the fund for those now in retirement (the 2020 fund) is in my view the best option available. The Aggressive 2020 fund is approximately 60/40 stock to bond allocation a reasonable approach for retirees following the 4% rule. Without exception other retirement funds become far too conservative at this stage.

M1 Finance target date funds are automatically updated and rebalanced quarterly. There is no minimum initial investment required.

Summary

Expense Ratio: 0.08%
Dividend Yield: 1.831%
Minimum Investment: None
Website: M1 Finance

Vanguard Target-Date Retirement Funds

Vanguard’s 2050 offering, ticker VFIFX, is another solid option.

The expense ratio for the fund is extremely reasonable at only 15 basis points (0.15%). Important to note given low fees often predict the later success of a fund. VFIFX checks that box.

Turning to the Portfolio tab on Morningstar gives us a better look into the asset allocation of the fund.

Vanguard’s 2050 fund is 54% invested in US stocks and about 37% invested in international stocks. The remaining 9% of the fund is allocated to bonds. This aggressive investment mix makes sense given that it's tailored for an investor with 30 years left to build their Portfolio. Keep in mind that this allocation will become more weighted toward fixed income as we get closer to 2050.

Vanguard implements this asset allocation plan using five Vanguard funds:

Five holdings doesn’t seem diversified. Here it's important to understand that the number of funds in a portfolio tells us nothing about its overall diversification. We need to know what each of the funds owns. In this case, the holdings include thousands of stocks and more than 10,000 bonds. It's well diversified.

Vanguard requires a $1,000 minimum initial investment.

Summary

Expense Ratio: 0.15%
Dividend Yield: 1.41%
Minimum Investment: $1,000
Website: Vanguard

State Street Target Date Retirement Funds

State Street’s 2050 target date retirement fund, ticker SSDLX, makes a strong impression with only a 9 basis point (.09%) expense ratio. It's one of the least expensive options available today.

State Street Target Retirement 2050 Fund

Its asset allocation is similar to Vanguard’s.

State Street Target Retirement 2050 Asset Allocation

The Portfolio tab shows us the fund is invested 51% in U.S. stocks, 35% in international stocks, and about 10% in bonds. The holdings of the fund reveal more similarities to its Vanguard counterpart. It invests the fund in six index funds.

State Street Target Retirement 2050 Portfolio

Three stock funds and two bond funds substitute for the inverse with Vanguard’s offering. The U.S. stock portion of the fund is split into an S&P 500 large blend fund and a mid-cap growth fund. Still, State Street’s fund should perform in line with Vanguard’s, with the added benefit of the lower expense ratio we saw earlier.

Summary

Expense Ratio: 0.09%
Dividend Yield: 1.32%
Minimum Investment: None
Website: State Street

Fidelity Freedom Index Funds

The final fund is Fidelity’s Freedom Index 2050 Investor, ticker FIPFX. The exact naming of this fund is important to note. FIPFX has the word index in the fund name. Fidelity offers another Freedom 2050 target-date fund, but the underlying holdings consist of actively managed mutual funds.

As a result, that fund charges 75 basis points (.75%) in fees. In contrast, the Freedom Index fund only charges 12 basis points (.12%). That expense ratio puts the Fidelity fund in between State Street’s and Vanguard’s options.

The asset allocation of this fund is nearly identical to the Vanguard, State Street and M1 Finance Moderate funds.

Fidelity Freedom Index 2050 Fund Asset Allocation

Nothing surprising jumps out–53% of the fund is allocated to U.S. stocks and 37% to international stocks. Bonds fill out the remaining 10%.

The holdings of the fund shouldn’t shock anyone either. Fidelity uses Fidelity index funds to implement its asset allocation.

Fidelity Freedom Index 2050 Fund Portfolio

Overall, another sensibly arranged portfolio–Diversified, low-cost, and convenient.

Summary

Expense Ratio: 0.12%
Dividend Yield: 1.18%
Minimum Investment: None
Website: Fidelity

Target Date Retirement Funds in 401(k) Accounts

If target-date retirement funds are starting to seem like attractive options, it might be worth considering holding a target date fund in a 401k if one is available to you. Since company 401(k) plans often invest hundreds of millions at a time, mutual fund providers may offer companies an expense ratio discount to attract their business.

For example, ticker FRLPX is the Fidelity Freedom Index 2050 option offered in my 401(k) at Forbes. This version of the fund has the same asset allocation, holdings, and glide path but charges half the fees of the non-401(k) investor class fund.

