Where to put my savings: Dividend Growth or Growth ETF?
I’m new to investing and I’m wondering where to put my money when I start earning. Should I invest my savings in a dividend growth ETF like VIG and collect tax free dividends in a Roth or should I put it in a high growth ETF like VGT? Should I put money in both? Or is it better to avoid them altogether and just track the whole market with something like SPY? Like I said, I’m a novice, so I appreciate the help.
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You should likely maximize your Roth, regardless of what advice you take here.
I would not worry about a Dividend portfolio, as there aren't too many stable companies that are paying dividend yields of 5-7% (the generally accepted long-term return assumptions on US equities) so you will likely experience greater long term gains in a broader equity category.
As for Growth vs. SPY, there is no one correct answer as both are solid. So why not diversify and play both? SPY is likely to be less risky, more stable, and lower returning. Growth is likely to be the opposite of those things. Neither are likely to return 25% in a given year, but until 2020, you saw very strong performance since the financial crisis. With that in mind, ask yourself what your risk tolerance is. Are you willing to see marginally bigger swings, both up and down, in your portfolio? Then put more of a tilt in growth.
We’re probably at similar points in life given that I’m starting my career soon too. I like to think that I know what I’m doing with this stuff but take this with a grain of salt.
You brought up a Roth IRA which you should absolutely use (or rollover a traditional IRA once you start working). Let’s say you’re 22 now and won’t retire until you’re 65. The point is that time is on your side and it will be the main driver of returns no matter where you put the money. Since you won’t touch the Roth until you retire, it makes the most sense to invest your Roth in assets that have the highest expected forward return. Maybe you think that growth stocks will continue to have outsized returns. Maybe you think that it will be the S&P broadly. No one really knows aside from the fact that it probably won’t be bonds or “safe” dividend yielding stocks. Since you’re (we’re) young and will see at least another 4-5 market cycles before we retire, I’d put all of my Roth assets into that high risk bucket, whatever you think it to be for now.
Aside from the Roth which covers retirement savings, I’d open a brokerage account as well. Here, you’ve got to decide when you’ll need the money. Maybe it’s for a down payment on an apartment a year down the road. Maybe it’s saving for travel that you’ll do after you complete your analyst stink. Maybe it’s starting 529s for you kids that won’t distribute for 30 years from now. The point is that the level of risk you should take on, and as a result the way that you should allocate your portfolio, is dependent on when you’ll need the money. Anything within two/three years might make sense to hold in treasuries. Anything 3-10 might make sense to go 60/40 stocks/bonds. Anything longer might make sense to get riskier.
So which ETFs do you guys like? I am a fan of the ArkInvest growth and tech ETFs
I think that everyone needs world exposure at this point
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