Re. the turnover rate on those dividend etf's. I get these numbers on turnover rates from yahoo finance:
SDY 105% !!!!! Holy cow.
DVY 25% Better but still, why did they have to sell and rebuy 25% of the fund in a year?
More:
VIG 20%
FVD 101% Another biggee.
DLN 17%
VYM 20%
DTD 16%
PFM 18%
PEY 57%
How many dividend stock investors will buy and sell 20% of their dividend stock portfolio every year - not to mention 100% or more? Most will look for long term dividend payers and growers and hold them for years, collect the dividends and let the price go up and down however Mr Market wills. During the years they hold a stock without buying or selling, there are no expenses of any kind and the only taxes are those payable on the dividends received.
Studies have shown that low turnover funds outperform rapid traders over the long haul by a full percentage point. "In every time period it becomes more apparent that as turnover is cranked up performance goes down," says Mark Travis, president of Intrepid Capital Management. That boost to performance exists in part because low turnover funds avoid one of the biggest hidden fees in investing: trading commissions. It's not uncommon for a fund's expenses to increase by almost 1% when trading costs are added in. (Trading costs aren't included in the annual expense ratio; they are paid directly from the fund's assets.) These funds also tend to be more tax efficient, since trading in and out of stocks can lead to capital gains.
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Read more: Funds With Low Turnover, High Returns - Investing - Mutual Funds - SmartMoney.com smartmoney.com
When the fund realizes gains, you have to pay taxes on them. And as mentioned, the published expense ratio isn't really the expense ratio - it doesn't have commissions and bid-ask spreads in it. Nobody knows what the real expense ratio of these funds is ..... but with a 101% turnover rate, SDY's real expenses aren't 0.35%.
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. Let's see what happens to two individuals who start with a $100,000 portfolio. Take a trading type that generates a yearly return of 15% versus a boring low-turnover investor who generates a yearly return of 12% pre-tax.
Each year, the hyperactive trader has to pay 32% of his or her gains to Uncle Sam while the long-term investor defers taxes. At year 20, the boring investor's portfolio will be worth $791,703 after tax. The hyperactive investor's portfolio will be worth $697,641 after tax. You've got to be pretty darned good to generate those returns over the course of 20 years. The boring investor possesses only slightly above-average skills at valuing and selecting companies for investment. Nevertheless, that investor has almost 13 1/2% more money than the other guy at the end of 20 years.
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