I mention this industry convention not only to highlight the fee difference but also to prevent any confusion when picking funds in a 401(k). If there’s any doubt as to whether one fund mirrors another, it’s best to check the Portfolio tab on the Morningstar listing for both funds and make sure the only difference is the expense ratio.

Backtesting Target Date Funds

For a performance comparison of the funds, we’ll be using Portfolio Visualizer. This site is great for backtesting portfolio options and provides a number of useful metrics for weighing funds. The data set will be limited by the age of the newest target-date retirement fund, but we have a reasonable length of time to compare the funds.

The 3 funds compete very closely with one another. The Fidelity fund ultimately wins out by only a couple hundred dollars. The standard deviation of the funds, a measure of portfolio volatility, is fairly uniform from fund to fund. The same goes for the maximum drawdown period of the funds. Safe to say, any of the three funds are reasonable and comparable options.

The M1 Finance fund has had similar return and risk characteristics.

Not All Target Date Funds are Good Investments

I’ve chosen one fund that exemplifies some suboptimal aspects that should signal investors to steer clear. I do this not to belittle the mutual fund company or fund in particular, but to illustrate what potential negative qualities of target date funds can cost investor's future returns.

The fund is called the American Century One Choice 2050, ticker ARFMX. I would avoid the fund for two main reasons.

First off, the fund’s expense ratio is simply too high. American Century charges over 1%, making it more than 10 times as expensive as the fund options we've looked at. Unfortunately, that isn’t the end of the fees associated with investing in the fund. ARFMX has a front load fee, meaning there’s a sales charge paid every time you buy into the fund. Purchasing through a 401(k) would bypass that fee. Otherwise, and I can’t caution against this enough, that fee would recur every time a contribution is made.

The second reason why I'm not a fan of this fund is its asset allocation.

American Century One Choice 2050 Asset Allocation

Remember that American Century’s target date is a 2050 fund just like the 4 funds we explored. That means the typical investor in the fund is 30 years away from retirement. Nevertheless, the fund allocations 22% in bonds. For some investors, that conservative approach might be attractive. But in my estimation, that is too cautious a strategy for investors with such long time horizons.

An 80/20 split between stocks and bonds is perfectly reasonable in a vacuum, but remember the fund will increase its bond allocation over time. Overall, the fund is a suboptimal choice given its fee burden and asset allocation.

The American Century fund performance in comparison to Vanguard’s offering should bear out my concerns.

American Century One Choice 2050 Performance

That data for this backtest in Portfolio Visualizer goes back to 2009. The fund's fees and asset allocation drag on the ugly duckling fund to the tune of almost a full percent less in returns.

The key point is to recognize that not all target date funds are created equal.

How Target Date Retirement Funds Work

Target date retirement funds feature a date in their name. For example, the funds we've discussed are 2050 funds. The date corresponds to the investor’s planned retirement date. Somebody seeking to retire in about 30 years would be especially interested in 2050 funds.

Target date retirement fund offerings are typically spaced out in 5-year increments, meaning there are 2045 and 2055 versions of the funds we’ve explored. Picking a retirement date is not an exact science and things do change. Still, having a target date in the fund name provides some useful information about the fund’s asset allocation today and in the future.

Target date retirement funds hold a combination of U.S. stocks, international stocks, and bonds. The specific weighting of those asset classes adjusts over time and can vary between mutual fund companies. The expense ratio associated with target date funds goes, in part, toward paying for these adjustments. Allocation adjustments are made based on “glide paths”, which are predetermined rebalancing plans that each target date retirement fund follows.

As investors get closer to their chosen retirement date, target date funds shift more heavily toward bonds and away from stocks. This shift is meant to reduce portfolio volatility during investors’ retirements. An attractive approach in theory but one that can create some pitfalls, which we’ll address next.

The Downside of Target Date Funds for Retirees

Target date funds are a reasonable approach to investing for retirement. Once you reach retirement, however, these funds have a downside. They become far too conservative.

These funds follow a declining glide path. That simply means that as we get closer to retirement, the funds move stock investments over to bond investments. That in itself is reasonable. The problem is that they become far too conservative.

For example, the Vanguard Target Retirement 2015 fund is only 30% invested in stocks. A retiree six years in might want the security of a healthy bond allocation, but I would argue there’s such thing as being too safe. Granted, I’ve shifted my own investments into safer investments in retirement. Still, I wouldn’t recommend divesting a portfolio of stocks past the 50% mark.

