Most investors don't consider dividends when they think about building a million-dollar portfolio. But getting to seven figures isn't all about swinging for the fences. Often, it is easier to get there by reliably hitting singles and doubles.
This is why you might want to look at SPDR Portfolio S&P 500 High Dividend ETF (SPYD 0.90%). Here's how it could help you build your net worth -- and also some things you need to understand before you buy it.
What does SPDR Portfolio S&P 500 High Dividend ETF do?
From a high-level view, SPDR Portfolio S&P 500 High Dividend ETF simply tracks the S&P 500 High Dividend Index. So what the index does, the exchange-traded fund (ETF) does.
In this case, the index is very simple to understand. It takes the 80 highest-yielding stocks from the S&P 500 and then equally weights them. Easy-peasy.
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This creates a portfolio that has a well-above market yield. Right now, the S&P 500 is yielding 1.2% or so. But SPDR Portfolio S&P 500 High Dividend ETF's dividend yield is 4.5%, which is nearly four times higher! To be fair, investors are giving up total return in favor of income here. But that isn't the end of the world by any stretch of the imagination.
Essentially, if you include SPDR Portfolio S&P 500 High Dividend ETF in your portfolio as a foundational investment, you give yourself the leeway to buy other things. You can layer on dividend growth investments or even higher-risk tech stocks, if you like.
The basic idea is that SPDR Portfolio S&P 500 High Dividend ETF gives you the freedom to do other things, effectively allowing you to build a more balanced portfolio. It could be an integral part of a millionaire-making portfolio.
Risks of owning SPDR Portfolio S&P 500 High Dividend ETF
That said, the simple approach that SPDR Portfolio S&P 500 High Dividend ETF takes needs to be examined in a bit more detail.
The S&P 500 is a committee selected collection of roughly 500 companies that are large and economically important. The quality of the companies being selected isn't guaranteed to be high and, in fact, the S&P 500 usually contains more than a few troubled businesses. Buying the highest-yielding stocks from the index means you will own at least a few high-risk turnaround stories.
Then there's the simple fact that some sectors tend to contain more high-yield stocks than other sectors. This will lead SPDR Portfolio S&P 500 High Dividend ETF to often have high concentrations in areas like real estate, finance, and utilities. That's not a bad thing, per se, but these three sectors do make up more than half of the portfolio.
If you are focused on higher-growth investments elsewhere in your portfolio, that might be a good thing. But it is still something you'll want to keep in mind as you build out your portfolio.
SPDR Portfolio S&P 500 High Dividend ETF's equal-weighting approach is a key offset to the potential risks posed by its simple selection approach. Essentially, each stock has the same chance to impact performance, for better or worse. That means that no single blowup is likely to completely derail the portfolio.
Of course, it also means that no single "winner" will drive the overall performance either, as can happen with market cap-weighted portfolios.
Is SPDR Portfolio S&P 500 High Dividend ETF a millionaire maker?
All alone, SPDR Portfolio S&P 500 High Dividend ETF is unlikely to make you a millionaire. But if you use it as a foundational investment, the high-yield ETF could help you build a millionaire-making portfolio. That's the ticket you are buying here.
But it's not a lottery ticket -- it's more like a train ticket. Most lottery tickets end up worthless. It may take you a little while to get to your final destination if you take the train, but history suggests that you'll actually get there, given enough time.
