Four ETFs Vs. Our DGI Retirement Portfolio

Background

My family has a long history of dividend growth investing. For 70+ years my dad bought and held blue-chip stocks. He and my mom lived off the dividends for their retirement, which was 32-38 years. It wasn’t until my dad was in his early 80s – when I took over completing their taxes – that I realized that he had been a dividend growth investor his entire life.

In my early 50s, I began to read and put together an investment plan and strategy for our retirement years. After two years of reading and analyzing, I decided to put together my own dividend and growth portfolio that would generate ~4% of dividend income and grow the portfolio. This seemed like a good way to generate income and reduce our worry about market volatility. For more in-depth background, you can read my previous articles here.

My wife and I have been retired now for seven years and this approach has worked well for us. Our portfolios generate a generous amount of dividend income and the value of our portfolios has nearly doubled during that period. So, what’s not to love about this approach?

Back in July 2019, I read an article titled “Beating The Market With Factor ETFs: A Simple Approach” by Seeking Alpha author Left Banker. His approach to “beating the market” was to put together an equal-weighted portfolio of three funds” consisting of the iShares MSCI USA Quality Factor ETF (QUAL), the iShares Edge MSCI USA Momentum Factor ETF (MTUM), and the iShares MSCI USA Min Vol Factor ETF (USMV). He also added a dividend growth fund, the iShares Core Dividend Growth ETF (DGRO), to the mix – making this a four-fund, equal-weighted portfolio. As I had been following Left Banker for a while I did not do any analysis of these funds and simply accepted his premise. As the amount I invested was not that much, I was not concerned if the funds lost money. In the comments of Left Banker’s article, I stated I would buy each of the four funds he recommended, and in the last half of 2019, I invested into each fund and held them within my IRA.

Details

The four funds remained untouched until we needed money to buy items for a new house. In late March 2022, I sold these four funds and transferred the money, minus taxes, from the IRA to our checking account.

Below is a chart showing how each fund did.

ETF buy and Sell Summary
ETF	Purchase		Sell		Gain
Name	Price	Date	Price	Date	Total*	Gain/yr*
DGRO	$37.0	11/04/2019	$54.4	03/29/2022	52.3%	21.8%
QUAL	$91.0	08/02/2019	$136.0	03/29/2022	53.6%	20.2%
MTUM	$120.0	08/03/2019	$170.0	03/28/2022	44.7%	16.8%
USMV	$61.0	11/04/2019	$77.0	03/28/2022	31.3%	11.7%

* Dividends added back in to calculate the total gain.

Let’s compare these ETFs, my IRA, and the S&P 500 during the same period.

Gain Summary for stated time period
Investment type	Total*	Gain/yr*
ETF Average	45.5%	17.6%
Authors IRA	31.5%	11.8%
S&P 500**	50.81%	19.0%

* Dividends added back in for total gain

** S&P 500-return-calculator using August 2019 and March 2022.

From the point of view of the Left Banker in 2019, he was right – these four funds did outperform my IRA portfolio over that time period. The average gain over the three and a half years from the four funds was 45.5% vs. 31.5% for my IRA. Overall, I am pleased with the results of this investing experiment as 14% over three and a half years is certainly worth noting.

I also looked at how the S&P 500 did during the same time period. It had a gain of 50.8%, which beat both the four ETF funds and my IRA. Investing in the S&P 500 such as the Vanguard fund VOO is even simpler than investing in the four ETF funds. So, what do you invest in? Well, the answer is “it depends.”

Many factors go into your retirement investment path:

• Are you comfortable with the ups and downs of the market?
• Do you need to have several years of cash available if the market turns down?
• Are you willing to monitor the market and sell when appropriate?

What I was looking for was steady and growing dividend income to increase capital and to reduce our worry from market volatility.

Over the last few months, the market has reacted to world events and has been up and down during that period. However, the income stream from dividends has been consistent and growing during that same period.

I calculated the year to date, or YTD, for my IRA and used Yahoo Finance to determine the YTD for the four funds and the Vanguard S&P 500 ETF (VOO). For my IRA, I added back in the withdrawals that we made from the beginning of the year. I have a chart below showing the YTD results. (I have a list of my IRA stocks in the bio portion of my SA profile page if you are interested to see my portfolio.)

Year To Date Summary as of April 19, 2022
ETF	Gain
DGRO	-7.10%
QUAL	-9.90%
MTUM	-11%
USMV	-3.00%
Average	-7.85%
VOO (S&P 500 Fund)	-7.10%
DGI IRA (withdrawals added back in)	3.30%

For the YTD, my IRA outperformed all the funds and the S&P 500 fund. My IRA might have missed out on some gains during the bull market of the past three and a half years, but we have a strong position when the market pulled back. My observation is that dividend stocks become somewhat of a safe haven when the market turns down, and this might account for the gain. As they say, timing is everything.

Conclusion

A long-term strategy of investing in ETFs or the S&P 500 can provide good growth for a retirement portfolio and many people choose that strategy. To generate income from this approach you would have to sell off portions of the ETFs on a regular basis. Left Banker talks about this approach in a recent comment from Dec. 22, 2021. This requires monitoring the funds and trying to sell when the market is up.

My retirement goal was to set up a portfolio of dividend growth stocks that would provide a consistent, reliable, and growing income stream, as well as minimize the worry of the market fluctuations. Also, my wife does our monthly expenses and she likes the monthly transfer into our checking account. That would be more difficult if I had to sell off a portion of a fund on a regular basis. Our portfolios have provided the income we need while reducing the worry of market fluctuations. Which approach you chose comes down to what you – and, in many cases, your partner – are comfortable with.