VYM vs VIG Difference: Exchange-traded funds or ETFs are relative newcomers among investment products. They only arrived in the 1990s. ETFs descended from the index funds that were introduced in 1975 to give investors an opportunity to match the market’s performance without the costly fees, commissions, and variable performance associated with mutual funds.
Like index funds, ETFs offer instant diversification because each share represents a basket of stocks. However, unlike index funds, ETFs trade throughout the day. Funds price at the end of the day, and they can only be traded at that time.
The earliest ETFs, launched in the 1990s, tracked broad equity indexes, but that is no longer the case. Over the past 20 years, many new ETFs have been developed to give investors access to specific sectors, market caps, regions, or niche markets.
Two of those specialized ETFs come from Vanguard, one of the largest and most respected investment advisory firms in the world: the Vanguard High Dividend Yield ETF (VYM) and the Vanguard Dividend Appreciation ETF (VIG). What sets these two apart from other ETFs is the fact that both focus on dividends.
In a head-to-head matchup, how do VYM and VIG compare? What are the advantages and disadvantages of each? In short, which is better: VYM or VIG?
What Is VIG?
The goal of Vanguard’s VIG ETF is to focus on stocks that pay dividends.
Specifically, it tracks the S&P US Dividend Growers Index, which includes US companies that have a history of increasing dividends each year for at least ten consecutive years. On a list of the highest-yielding stocks that would otherwise qualify for this index, the top 25 percent are excluded.
VIG Expense Ratio
VIG is passively managed, which keeps expenses low. As a result, the ETF is better able to deliver returns that match the underlying index.
The expense ratio for VIG ETF is 0.06 percent. For comparison, the average expense ratio for mutual funds that are actively managed ranges from 0.5 percent to 1.0 percent.
VIG Holdings
In terms of sectors represented, VIG’s breakdown looks like this:
- Basic Materials – 4.30 percent
- Consumer Discretionary – 16.40 percent
- Consumer Staples – 10.00 percent
- Financials – 15.00 percent
- Healthcare – 13.20 percent
- Industrials – 20.70 percent
- Technology – 14.60 percent
- Telecommunications – 1.90 percent
- Utilities – 3.90 percent
The ETF’s top ten holdings include the following:
- Microsoft
- Home Depot
- JPMorgan Chase & Co.
- UnitedHealth Group
- Johnson & Johnson
- Procter & Gamble
- Visa
- Costco Wholesale
- Comcast
- Accenture
These ten companies make up 30.50 percent of VIG’s total net assets.
VIG Track Record
The VIG ETF has been quite successful in matching the returns of its underlying index. As of December 31, 2021, VIG’s performance is as follows:
- One Year – 23.64 percent vs. Benchmark 23.71 percent
- Three Years – 22.80 percent vs. Benchmark 22.89 percent
- Five Years – 17.26 percent vs. Benchmark 17.34 percent
- Ten Years – 14.44 percent vs. Benchmark 14.52 percent
- Since 2006 Inception – 10.40 percent vs. Benchmark 10.52 percent
Is VIG a Safe Investment?
When it comes to balancing risk and reward, VIG offers higher-than-average returns in exchange for slightly more risk. After all, the stock market is unpredictable, which means it can lose value at any time. However, because VIG invests in a diverse mix of established companies with a reliable history of consistent dividend growth, VIG is generally considered a reasonably safe investment.
Is VIG ETF A Good Investment?
The VIG ETF is a good investment for those who seek exposure to companies known for dividend growth.
With a single share of this ETF, investors own a variety of stocks across multiple sectors, which makes it easy and inexpensive to build an income-based portfolio.
What Is VYM?
Vanguard’s VYM ETF also focuses on companies that pay dividends, but it takes a slightly different approach as compared to the VIG ETF.
VYM tracks the FTSE High Dividend Yield Index, which is made up of companies that are predicted to deliver superior dividend yields.
Companies qualify for the FTSE High Dividend Yield Index through a forecast dividend yield ranking process.
VYM Expense Ratio
As with VIG, VYM is passively managed. It has the same low 0.06 percent expense ratio as of February 26, 2021, which means tens of thousands of dollars in savings over a lifetime of investing.
VYM Holdings
VYM spreads its holdings across multiple sectors. The specific weighting is as follows:
- Basic Materials – 4.40 percent
- Consumer Discretionary – 8.90 percent
- Consumer Staples – 12.60 percent
- Energy – 7.20 percent
- Financials – 22.20 percent
- Health Care – 12.50 percent
- Industrials – 9.80 percent
- Technology – 8.00 percent
- Telecommunications – 6.50 percent
- Utilities – 7.90 percent
VYM’s top ten holdings include:
- JPMorgan Chase & Co.
- Home Depot
- Johnson & Johnson
- Procter & Gamble
- Bank of America
- Pfizer
- Exxon Mobil
- Cisco Systems
- Comcast
- Broadcom
These ten companies collectively comprise 24.20 percent of the ETF’s total net assets.
VYM Track Record
VYM’s track record shows that it has been successful in matching the returns of its underlying index.
VYM’s performance looks like this:
- One Year – 26.14 percent vs. Benchmark 26.19 percent
- Three Years – 16.58 percent vs. Benchmark 16.62 percent
- Five Years – 11.67 percent vs. Benchmark 11.71percent
- Ten Years – 12.99 percent vs. Benchmark 13.05 percent
- Since 2006 Inception – 8.80 percent vs. Benchmark 8.89 percent
Is VYM a Safe Investment?
No investment is absolutely safe, but compared to other options, VYM is a good choice. The potential rewards are higher than average, and so is the level of risk.
However, because the ETF’s portfolio is made up of a diverse mix of companies with a long history of success, that risk is primarily based on the possibility of market ups and downs.
Is VYM a Good Long Term Investment?
The VYM ETF is a smart choice for long-term investing because it is essentially maintenance-free. Each share offers access to a wide variety of securities, which means instant, effortless diversification.
This fund is best-suited for investors interested in maximizing income, though value investors may still appreciate its advantages.
Which Is Better: VYM or VIG?
Both VYM and VIG have advantages, and either can be a good addition to your portfolio. However, if you prefer to limit yourself to just one of these ETFs, VIG is a slightly better option. VIG has outperformed VYM in returns – and in fact, VYM has not been able to keep up with the S&P 500 index.
VIG also offers investors lower volatility, a higher risk-adjusted return, and smaller drawdowns, which makes it a better buy.
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