The Dividend Growth mutual funds are a good way for investors to gain some extra income. This is a type of mutual fund that invests in stocks that pay out regular dividends. This type of fund is different from index funds as they actually pay out dividends. There are some disadvantages though such as the potentially high returns being lower than what could be had through stocks. If you are considering investing in one of these funds, there are a few things you should know before you purchase them.
Investment Comes With A Risk Factor
The investment comes with a risk factor that should be known before investing. They don’t come with the security of only paying dividends and do not guarantee you regular income like other mutual funds would. One of the benefits of dividend growth stocks in your portfolio is that you don’t have to keep track of what the profits and losses are because you will get a check instead. They also offer flexibility with your investments.
You can take a complete break on your dividend investing if you so choose. Some people like to have more than one group in their portfolio so they have some control over their portfolio. In addition, there are many investment options to choose from in the dividend growth mutual funds. This makes it easy to find one that suits your specific needs.
Consider Your Risk Tolerance
As with any investment you should consider your risk tolerance. Dividend investing has some risk involved, so you need to be sure you are willing to take that kind of risk. Some people enjoy having large gains and some prefer to have smaller gains throughout the year. It all depends on your own personality. The key is to make sure your portfolio allows for your possible trading opportunities.
Another thing you will want to consider before investing in any of the dividend investing mutual funds is whether or not they come with a guarantee. If you find a high dividend growth fund that does not come with a guarantee, pass on the opportunity. There are plenty of high quality investments out there without guarantees that come with low risk. Again, this decision should be based upon your own risk tolerance.
Diversify Across Your Asset Classes
A great way to make sure your money stays in your account is by diversifying across your asset classes. Most high quality mutual funds will offer you a variety of investments ranging from stocks, bonds, gold, commodities and other securities. Dividends will obviously be a major component of any of those investments. This way if one stock drops, you won’t lose everything.
One of the benefits of dividend growth investing funds is that they do not reinvest the money they return to investors. They allow you to simply let it ride until it is time to get back into the market and reinvesting in individual stocks. Since the returns are tax deferred until you start receiving them, this is a very attractive feature to look for in your mutual funds.
Investing in a Vanguard high dividend yield index fund may seem like a gamble at first, but if you are educated about how to evaluate these types of funds you will find that there are some excellent opportunities out there. Mutual funds are not known for their safety; however, they offer significant flexibility and are easily researched using a few different tools. Learning what a mutual fund’s expense ratio is can also be helpful. Once you have some experience under your belt, you can easily move up to a more aggressive, riskier index and find an even greater investment return.