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VDIGX Vanguard Dividend Growth is a good place to put extra cash

moneylogo040411_optBY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
BOROSON ON MONEY

If you have any extra cash lying around – from a minimum distribution from a retirement account, from a bonus at your workplace, from the sale of a disappointing security – I have an excellent suggestion of where to put it.

After all, unless you’re deliberately reducing your participation in the stock market, it’s dangerous to suddenly lower your exposure. Rallies often happen fast and furiously – and unexpectedly. Remember that perceptive observation: The stock market will always do whatever makes the greatest number of people look foolish.

Of course, where you yourself should put extra money depends on your particular circumstances. What is your portfolio lacking? Emerging market stocks? Foreign bonds? U.S. small caps? It’s also possible that you don’t have enough cash, and you should just sit still. As I like to tell people, a puny 0.15 percent yield is better than minus 7 percent.

All this is preamble to telling you about one of my favorite mutual funds.

A friend of mine recently sold her stake in Fairholme – she’s elderly, and decided that the fund, despite its once glorious record, had become too risky for her. (“Elderly” means: at least one year older than me.) No doubt Fairholme will someday resume its winning ways. But waiting and waiting can be torture. And if you wait very long, your return may not turn out to be especially impressive. A 10 percent return isn’t much if you have to wait (say) five years.

So, she asked me, where should she put the money she received?

I reminded her that I have a birthday coming up, and I would appreciate being remembered – generously.

Okay, okay, actually I recommended Vanguard Dividend Growth (VDIGX). A fund I myself already own. Profitably. Minimum first investment: $3,000. Phone: 877-662-7447.

Rated five stars by Morningstar. And, in its new rating system, Gold. (I’ll be writing about that new rating system shortly.)

The fund buys stock in prosperous corporations that have repeatedly raised their dividends – a strategy invented by Bill Lippman of the Franklin funds many years ago when he was with the Pioneer group. Dividends have accounted for almost half of the appreciation of the stock market over the years, and in any time of uncertainty – which means all the damn time – dividend-paying stocks are relatively safe. Besides, if a corporation has regularly raised its stock’s dividends, it means first that business has apparently continued to be good, and second, the managers like raising dividends.

Morningstar writes: “…its performance over both the short and long term has vindicated our repeated recommendations of it. [The fund] has held up like a champ alongside other funds during periods of economic and market uncertainty. The financial crisis was a good stress test; though the fund lost one fourth of its value in 2008, that was 10 percentage points less than how much the S&P 500 lost during that year. It has also thrived during 2011’s volatile market….”



 
Comments (1)
1 Monday, 05 August 2013 23:22
Ray ( Houston , Texas
Warren.....at $19.96 a share you still think VDIGX Vanguard Dividend Growth is a good place to put some extra cash?

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