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There's a lot going on out in the world today, and much of it directly affects the stock market and, by extension, your own investment portfolio. This three-part series will look at where some of the best investing opportunities lie for the remainder of this uncertainty-filled year. Part 1 looked at some of the best foreign investment vehicles, and today we'll look for some first-rate opportunities closer to home.
Investment No. 4: Vanguard Dividend Appreciation ETF (NYSE: VIG )
If investors are as jittery the rest of the year as they have been in recent weeks, and given the situation in Europe, that looks like a distinct possibility, the key to surviving and thriving in 2012 will be to focus on quality. While lower-beta investments had their time in the sun in the opening months of the year, a risk-off environment highlights the attractiveness of financially stable dividend-producing large-caps.
Vanguard Dividend Appreciation ETF invests in more than 100 blue-chip companies that have a track record of increasing their dividend payments over time. Perhaps not surprisingly, defensive consumer goods names make up the largest sector allocation, giving this fund a more conservative profile -- ideal for the current environment. In the past five years, this ETF has posted an annualized 1.6% return, compared to a 0.3% loss for the S&P 500. This fund isn't built to dazzle, but it will provide a safe haven, and a little extra yield, in difficult times.
Investment No. 5: Yacktman (YACKX)
Another fine quality-focused fund that's been playing defense lately is Yacktman. Management here looks for industry-leading companies with juicy free cash flow yields and stable earnings. Consumer defensive names account for more than one-third of the portfolio and include recent acquisition Procter & Gamble (NYSE: PG ) , which manager Don Yacktman sees as a great opportunity thanks to its reasonable valuation, business predictability, and strong emerging market exposure.
Stock picking is a prime driver of returns, here, as the portfolio tends to own only a few dozen stocks at a time. Fortunately, stock selection has been spot-on, boosting the fund to the top 2% of all large-cap value funds over the past 15-year period with an annualized 8.6% showing. Yacktman won't always be on top as it is now, but investors looking for a fund with an emphasis on quality and a play-it-safe personality should take a second look here.
Investment No. 6: Vanguard Wellington (VWELX)
Despite the ongoing turmoil in our global economy, stocks are still generally more attractive than bonds. However, if the thought of going full-in on equities makes you queasy, consider a balanced fund option like Vanguard Wellington. This fund invests in a roughly 60% stock/40% bond mix, comprised of dividend-paying stocks on the equity side and higher-quality corporate bonds on the fixed income side. This laid-back profile is ideal for gun-shy investors who don't want to miss out on market appreciation.
The dividend payers in this portfolio help contribute to the fund's 3% yield. Here, you'll find names with reasonable valuations, healthy business operations, and strong growth prospects, like retailer Target (NYSE: TGT ) , which management prefers over Wal-Mart (NYSE: WMT ) because they believe the former has a better strategy and prospects for future dividend growth, even though Wal-Mart stock has performed better in recent years. Over the past decade, Wellington has posted a 6.9% annualized return, landing it in the top 6% of its peer group. With a super-low 0.27% expense ratio, it's hard to go wrong with this fund.
Investment No. 7: Vanguard Total Stock Market ETF (NYSE: VTI )
Of course, you don't want to totally ignore the small- and mid-cap sectors of the market even in troubled times. While you'll probably want to keep any other existing small- or mid-cap investments you have elsewhere in your portfolio, consider adding any new money to funds that focus primarily on more stable large-cap names. The Vanguard Total Stock Market ETF is a solid choice in this realm because while bigger stocks are the main attraction, smaller names are included, too.
This ETF tracks the performance of the MSCI US Broad Market Index, so you're getting a full representation of the total domestic stock market. Even better, this fund comes with the unbelievably low price tag of just 0.06%, making it one of the cheapest options around for broad market exposure. Additionally, a low 5% turnover makes this fund a solid choice for taxable and tax-exempt investors alike. Use this fund as the backbone of a portfolio while filling out other large-cap allocations with funds like those mentioned above.
Be sure to stay tuned for the final installment in this three-part series, where I'll look at alternative investments that will treat you right in 2012.
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