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Brokerage account & Dividend ETF/MF
Old 04-25-2020, 08:05 PM   #1
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Brokerage account & Dividend ETF/MF

Hi all,

I learn a lot from the collective wisdom of each of you so I hope this is not a dumb question.

If I want to ER in next 5 to 7 years and live off (a portion) on dividends then is it wise to not invest in dividend paying ETF/mutual funds now but convert investments into dividend paying ETF/MF close to ER. I say that because right now for all the dividend in a BA, I have to pay capital gains and I am in a high tax bracket. What are the pro's and con's that I am missing?

Also, any recommendations on ETF/MF to consider for the next 5 to 7 years

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Old 04-25-2020, 10:57 PM   #2
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I stay away from Mutual funds in normal taxable brokerage account, as they can surprise you with declared dividends/capital gains. I prefer ETF's as they are more tax efficient (I'm sure someone will say I'm wrong here).

I would not invest in some etf/fund simply due to it paying a dividend (called dividend chasing).

Even broad etf's example VTI pay a dividend, and grow in value over the years.

Remember when you retire, for most folks their income goes down, and changes a lot, so getting divs or capital gains which are tax free or low tax rate is different then getting them when taxed mostly as earnings.

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Old 04-26-2020, 01:53 AM   #3
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Interest rates stink but if you're in a high tax bracket there is always a muni bond fund.

VTEB from Vanguard looks to be yielding about 2%, which net of taxes could be quite sound for you.
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Old 04-26-2020, 06:00 AM   #4
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Originally Posted by MN_1021 View Post
Also, any recommendations on ETF/MF to consider for the next 5 to 7 years
Consider what has happened to these ETFs as an example of what you're up against: SCHD (dividend) and SPYD high dividend.

When you reach for higher yield (7.0% for SPYD), you take on more risk. Share price down over 30%. So carefully pick your poison.
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