In fact, Bill Bengen, the father of the 4% rule, found that a retiree's portfolio should have 50% to 75% in stocks. Anything less and their odds of running out of money early go up.

With the exception of M1 Finance, each of the target date funds mentioned above fall well below the 50% equity floor.

Are Target Date Retirement Funds Diversified?

Diversification is important to any investor. Investing in a single mutual fund seems counter to that idea, but not in the case of target date retirement funds. Target date retirement funds provide ready-made diversified portfolios that hold thousands of domestic and international stocks and tens of thousands of bonds of various credit qualities. So yes, these funds are well diversified.

Final Thoughts

While I don’t personally invest in target date retirement funds, they are still reasonable and effective options. I advocate that investors start their wealth-building plans with a 3-fund portfolio. That said, the solid target date fund options we've discussed are all reasonable approaches to retirement investing.

How to Invest $1 Million | A Step-by-Step Guide to Investing a Windfall

November 23, 2021 by Rob Berger

Investing $100 a month is simple. Many use one or more low cost index funds. So why does investing $1 million or more seem to require a more complex portfolio? In short, it doesn't.

In this article I talk about how to invest large sums of money. I'll share my own personal experience of investing a windfall. And I give you some specific portfolio ideas that I believe are ideal for invest even tens or hundreds of millions of dollars. Finally, I'll share some books and other resources you may find helpful.

Who Has $1 Million to Invest?

At first it may seem like this article is for just a select few. There are several ways to find yourself with a lot of money at one time. These include inheritance, life insurance, the sale of a business or from an IPO or other liquidity even. But let's face it, those who receive a windfall like this are few in number.

There is, however, a more common way many find themselves investing a large amount of money at one time–retirement. After a lifetime of work, workplace retirement accounts can exceed $1 million. Rolling a weighty 401k over into an IRA can be nerve-wracking. That's why so many retirees hire expensive investment advisors to manage what they had managed on their own in a 401k for decades.

And that raises an important question–why is investing a large amount of money so psychological challenging?

FACTOID: Ryan Cohen, of Chewy and GameStop fame, chose to stay the course with his fortune. He experienced a massive liquidity event to the tune of $3.4 billion when he sold his stake in Chewy. How did he invest his windfall? He put it all in just two stocks–Apple and Wells Fargo. Cohen accepted a lot of volatility by choosing to park his funds in only two stocks. I don't recommend this approach, although with billions of dollars one can afford to take some risk.

Investing a Windfall is Psychology Difficult–Here's Why

There are three main reasons why investing a windfall presents unique challenges.

Small-Big Dichotomy

The first reason is what I call the Small-Big Dichotomy. “Small” refers to the idea that most people reach a $1 million net worth after years of monthly investing. Small, steady contributions to a 401k don't feel daunting. You invest the best way you know how and watch your net worth grow.

Reaching $1 million gradually over time may be cause for celebration. When the second comma pops up in the account, you might celebrate or tell your significant other. But you don’t have to ask yourself “how am I gonna invest $1 million?” You just keep doing what you've been doing.

The flip side of the dilemma is a “big” event–$1 million materializing overnight. Those who receive a windfall from a business sale or inheritance naturally fear making an investment mistake. Even moving money saved over a lifetime from a 401k to an IRA can feel overwhelming and fraught with danger. That worry is perfectly reasonable. Bad portfolio management has consequences. But the dilemma is more the same than different. Taking the same approach in both “big” and “small” situations makes more sense than it seems.

The Road Less Travelled Dilemma

The second challenge is the Road Less Travelled Dilemma. Windfalls often occur in tandem with big life changes. That might mean no longer owning a business, a loved one passing away, or retirement. There’s often a lot of essential change swirling. “What am I going to do with this money?” often runs parallel to “what am I gonna do with my life?” The anxiety behind both decisions can compound.

Living Off Your Nestegg

The last dilemma is the fear of living off a portfolio. You can read all the retirement books out there and understand the 4% rule. It’s going to still feel strange. I can tell you from personal experience that living off a nest egg is a new experience. As with the other two dilemmas, working away the emotional weight of the change is the best approach, but it takes time.

The starting point is to ask three questions.

3 Questions to Ask Before Investing a Windfall

How much cash do I need over the next 5 years?

