A "Bucket List" for a Bear Market

August 18, 2010
Shirley M. Mueller, M.D.

Buying low is easy after the market plunges -- most stocks, mutual funds or exchange traded funds (ETFs) are on sale. In this type of market, every investor needs to have a "bucket list" at the ready to snap up bargains. Here's mine.

Benjamin Graham and David Dodd -- the fathers of “value investing” and Warren Buffett’s mentors -- advised investors to buy stocks in undervalued companies where assets exceeded liabilities and long-term debt, and share prices were selling at a low price-to-earnings ratio.

In essence: “Buy low, sell high.”

Buying low is easy after the market plunges. Most stocks, mutual funds or exchange traded funds (ETFs) are on sale. In this type of market, every investor needs to have a “bucket list” for buying. (As Louis Pasteur famously said, “Chance favors the prepared mind.”)

For those who already have a well-balanced portfolio, any ready cash could be used to buy high-dividend-paying stocks, mutual funds or ETFs. If we’re in for a delayed economic recovery, as many economists predict, the stock market could be stuck in an up-and-down pattern for years without any real sustained growth. In this environment, high-dividend yields purchased at bargain prices would be an ideal addition to many portfolios -- and especially ones that seek steady income.

So here is my bucket list of high-dividend-paying ETFs -- investments that trade like stocks, but act like mutual funds -- that have modest expenses. The securities have low turnover, compared to their category average, which further keeps down costs. And, if purchased at bargain prices during a market slump, they potentially could be sold for a profit. In a nutshell, there is little to lose.

A Bucket List of High-Dividend ETFs

Symbol

Description

Yield

Expense Ratio

Turnover

VNQ

Vanguard Real Estate Investment Trust (REIT)

4.64%

0.11%

10%

BIV

Vanguard Intermediate Term Bond

4.32%

0.10%

89%

VYM

Vanguard High Dividend Yield

3.17%

0.20%

11%

VIG

Vanguard Dividend Appreciation

2.14%

0.24%

34%

The only downside here is that taxes are expected to increase on dividends in the near future. This can be avoided, however, by placing the investments in a tax-deferred retirement account. And though the yield of these ETFs may not be as high as some stocks or junk bonds, they are almost certainly safer -- a benefit for uncertain times.