Each future retiree is unique.
Some getting close to retirement have more than enough money saved and are looking to preserve their wealth, not grow it.
Others are limping to the finish line and need to take more risk to ensure they can generate enough funds to sustain their lifestyle.
With that being said, I’m going to assume you
are somewhere in the middle. You have
money saved but you want assurances you can grow the balance while taking
reasonable distributions.
A couple common themes that you will note below are that I’m trying to keep expenses low, generate the best dividend funds, and get diversification efficiently.
You’ll also note that I’m a big Vanguard fan and really only go outside that fund family to grab a unique product.
This article focuses on safety.
Safety comes in both the form of protecting invested dollars but also in fending off the erosive effects of inflation. I will also focus on the best dividend funds that generate steady, protected dividend stocks.
Best Dividend Funds for Retirement
Here are some of the best dividend funds you can invest in for retirement
Vanguard Short-Term Investment-Grade Admiral (VFSUX)
Less than 20% of the funds are rated in B or lower-rated bonds which will help if the economy starts to falter.
This is the asset class that crashes first in fixed income.
The fund currently yields 2.9% on a high-quality portfolio mostly composed of corporate bonds. The fund also has a 20% allocation to asset-backed securities and commercial mortgages, as well as about 15% in Government Treasuries.
The talent leading this fund is deep and diverse; more than 60 managers, analysts and traders. The oversight provided by Vanguard and its risk management techniques should provide additional comfort to many investors.
American Funds American Balanced (AWSHX)
This fund for the past 10 years has outperformed its peer group.
The fund holds 60% of assets in stocks and 40% in bonds, which still gives it some equity upside with the volatility off-set of bonds.
More recently over the past three years, Balanced annualized returns ranks in the top 10% of all balanced funds.
Like other portfolios from American Funds, Balanced is run by several managers, each of whom takes charge of his own portion of the fund’s assets.
The principal manager, Greg Johnson, controls the stock side, and will adjust allocations based on market conditions. The preference in stocks is to favor large companies that pay consistent dividends.
Four dedicated bond specialists allocate funds on the debt side of the portfolio. Treasuries and other government-backed instruments make up the lion’s share of this portfolio.
This is a strong choice of someone that wants above inflation returns but scares easily.
Dodge & Cox Balanced (DODBX)
Dodge & Cox was founded in 1931, and this Balanced portfolio was the first fund the company offered.
Like other balanced funds, it allocates approximately 60% to stocks and 40% to bonds. This varies over time and manager preference.
The prospectus allows the managers to range between 25-75% stock allocation. Currently the fund holds over 2/3rds of its assets in stock.
The management team consists of 19 managers. 9 on the stock side, 10 on
fixed income.
In 2008 (last major down-turn) the fund was allocated 70% to stock and therefore had a 33% drawdown.
However, by staying consistent in their allocation philosophy it has allowed the fund to return 12.1% annualized over the past 10 years and beat 96% of its peers.
This is a one-stop shop, and will easily outpace inflation. Current yield on the fund is 2.1%.
Dodge & Cox Income (DODIX)
This fund prides itself on a contrarian philosophy.
Each of the 10 managers actively avoids following the day-to-day headlines and instead looks for the beaten down stocks with a good margin of safety.
They load up on existing positions or build new ones, for instance, during times of weakness.
Picking up bargain investments when they trade at deep discounts, say the fund’s managers, “has enabled us to add value over longer time periods.”
Fidelity Balanced (FBALX)
At Fidelity Balanced, lead managers Bob Stansky on the stock side and Ford O’Neil on the bond side are disproportionately leaning towards stocks these days with over 70% funds sitting there.
Stansky focuses on small to midsize companies that are consistently growing with a stable cash flow.
O’Neil focuses mostly on Treasuries, investment-grade corporate debt and mortgage-backed securities.
Balanced is time-tested and all-weather. The
The fund beat its peer in 8 of the last 10 years.
Metropolitan West Total Return Bond (MWTRX)
This is a value-oriented fund led by managers– Tad Rivelle, Steven Kane, Laird Landmann, and Bryan Whalen – they buy bonds when they are cheap and sell when they revert to fair value.
They focus on high-quality bonds with near-term maturities. The act that separates this fund is that it will develop clear macro views of the world and allocate funds to specific sectors.
Since 2016 the fund has been preparing for a credit tightening and therefore has over-allocated to Treasuries and high-quality corporate bonds.
This call has been premature and has impacted recent peer performance. However, that conservative thinking makes it a very good fit for this list of safest investments.
Over the past 20 years this fund has outperformed
its benchmark and currently yields 3.1%.
Vanguard Equity Income (VEIPX)
The fund currently yields 2.9% and aims to deliver decent capital appreciation but above-average income.
It is succeeding on both fronts, returning 8% over the life of the fund vs. S&P500 6%.
Michael Reckmeyer, of Wellington Management, and a team of Vanguard managers share duties at Equity Income.
Reckmeyer handles 70% of the fund’s assets and invests heavily in dividend-paying stocks.
And the Vanguard team fills in the balance of the equity side of the fund by using computer modeling to closely mimic index returns and help diversify.
Vanguard Inflation-Protected Securities Fund (VIPSX)
This fund invests in Treasury Inflation-Protected Securities, otherwise known as TIPS.
Gemma Wright-Casparius, Manager, who took over in 2011, can invest up to 20% of the fund’s assets in other asset classes as value presents itself.
Today TIPS makes up 97% of the fund’s assets. The balance of the fund is in cash or Treasuries.
Looking ahead, Wright-Casparius believes inflation will trend higher and even possibly “come in stronger” than the market expects. This fund has outperformed the Bloomberg Barclays U.S. Aggregate Bond by almost a full percentage point.