First, think about how much cash you'll need over the next five years. Factor in both month-to-month expenses and large one-time purchases like home renovations, traveling, or paying for a child’s wedding. As a general rule, one should not invest money needed over the next five years in the stock market (although one can argue in favor of investing for short-term goals).

Setting aside five years of expenses serves another purpose, too. It helps create mental preparation for the market potentially going sideways or down for that period of time. Historically, there have been a number of periods where returns stayed flat or gone down over a five year period. For that reason, cash is king over short time periods.

Do you invest in one lump sum or dollar cost averaging

My approach has always been to invest a windfall in a lump sum rather than dollar cost averaging over an extended period. It's the approach I followed when I received bonuses at work. It's also the approach I took when I sold my business a few years ago. Further, studies show that lump sum investing beats dollar cost averaging most of the time.

Notice I said most of the time. There will be periods of time when it would have been better to dollar cost average into the market. The key here is to accept that we cannot know the future, and therefore, we cannot know which approach would be the best at any given point in time.

If it makes you feel more comfortable to dollar cost average of say a 12 month period, that's perfectly reasonable. Just put your plan in writing and follow it.

What are your specific investing goals?

The last thing to consider is how hands-on you want to be with your portfolio. Many investors prefer to be hands-off and automate the management of their investments. Others enjoy investing and what to handle everything from fund selection to rebalancing on their own.

There is no right or wrong choice here. What you chose to do, however, may affect how you invest and where you keep your money. A DIY investor may open a standard brokerage account. Someone who wants an automated service, by contrast, might select a robo-advisor such as Betterment.

How to Invest $1 Million

Now let's turn to the actual investing of a large sum of money. What follows are three simple, easy to manage portfolios that I believe are reasonable choices whether you want to invest $500 or $500 million.

Warren Buffett Portfolio

A few years ago Warren Buffett described how he thinks most people should invest their money. It's become known as the Warren Buffett Portfolio. He advocates a portfolio that consists of 90% in an S&P 500 index fund and 10% in short-term U.S. treasuries. Buffett even instructed that his wife’s trust be allocated as such when he passes away.

The portfolio is attractive given its low-cost, broad market diversification, and mix of stocks and bonds. Here's a snapshot of the portfolio implemented at M1 Finance.

Factoid: The Warren Buffett Portfolio is very similar to the 2-fund portfolio William Bengen followed in his landmark study that brought us the 4% Rule. The two key differences are that Bengen used intermediate term Treasuries and advocated no more than 75% in stocks.

3-Fund Portfolio

Buffet and Bengen’s 2-fund portfolios are perfectly reasonable, but there are more diversified strategies. The 3-fund portfolio adds international exposure and features a total bond market fund. There’s no guarantee it will outperform the 2-fund option, but the added asset classes should smooth out volatility over the long term.

The Total Stock Market Index ETF (ticker: VTI) adds some welcome mid and small-cap exposure compared to the S&P 500. You can see my VTI vs VOO comparison here. The Total Bond Market fund diversifies bond risk across a number of types of bonds. The portfolio’s expense ratio remains low at just 5 basis points (.05%).

6 Fund Portfolio

The 3-fund portfolio works well for $1 million, $10 million, even $400 million. It’s a solid starting point for any investor. Investors looking for more granularity should consider the 6-fund portfolio, which is what I use. The 6-fund portfolio adds exposure to REITs, small-cap value stocks, and emerging markets.

The additional asset classes in the portfolio are historically volatile. The theory is that the excess risk brings greater returns. Adding non-correlated assets to the portfolio can help ensure that if several sectors are going down, one is at least going up.

Avoid Expensive Investment Advisors

An itch best left unscratched is the urge to seek out a high-cost investment advisor. Commissioned brokers sell pricey financial products disguised as unique opportunities. They’re never going to recommend keeping fund expenses low because that’s not in their best interests.

After I sold my business, I talked with some investment advisors. They were recommending exotic investments like non-traded REITs, expensive insurance products, and private equity that enriches the brokers who sell them but rarely justify their expense to the investor.

Getting Help

There are reasonably priced methods of getting professional investment advice. As a rule of thumb, avoid advisory fees that exceed 50 basis points (.50%). For example, Vanguard offers advisory services for 30 basis points (.30%). To the best option is an advisor who charges by the hour or a flat fee. There's simply no reason to give away part of your wealth each and every year for financial advice.

