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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 8750  
Subject: Re: Dividend ETF or Picking Your Own Stocks? Date: 4/13/2014 8:48 PM
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This means that now is the time to *sell* DGI stocks, not to *buy* them.

I'm sitting on dividend paying stocks in a taxable account that I bought back in the late 1990s for their reliable income, which they've provided all these years. Were I to sell them only for their 'profits', pay the tax and the small transaction charges and then redeploy to other dividend paying stocks of equivalent income-risk to replace the income I've lost on the sale and that my household must have (we require the income), my household will take a cut in its annual income. Now, it is entirely possible for an income stock's yield to drop to the point that I will consider selling it, paying the taxes and transaction costs and replace that income with a higher income stock that does not exceed my income risk tolerance. But the driver for this are my calculations, not because I have a gain on the income stock.

I agree with you that income ETFs solve one problem: income diversification. What you pay for this is the income expense ratio or IER. Looking at VYM, for 2013 its total expenses were ($Millions) 10,021 while its total income (dividends and interest) was 260,737, for an IER of 3.84%. This means that 3.84% of VYM's income was kept by Vanguard for expenses. As IERs go, it doesn't get much better. In fact, it is not uncommon for 'Income" ETFs to carry 15-20%, and higher, IERs. If you don't wish to go through the work of determining which income stocks to buy and hold, you could do much, much worse than VYM....assuming that 2.8% yield is sufficient for your income needs.

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