Why I'm Investing $500 Weekly With Vanguard ETFs (2024)

The stock market is back to its all-time highs again. One would have thought a global pandemic, a life-threatening virus, would rupture the stock market for more than 3-5 months. As a dividend investor striving for financial freedom, this has made my plans slightly difficult, due to low earnings and high valuations. Therefore, my wife and I have been investing $500 weekly with Vanguard ETFs, and we'll go over exactly WHY!

In this article, I will talk about why my wife and I are investing $500 weekly with Vanguard. We'll walk you through:

• The Stock Market Resurrection
• The Investment Options
• Investing $500 Weekly with Vanguard ETFs
• Results from the Weekly Investing

I want to show you how this has worked for me over the last 6-8 weeks and why this can be a legitimate path to build your dividend income. Why does this matter? It's been difficult to stay invested with the market swinging to all-time highs, while earnings are at all-time lows. In addition, you want to stay invested in the market to continue to build dividend income on your way to Financial Freedom baby!

The Stock Market Resurrection

See that chart above. The stock market was hitting all-time highs back in February. By the third week of March, the market was down over 34%. Who would have guessed that the stock market would have gone right back up to those same highs in just five months' time? To put it in percentage terms, the stock market is up OVER 50% since March 23, 2020! Re-read that for me. It simply doesn't make sense.

The stock market back in February was trading at a price to earnings ratio of approximately 23x earnings. This is where it should really hit hard. The S&P 500 is trading at OVER 29x earnings. WOW. That is truly screaming overvaluation right here.

I know, if you are an investor and you are having trouble finding undervalued dividend stock opportunities, this is why. You are also not alone.

However, that's what this article is for. To help you on your investment journey and through the stock market uncertainty. I want to show you what I have been doing, systematically, and to offer an inside look on the purchases and impact. I have been staying invested in the stock market, as I know putting cash to work is key. However, with high valuations, I want to show you exactly what I have been investing in and why. It's all about increasing dividend income on this journey to Financial Freedom!

The Investment Options

Since the stock market is back to all-time highs and the price to earnings ratio (cough, one of our three dividend metrics in our Dividend Diplomats Stock Screener), what is there really to invest in?

Top 5 Foundation Stocks

I recently updated the Top 5 Foundation Dividend Stocks Article, and truly, possibly three dividend stocks have signs of undervaluation, but it's so hard to predict what earnings are truly like. The Top 5 Foundation Dividend Stocks are composed of AT&T (T), McDonald's (MCD), Procter & Gamble (PG), Consolidated Edison (ED) and Johnson & Johnson (JNJ).

After running them through the trust Dividend Diplomat Stock Screener, AT&T, ConEd and Johnson & Johnson show signs of undervaluation, but all have a few concerning items. AT&T still has quite a bit of debt and its yield is so high, it is unusual. ConEd also has quite a bit of debt + my wife has a large position in it already, and then that leaves Johnson & Johnson, which is almost trading at $150/share. Nothing screams at me to say, "BUY ME NOW!" I want something to scream at me, dammit!

Therefore, if I don't want to currently add to these positions, what else is a dividend investor to do? You remember, dividend income is the BEST and EASIEST passive income source to create, what else can one invest in?

Exchange Traded Funds

Now, the top 5 foundation stocks may not be showing the best signs of undervaluation and the market is making it hard for individual stocks to invest it. That is where Exchange Traded Funds (ETFs) come into play.

What are Exchange Traded Funds? ETFs are traded, like a stock, throughout the day on the stock exchange. They are a basket of stocks like a mutual fund. However, the expense ratios are usually FAR LOWER with ETFs.

In addition, the ETFs also, wait for it… PAY DIVIDENDS. Some actually do pay monthly, such as the Invesco High Dividend Low Volatility ETF (SPHD). However, like most companies, most ETFs you can find pay quarterly. ETFs that track the S&P 500 like Vanguard's S&P 500 ETF (VOO).

Investing $500 Weekly in Vanguard ETFs

The name of the game, and a very popular quote is, "Time in the market beats timing the market." Therefore, I want to continue to invest in the stock market and would like an alternative option, if I don't find an undervalued dividend stock when using our Dividend Diplomat Stock Screener.