Resources

I recommend a number of books that further detail the investing strategies outlined above. A few of the books either reference or were written by Jack Bogle. Bogle founded Vanguard and gave rise to the “Boglehead” approach to investing.

The Bogleheads’ Guide to Investing by Taylor Larimore is a great resource on investing and retirement. An older title, but one that is still relevant, is The Four Pillars of Investing by William Bernstein. The book is a great learning tool when it comes to portfolio construction and investing.

Another book by Jack Bogle worth your time and money is The Little Book of Common Sense Investing . It’s worth exploring the Boglehead forum as a supplement to picking up a book. The discussion on the site is quite interesting and evidence-based.

Final Thoughts

Investing a large sum of money at one time can feel daunting. It causes many to hire expensive financial advisors who put them in complex, expensive and unnecessary investments. I firmly believe that the best approach is a simple, low-cost portfolio constructed of index funds.

VOO vs VTI: An Easy Way to Choose Between an S&P 500 and Total Stock Market Index Fund

November 3, 2021 by Rob Berger

I've been investing for over 30 years. I've been writing about investing for the past 15 years. One of the questions I get the most is whether you should invest in an S&P 500 Index fund or a total stock market index fund–VOO vs VTI (ETFs) or VTSAX vs VFIAX (mutual funds).

Table of Contents

It's an important question that torments a lot of investors. It shouldn't. The answer answer is really, really simple. It doesn't matter. But the explanation takes a little bit of explanation. We're going to walk through that today using Vanguard ETFs (VOO and VTI), although the same rationale applies to any fund family.

First we'll compare the portfolios of the S&P 500 index with the total stock market index. We'll look at both the differences and the similarities. Second, we'll look at the historical returns and volatility of both indexes. Finally, I'll offer a simple approach to deciding whether VOO or VTI is best for you.

VTI vs VOO

Both VTI and VOO are lost cost index funds. Vanguard currently charges just 3 basis points (0.03%) in fees for both funds. As ETFs, they don't have minimum purchase requirements (Vanguard mutual funds do, typically $1,000 or $3,000). They are also both very large funds, each with more than $250 billion in total assets.

Portfolios

The investing style of both an S&P 500 and total stock market index fund are similar. They both portfolios heavily weighted to large U.S. companies. Using Morningstar's style box, we can see that both funds are classified as large-cap blend (i.e., core) funds.

VTI Stock Style — VTI–Total Stock Market Index

If you're new to Morningstar's tools, check out my Guide to Morningstar.

What these charts tell us is that both VOO and VTI are large cap funds (see the blue dots in the top row). They also tell us that both funds' investment style is a blend of value and growth companies (blue dot is in the middle column).

Now they are not identical. The S&P 500's Style Box shows that the average company's market capitalization (market cap) is a bit larger (the blue dot is a bit higher). We can see this more clearly by looking at what Morningstar calls the “Weight” style box.

VTI weight — VTI–Total Stock Market Index

The weight style box shows us the percentage in each fund invested in small, medium and large companies, organized by value, blend or growth. As you can see, the S&P 500 is predominately large companies, with 14% in medium size companies and nothing allocated to small cap. In contrast, VTI has more allocated to medium companies and 7% allocated to small cap companies.

The big question for us is whether these differences should matter. Before we answer that question, let's take a deeper dive into the actual companies these funds hold.

Holdings

If we go to the actual holdings, this is where things get interesting. Using Morningstar, we can see the top 10 holdings in each fund.

Here are the top 10 holdings for VOO, followed by the top 10 for VTI:

As you'll see, the top 10 holdings are identical for both funds. Apple is the current #1 holding (this may change to Microsoft soon) with Berkshire Hathaway holding the #10 spot. What is different is the percentage that each fund holds of each of these stocks.

You can see that for the total stock market index, Apple comprises about five percent of the fund, whereas for the S&P 500 index, it's just over six percent (these percentages can change daily as the price of each stock changes).

To understand why there's a difference, we need to understand cap weighted versus equal weighted indexes.

Cap Weighted vs Equal Weighted

Most index funds are market cap weighted. That means that the more valuable a company is the more it represents in the particular index. Since Apple is the most valuable company in the world at the moment (actually, Microsoft took the lead, but the change hasn't been reflected yet in the Morningstar data), an index fund allocates more of each investment in Apple than it does smaller companies.

