We love to do things ourselves. However, sometimes, it is best to leave things to the professionals. Picking individual stocks can be challenging, especially when considering an unknown future.
Luckily, we can access professionals by purchasing shares of dividend ETFs and asset managers. Both products offer high growth and high yields; however, they are unique.
Today, I want to pick a fight between these two remarkable securities to see which deserves your hard-earned cash. The last man standing will stand the test of time in our portfolios. Let’s begin.
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Why do we seek high growth and high yield? Before I start, I want to review our motivations for pursuing these goals.
Index funds offer high growth (roughly 8-10%); however, they pay a meager 1-2% in dividends. Dividend growth investing stocks like McDonald’s (MCD) offer decent growth and decent yields.
Finally, we can obtain low-growth and high-yields from income investing products like PIMCO Dynamic Fund (PDI) which yields roughly 12%.
None of these products offers high growth (8-10%), high yields (4%), or high dividend growth (6-10% annually). We need to find special products like dividend ETFs and asset managers to achieve these heights.
What are dividend ETFs? Dividend ETFs are securities that bundle dividend growth investing stocks together so investors purchase them in one place.
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My two favorite dividend ETFs are Schwab US Dividend Equity (SCHD) and WisdomTree US High Dividend (DHS). These funds accumulate stocks based on their respective passive indexes.
A passive index is a target benchmark the company sets that screens dividend stocks for entry into the fund. Passive means that these funds do not have an active manager.
As you can see above, each fund has different stocks and compositions from the others. This ensures you get a well-rounded allocation if you purchase both.
I love dividend ETFs because they collect strong companies that continue to innovate and grow their bottom line. Their dividend growth rate is another reason to invest in them.
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The dividend growth rate is how much the fund raises its dividend annually. Essentially, you are getting more income for the same initial investment.
What are asset managers? Asset managers have been around for a while, but they have recently become more known to mainstream investors.
Asset managers are large corporations that manage alternative investments. This means that a massive company like BlackRock (BLK) can purchase residential real estate, commercial buildings, other businesses, data centers, and real estate investment trusts.
When you purchase an asset manager stock like Blackstone (BX), you receive access to active managers and investors whose sole purpose is to generate high returns. They basically can invest in anything (legally) they can get their hands on.
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Some of these asset managers manage $1 trillion in assets. They can also invest overseas and in tight market conditions.
They can use their size to muscle their way into great deals. They can purchase distressed properties and businesses and use their internal expertise to make corrections and, in time, profits.
My favorite asset managers are Brookfield Asset Management (BAM), Blackstone (BX), and Blue Owl Capital (OWL). Some more managers are BlackRock (BLK), Apollo Global Management (APO), KKR & Co (KKR), and Brookfield Corporation (BN).
For now, these asset managers’ yields have dropped because their share prices have risen. However, they will continue to raise their dividend payouts generously.
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Dividend ETFs vs. Asset Managers. So, what’s the big difference between dividend ETFs and Asset managers? First, dividend ETFs have passive management versus active management from asset managers.
As I said, active managers can find and exploit deals that make shareholders wealthy. If there is a recession, you best believe asset managers will have cash on hand to purchase distressed assets and businesses.
Dividend ETFs passively purchase shares of other companies; however, they cannot affect the outcome of these businesses.
Asset managers can take ownership of companies and facilitate their objectives in the business. For example, Blacktone (BX) recently purchased Jersey Mike’s sub sandwich business.
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As investors, we want access to smart people who can make us rich. Dividend ETFs give us access to the best companies with a track record of raising their dividends.
Asset managers give us access to savvy investors whose entire purpose is to make us rich. In a challenging environment, I want these asset managers on my team.
Investing for the long-term. Dividend ETFs and asset managers’ share prices will continue to rise, along with their dividend payouts.
Ultimately, we want to create a Happy Cash-Flow Retirement that includes dividends, royalties, and rents.
Dividend ETFs give us access to standard business models, such as those of Pepsi (PEP), Chevron (CVX), Altria (MO), and Johnson & Johnson (JNJ). We know and love these corporations and trust that they will be around for a long time.
Asset managers give us access to alternative solutions from top-notch investors, entrepreneurs, and capitalists. They are at the forefront of making tough decisions about the future. You need to have these guys in your portfolio.
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You need access to current business models, such as Home Depot (HD), that will survive for a long time. You also need people who can leverage expertise to make investments in artificial intelligence, robotics, space, and data.
Conclusion. We must make tough investing decisions to retire on income while maintaining growth. Income allows us to live, while growth enables us to breathe.
Today, I would have at least two dividend ETFs and two asset managers in my portfolio. This is a minimum number of both.
You can lump them both into your growth allocation, per my Stock Market Investing at any Age Series (20s, 30s, 40s, 50s). Or you can place them into dividend growth investing—whatever floats your boat.
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Right now, asset managers are my highest conviction. I will spend the year collecting as many managers as possible, especially OWL and BAM, as they are very young.
I love my dividend aristocrats and challengers, but I also know that the future is unknown. To protect my portfolio, I use asset managers I trust to make tough decisions.
In a strange turn, SCHD invests in BlackRock (BLK). As asset managers become long-term dividend stalwarts, we will see more overlap.
Prices will shoot up once the mainstream learns about these asset managers, lowering the dividend yield. Get in before things get too crazy. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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