To stay invested, but no individual stock is appealing to me, I have now turned to exchange traded funds. Now I won't be throwing the kitchen sink, but if I have plans to invest, say $1,000 per week, or $2,000 per week with my wife combined, then I'd like us to do $500 per week in total to an ETF. This would represent 25% of what we strive to invest each and every week.

Being a dividend investor, I want a dividend-based ETF, something that yields HIGHER than the S&P 500's 1.76%. Support is below for their yield:

In addition, I wanted a yield that was greater than my individual taxable portfolio. My dividend yield on my taxable portfolio is 3.31%, almost double the S&P 500.

Now, I have owned Vanguard funds from my current and even former employer with Vanguard Institutional Index Fund Institutional Shares (VINIX) and Vanguard Financials Index Fund Admiral Shares (VFAIX). These are mutual funds that were options for my 401(k) plans.

Therefore, I have had a base and great understanding of Vanguard. Then, I have owned Vanguard's High Dividend Yield ETF (VYM) in my Roth IRA for years. It was time to look into the Vanguard ETF for my taxable account now, too.

Vanguard High Dividend Yield ETF

The Vanguard High Dividend Yield ETF truly fits my criteria to make my continued investment, as I strive to make steps to financial freedom.

First, it had an above-average dividend yield, greater than the S&P 500. Second, its dividend yield of ~3.61% is greater than my taxable dividend portfolio yield by 30 basis points.

Next, we have to look at the dividend growth history. Vanguard's VYM has had the following trailing 4-quarter dividend periods, see the chart below. I also added in the calculation of the dividend growth rate to help show the dividend growth for each year. As this is very important to me and should be important to YOU, as you want your dividend income to GROW, especially on your path to financial freedom.

Vanguard's VYM dividend growth has been an average of 7.89% over the last five years of dividends! The range of dividend growth has been 5.63% through 10.04% and has been rising:

Due to COVID-19 and other temporary suspensions and dividend cuts, this growth rate should fall. However, through the first two quarters of 2020, the dividends have been very sound. I would anticipate the 5%-7% dividend growth rate over the next 12-18 months.

However, Vanguard's VYM definitely has the growth rate and the yield that I am looking for. How about its top dividend stock holdings, as this exchange traded fund says it is focused on dividend stocks with above-average dividend yields. Chart here:

I see three dividend aristocrats out of its top 10, and those three are also our TOP 5 Foundation Dividend Stocks. In addition, there are quite a few high yielders in there and up and coming dividend stocks. I love that I see Cisco (CSCO) slide into the fold as well!

Results SO FAR

In total, we have been investing with Vanguard ETFs for approximately 1-2 months. First, I started my $250/weekly average, and then after one week, we also decided to have my wife do the same. Therefore, we have been investing approximately $500 each and every week into a Vanguard ETF, primarily the Vanguard High Dividend Yield ETF. I do have $250 more invested, due to the one week delay.

This was as of August 18, 2020. The reason why you don't see a clean multiple of $250 in the cost basis is because we are buying three shares no matter what. Sometimes it is below $250.00 when that occurs.

Therefore, we have invested a total of $3,186.24 over the last seven weeks. We have added an estimated $107+ in forward dividend income. At the rate of each doing $250/week, we essentially are doing approximately $2,000 per month.

If you remember in my article, How to Reach $1,000,000 in 15 years, one has to invest $2,850 per month. As you can see, this has us 70% already and automatically committed to that! We always invest more than the automatic Vanguard investment, therefore no worries on reaching the absolute minimum, but this at least covers 70%.

Conclusion

Overall, my wife and I are VERY excited about the results from investing $500 weekly with the Vanguard High Dividend Yield ETF. NO, we are not spokespeople for them, I promise! Though, they did send me a pretty cool hat.

Investing this way keeps me pumped. It keeps my dividend income going in the RIGHT direction and that is UP. Every week, I KNOW that our dividend income is increasing no matter what the market is doing. This takes even more of the emotion out of investing and we don't have to try to time the stock market.

What are our plans going forward? Easy answer for you. My wife and I plan to continue our $250/week each, with no plans of stopping right now. If we want to invest more outside of the $250, we simply buy undervalued dividend stocks when the opportunity arises. Given that we save quite a bit of our income, which we are lucky to have, we do have other cash that is waiting to be put to work.

My question to YOU is - have you considered this option? Are you currently deploying this investment method? Do you prefer a different exchange traded fund, and if so, which one? Please share your comments, questions below! As always, good luck and happy investing!

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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