There are equal weighted index funds, too. These funds divide investors' money equally among all of the companies in the index. This type of index fund is much less common. Both VOO and VTI are cap weighted index funds.

Thus, if we add up the top 10 companies that you see for each fund, we'll see similar but not identical results. With VOO, the top 10 companies represent about 26% of the fund. For VTI, the top 10 comprise about 21%. Again, these percentages do change as company market caps change.

VTI's percentage allocated to the top 10 is less than VOO because it must allocate its assets among all publicly traded companies headquartered in the U.S. (about 3,700). VOO only allocates its capital among 500 companies.

Dividend Yield

It's worth noting that the dividend yield is different for these funds as well. VOO has a trailing twelve month (TTM) yield of about 1.25%. In contrast, VTI's yield is 1.20%. The difference isn't significant in my view, but for some it's a critical factor.

VOO vs VTI Performance

Now we move to what really matters, performance. Using Portfolio Visualizer, we can see how the S&P 500 has compared to a total stock market index over several decades.

First, let's see how a $10,000 investment in each of these asset classes beginning in 1972 (that's as far back as Portfolio Visualizer goes) would have performed:

Note that I'm comparing asset classes, not VOO and VTI. I'm doing that because we get more data. As you can tell, the performance has been almost identical. The Compound Annual Growth Rate (CAGR) was just 8 basis points higher for total stock market. The S&P 500 had slightly less volatility as measured by standard deviation. For all practical purposes, the investments were identical.

If instead of investing one lump sum, we start with $100 and add $100 every month, the results continue to be nearly identical:

During shorter periods of time, VOO or VTI might outperform the other by small margins. Over the long term, however, they've performed very similarly.

VOO vs VTI–How to Choose

Given the nearly identical performance and volatility, how do we decide between VOO and VTI? I'm going to suggest three factors to consider.

First, in a 401(k) or 403(b), you may not have a choice. The 401(k) I currently have offers an S&P 500 index fund, but doesn't offer a total stock market index fund. In this situation, take whichever one your workplace retirement account offers. It doesn't really matter and you shouldn't view that as a problem or something to worry about.

Now, if you do have a choice or you're investing in an IRA or a taxable account where you absolutely do have a choice, then I'd suggest one of two approaches.

If simplicity is your goal and you want all of your U.S. stocks in a single fund, go with VTI or another total stock market index fund. For example, if you invest in a three fund portfolio, I prefer a total stock market index fund. It's not because I think it'll outperform the S&P 500. We just saw that the performance numbers are pretty much identical. What VTI does give you, however, is added diversity. If the volatility or risk is effectively the same, and the performance is effectively the same, why not get greater exposure to the equities market.

On the other hand, if you want to slice and dice your portfolio into several U.S. asset classes, as I tend to do, I prefer the S&P 500. Why? It gives me more control over the specific asset allocation I'm trying to achieve.

Final Thoughts

So there you go. There are some of the key differences between an S&P 500 index fund and a total stock market index fund. We specifically looked at VOO versus VTI, but these considerations apply to similar funds from Fidelity, Schwab or other investment companies. The good news is that while there are differences between the two types of investments, both are excellent options for U.S. equity exposure.

I use Empower to track all of my investments. The free tool shows me my asset allocation, total costs, and retirement projections. Check out my Empower Review and User’s Guide to learn how it can help you, too.

5 Best Dividend ETFs and 3 to Avoid

October 1, 2021 by Rob Berger

Dividend investing has become an obsession. Books have been written about. YouTube channels have been dedicated to it. Some have an almost cult-like attachment to the Dividend Aristocrats.

Many investors flock to dividend ETFs because of their higher yields. In contrast, I like dividend ETFs for their lower valuation metrics. Given the high valuations in the S&P 500, an argument can be made to add a dividend ETF or mutual fund as a way to bring down the P/E ratio of a portfolio.

In that light, we'll look at 5 excellent dividend ETFs to consider. We dive into each to understand how the portfolio is constructed and how each has performed over the past decade. We also look at three dividend ETFs we should avoid.

Table Of Contents

What is a Dividend ETF
How to Compare Dividend ETFs
5 Best Dividend ETFs
3 Dividend ETFs to Avoid
Final Thoughts

What is a Dividend ETF

Virtually all stock ETFs generate dividends. Even an S&P 500 index fund has a yield (about 1.2% for those keeping score at home). The payment of a dividend, by itself, does not qualify a fund as a dividend ETF. Rather, a dividend ETF is a fund that invests in companies that pay a higher than average dividend yield.

