The Surprising Truth About Vanguard

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I want to let you in on a shocking secret about Vanguard: they’re great active investors.

That’s right. The people almost everyone looks to for low-fee index funds are, in fact, top-flight stock pickers.

Take the actively managed Vanguard Windsor Fund Investor Shares (VWNDX): since inception way back in 1958, it’s returned an annualized 11.4%, despite being long only large cap value stocks (and avoiding more volatile small caps entirely).

Compare that to the passive Vanguard Total Stock Market Fund (VTSAX). Despite the index fund’s lower fees (which first-level investors love and Vanguard touts as a key to superior returns), VWNDX has crushed VTSAX since the latter’s launch in the early 2000s:

Index Investors Get What They Pay For

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I wouldn’t buy any old dividend payer right now, with most stock prices on the high side. But, believe it or not, there are a few quality dividend growers that are still pretty cheap.

This time last year, we discussed four fast dividend growers selling below book value. It’s almost hard to believe now that the four-pack of banks we highlighted then were selling for as cheap as 70 cents on the dollar.

But that’s how you make money with stocks – by buying good names when nobody else wants them. And since my column last April, this group gained an average of 53%:

Easy Contrarian Gains Averaging 53%!

Book value was an accurate valuation metric for these banks because most of their assets and liabilities are marked to market. …
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A few days ago, I showed you exactly why now is the time to be greedy—not fearful—when it comes to stocks.

And now, buried deep in the latest gross domestic product (GDP) report is a tiny data point that proves I’m right. It’s the clearest signal in years that now is the time to buy.

I’ll show you 7 funds perfectly positioned to take advantage while handing you safe dividend yields up to 9.3% in just a moment. First, let’s talk about that under-the-radar signal I mentioned.

The report’s headline number showed that fourth-quarter GDP rose 2.1%, slightly above economists’ expectations of 2% growth.

That’s great. But the real exciting news was in the data attached to the press release: corporate profits are up. Way up. …
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We hear it every single time the Federal Reserve raises rates, or even merely hints at it!

“Higher interest rates will crush dividend stocks – especially high yielders.”

Sounds scary – but it’s simply not true. And we’ll highlight five picks paying up to 9.2% that will prove just that.

Many high-yield dividend payers don’t care about the interest-rate boogeyman – and some actually outperform the market when the Fed lifts rates. Consider this research from index provider MSCI (MSCI) studying 88 years of market history up through July 2015 (emphasis mine):

“We found that, when rates were low to begin with, high-dividend stocks outperformed the market by an annualized 2.4 percentage points when rates started to go up.

On the other hand, when low rates fell under such conditions, the high-dividend stocks in our study actually lagged the market by an annualized 2.
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Many investors think they need to choose between current income and price upside. They don’t.

In a moment, I’ll highlight five stocks paying between 8% and 10% with 40% upside to boot.

Let’s face it – growth matters. It’s the best way to retire on a nest egg of just $500,000:

How to Stretch Your Investment on $500,000

The table above assumes a nest egg of half a million dollars that yields 8% a year, and absolutely no dividend reinvestment – here, you’re putting every cent of income into your pocket. Look how much that $500,000 expands over just a few years as you’re able to achieve more capital gains out of it. Even if you’re conservative and want to assume just 4% in annual growth out of your portfolio, that’s an extra $240,000 after 10 years – a much better position to be in than if you settled for a no-growth portfolio by selecting subpar high yielders …
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The past year has been good for the S&P 500: it’s up about 15.7%, including dividends.

So if you’re simply tracking the index through an exchange traded fund, congrats. That’s a decent gain.

But I’ve got one simple trick—and a far superior fund buy—that can help you do even better … and grab a big chunk of your gain in cash, too.

That trick? Covered calls.

Covered what?

Covered calls are a strategy in which investors buy stocks and sell call options against those stocks.

Think of call options as a kind of insurance; investors buy them if they are short the market and want to protect themselves from blowing up in case the market rallies. If you sell those options to investors, you’re essentially becoming an insurer, giving these gamblers the protection they crave to cover their risky bets. …
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About Author

Brett

Hi, I’m Brett Owens – and I’m a financial junkie. My “problem” started incollege, when I got a little dose of the stock market – man, was I hooked…in no time, I was reading the Wall Street Journal religously.

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