Such a broad definition leaves room for a wide variety of investment strategies. Some funds focus on companies with high yields, while others focus on companies that are growing their dividends at a high rate. Still other ETFs limit their portfolios to companies that have increased their dividends each year for a set number of years (typically 5 to 20).

While each of these funds are rightly described as dividend funds, they couldn't be more different.

How to Compare Dividend ETFs

To compare one dividend ETF with another, here are the factors I consider:

Dividend Yield: As I've stated repeatedly on my YouTube channel, total return should be an investor's north star. That said, in evaluating a dividend ETF, the yield is an important factor. Here I'm more concerned with yields that are too high than too low. I've yet to find a dividend fund with yields 3x or more the market's average that have performed well over long periods of time.

Dividend Growth: Beyond yield, look at how quickly the companies in a fund grow their dividends. Such companies often offer the best combination of returns–a dividend along with excellent growth prospects.

Dividend Stability: A high yield doesn't help an investor if the company paying it is on shaky ground. Here I want to understand what percentage of a companies profits go to paying the dividend (i.e., Payout Ratio). A red flag would be a company who is borrowing money to meet the dividend expected by investors.

Fundamental Factors: One of the benefits of a dividend ETF is that a value approach to investing. Many dividend ETFs have P/E and P/B ratios well below the market average.

Expense Ratio: As with any investment, we need to understand the costs. An expense ratio above about 15 basis points requires scrutiny.

5 Best Dividend ETFs

1. Schwab US Dividend Equity ETF (SCHD)

The Schwab U.S. Dividend Equity ETF (SCHD) easily takes the #1 spot on my list. It has a yield about 2x the market's average. It requires companies to have 10 consecutive years of dividend payments to make the cut. And most importantly, it has relatively low valuations. It's P/E ratio is about 19. While that's still high based on historical standards, it's well below the valuations of the S&P 500 (currently more than 30).

The fund tracks the Dow Jones U.S. Dividend 100 index. The index screens companies based on the following criteria:

Minimum 10 consecutive years of dividend payments
Minimum float-adjusted market capitalization of US $500 million
Minimum three-month ADVT of US $2 million

What makes SCHD a winner, however, is the fundamental analysis used in stock selection. Factors include return on equity, free cash flow to debt and the five-year dividend growth rate. The result is a fund that has performed well over the years.

Tracking Index: Dow Jones U.S. Dividend 100 Index
TTM Yield: 2.82%
Dividend History: 10 consecutive years of dividends
Expense Ratio: 0.060%
AUM: $27.8 billion

2. Vanguard Dividend Appreciation ETF (VIG)

The Vanguard Dividend Appreciation ETF (VIG) tracks the S&P U.S. Dividend Growers Index. Unlike SCHD and the Dow Jones U.S. Dividend 100 Index, this index requires companies to have increased their dividend in each of the last 10 years. It then excludes the top 25% based on yield.

The result is a fund that's closer to a blend fund than value. It valuation metrics are higher (it's P/E ratio is about 25) and its dividend yield is lower. In addition, it has underperformed SCHD by about 1% over the past 10 years. Of course, who will win the next 10 years is anybody's guess.

Still, it's a sold choice for those who want a dividend focused ETF that slightly tilts toward growth.

Tracking Index: S&P U.S. Dividend Growers Index
TTM Yield: 1.48%
Dividend History: 10 consecutive years of dividend growth
Expense Ratio: 0.060%
AUM: $61.3 billion

3. Vanguard High Dividend Yield ETF (VYM)

The Vanguard High Dividend Yield ETF (VYM) tracks the FTSE High Dividend Yield Index. Good luck finding details on this index. The best I could find comes from Morningstar:

The fund tracks the FTSE High Dividend Yield Index, which captures the highest-yielding half of the universe of dividend-paying stocks in the large- to mid-cap U.S. equity market. The index starts with the FTSE USA Index and ranks its constituents by their projected 12-month yield. It then adds stocks by descending rank until 50% market-cap coverage of the universe of dividend payers is reached. As it aims for 50% market-cap coverage of this cohort, the fund tends to sweep in 400 to 450 stocks. Companies that have not paid dividends in the past 12 months or are not expected to pay one in the next 12 months are not eligible. REITs are also left out.

It's noteworthy that the index doesn't apply qualitative factors to its stock selection. Companies in the top 50% based on yield make the cut.

While the fund has trailed others on this list over the past decade, its portfolio could do well as we rotate from growth to value.

Tracking Index: FTSE High Dividend Yield Index
TTM Yield: 2.72%
Dividend History: 12 months
Expense Ratio: 0.060%
AUM: $38.0 billion

4. iShares Core Dividend Growth ETF

iShares Core Dividend Growth ETF (DGRO) tracks the Morningstar U.S. Dividend Growth Index. The index screens for companies that–

pay qualified dividends
have a minimum of five years of uninterrupted annual dividend growth.
have a significant margin to continue growing dividends.

It excludes the top 10% of qualifying companies.

Tracking Index: Morningstar US Dividend Growth Index
TTM Yield: 2.00%
Dividend History: 5 years of uninterrupted dividend growth
Expense Ratio: 0.080%
AUM: $20.1 billion

5. SPDR S&P Dividend ETF

SPDR S&P Dividend ETF (SDY) tracks the S&P High Yield Dividend Aristocrats Index. While the Dividend Aristicrats include companies that have increased their dividends for the last 25 years, this index limits the screen to 20 years. With this adjustment, it adds about 50 companies to its portfolio.

SDY has been the worst performing ETF in our list over the past 10 years. Its dividend has also been inconsistent. It dropped significantly in 2016 and again in 2018. Keep in mind that companies get cut from the index if their dividend payments can't keep up, while new companies join who meet the criteria. One does wonder, however, if the fund is poised for a turn around as interest rates rise.

Time will tell.

Tracking Index: S&P High Yield Dividend Aristocrats Index
TTM Yield: 2.60%
Dividend History: 20 consecutive year history of increasing dividends
Expense Ratio: 0.35%
AUM: $19.0 billion

3 Dividend ETFs to Avoid

Just because an ETF pays a high dividend doesn't mean it's a good investment. In fact, a yield significantly above the market's average should serve as a warning to stay away. Here are three dividend ETFs I wouldn't recommend.

1. SuperDividend ETF (SDIV)

The SuperDividend ETF (SDIV) invests in the 100 companies that pay the highest dividend yield. The result is a portfolio consisting of 30% U.S. companies and 70% international companies. While its current yield is above 7%, its annual returns over the past decade barely exceed 3%.

Beyond performance, the fund has a turnover ratio of more than 124% according to Stock Rover. This increases costs. And its standard deviation is near 30 according to Morningstar.

In short, to sacrifices total return for yield, has high turnover and is volatile, resulting in a very poor investment.

Tracking Index: Solactive Global SuperDividend Index
TTM Yield: 7.19%
Dividend History: Top 100 global dividend yield companies
Excluded: Companies excluded based on certain qualitative screens
Expense Ratio: 0.590%
AUM: $948.9 million

2. SuperDividend U.S. ETF

The SuperDividend® U.S. ETF (DIV) is the U.S. only version of the above fund. While its yield is lower, it still comes in above 5.5%. And like SDIV, its total returns were just about 3% over the past decade. Not only does the fund suffer from poor returns, its volatility is significantly higher than an S&P 500 fund.

As with SDIV, DIV has a turnover percentage of near 100% and a standard deviation of 28. In short, investors are paying 45 basis points for an underperforming fund that comes with more risk.

Tracking Index: Indxx SuperDividend U.S. Low Volatility Index
TTM Yield: 5.61%
Dividend History: 12 month
Excluded: Dividend yields below 1% or above 20%
Expense Ratio: 0.450%
AUM: $655.8 million

3. Invesco High Yield Equity Dividend Achiever ETF

The Invesco High Yield Equity Dividend Achiever ETF (PEY) tracks the NASDAQ US Dividend Achievers 50 Index. The index in turn is comprised of the top 50 securities by dividend yield from the NASDAQ US Broad Dividend Achievers Index. The result is a focused fund that has significantly underperformed the S&P 500 while exposing investors to greater risk.

Tracking Index: NASDAQ US Dividend Achievers 50 Index
TTM Yield: 3.77%
Dividend History:
Expense Ratio: 0.520%
AUM: $936.7 million

Final Thoughts

Dividend investing can be a part of a reasonable investment plan. Dividend ETFs give investors exposure to value funds. Taken to extremes, however, a dividend focused investment strategy can result in lower total returns. As a result, care must be taken not to reach for yield, even in retirement.