We Compare VIG vs VYM:
We are going to explore the difference between Vanguard Dividend Appreciation ETF (VIG) vs Vanguard High Dividend Yield ETF (VYM)
Choosing between two funds can be difficult, but I will make it easy for you to decide between VIG vs VYM.
VIG vs VYM
The primary difference between VIG and VYM is the index they track. VIG tracks the S&P U.S. Dividend Growers Index while VYM tracks the FTSE High Dividend Yield Index. Another significant difference is the number of stocks in each, with VIG having 267 different companies compared to 413 with VYM.
VIG tracks the S&P U.S. Dividend Growers Index
VYM tracks the FTSE High Dividend Yield Index
VIG and VYM have the same expense ratio of 0.06%. This makes both of these ETFs low-cost funds.
- Fund Inception: 2006
- Offered By Vanguard
- Tracks The S&P U.S. Dividend Growers Index
- Expense Ratio 0.06%
- Number Of Stocks: 267
- Dividend Yield 1.67%
- Fund Inception: 2006
- Offered By Vanguard
- Tracks The FTSE High Dividend Yield Index
- Expense Ratio 0.06%
- Number Of Stocks: 413
- Dividend Yield 2.66%
VIG vs VYM Performance
VIG and VYM have performed similarly over the last 10 years with VIG outperforming VYM by 0.69% annually.
However, this difference is made up by VYM with its higher dividend yield.
Here is how their performance compares:
Here is another comparison of performance:
As you can see, they have performed almost the same over the long term with VIG slightly outperforming VYM over 10 years.
VIG vs VYM Holdings
There is a significant difference in the number of holdings for VIG and VYM. VYM includes 413 stocks in the ETF while VIG holds 267 stocks.
VYM holds 1.5 times as many companies compared to VIG.
These funds also differ in their sector diversification.
VYM is 7% technology while VIG is 13.90%.
VIG leaning heavier into the technology sector explains why it has outperformed VYM.
Technology stocks have performed well over the last decade.
With only 267 holdings total, VIG’s top 10 holdings make up 31% of its assets. VYM’s top 10 holdings make up 23%.
Here are VIG and VYM holdings side-by-side:
The top 10 holdings for VIG make up 31% of its portfolio while VYM’s top 10 holdings make up 23%.
This means the performance of a few stocks like Microsoft, Johnson & Johnson, UnitedHealth, JP Morgan, and Procter & Gamble will have a big impact on the overall performance of VIG.
VYM vs VIG Overlap
There is an overlap between VYM and VIG that includes 124 stocks. Roughly 30% of VYM’s holdings are in VIG.
Here is VYM and VIG holdings overlap:
There is overlap by weight of about 48%:
This gives VYM more diversification compared to VIG.
VIG and VYM Differences
The main difference between VIG and VYM is how they select holdings. VIG looks for companies with dividend appreciation for 10 years. VYM looks for companies with above-average dividends.
Another major difference between VIG and VYM is that VYM has a higher dividend yield of 2.75% compared to 1.67% with VIG.
VYM holds 1.5 times as many stocks compared to VIG making VYM more diversified.
Here is a comparison chart of VIG vs VYM:
By investing in an ETF with more holdings you are helping diversify your portfolio and minimize risk.
Differences between VIG and VYM:
- Company Selection
- Different Number Of Holdings (~267 vs ~413)
- Level Of Diversification
- Tracking Index
Vanguard Dividend Appreciation ETF (VIG) start date is in 2006. It’s one of Vanguard’s ETFs that seeks to track the performance of the S&P U.S. Dividend Growers Index.
VIG contains large-cap equities and emphasizes holdings with a track record of growing their dividends year over year.
Companies in VIG have a track record of increasing their dividends over time.
It makes sense that VIG has a higher dividend yield (1.67%) compared to other Vanguard ETFs like VOO.
However, Vanguard’s other high dividend ETF, VYM has a higher dividend yield.
Vanguard Dividend Appreciation ETF (VIG) has performed well over the last 10 years but its performance has lagged compared to the S&P 500 Index.
You can expect VIG’s performance to lag compared to other popular Vanguard ETFs but it makes up for some of that with its higher quarterly dividend payouts.
Over the last 10 years, VIG has returned an average of 12.91% per year.
Here are the top 10 holdings for VIG:
We can see, VIG is largely made up of Microsoft, Johnson & Johnson, UnitedHealth, JP Morgan, and Procter & Gamble but also provides exposure to over 200 other stocks.
VIG has $78.5 billion in total net assets.
Vanguard’s High Dividend Yield ETF (VYM) launched in 2006 and is one of Vanguard’s ETFs that seeks to track the performance of the FTSE High Dividend Yield Index.
The FTSE High Dividend Yield Index originated from the FTSE Global Equity Index Series (GEIS) in the United States.
The FTSE index is made up of selected US-based stocks based on above-average dividend yields.
It measures the returns of common stocks of high dividend-yielding companies and serves as a benchmark for the performance of these stocks.
VYM is a large-cap weighted index, providing broad exposure to the large-cap value stocks in the Equity market.
The fund excludes Real Estate Investment Trusts (REITs) from its holdings.
Vanguard High Dividend Yield ETF (VYM) is popular for its steady performance returns along with consistently high dividend yield.
You can expect VYM’s performance to lag compared to growth ETFs but it makes up for some of that with its higher quarterly dividend payouts.
Over the last 10 years, VYM has returned an average of 12.22% per year.
Here are the top 10 holdings for VYM:
We can see, VYM is largely made up of JP Morgan, Johnson & Johnson, Home Depot, Procter & Gamble, and Pfizer but also provides exposure to over 400 other stocks.
The fund has $43 billion in total net assets.
VIG vs VYM What’s The Difference?
The primary difference between VIG and VYM is how they select holdings. VIG looks for companies with dividend appreciation for 10 years while VYM looks for companies with above-average dividends.
VYM still has a higher dividend yield compared to VIG.
Having said that, both VYM and VIG are high dividend yield exchange-traded funds (ETFs).
Another key difference between the two ETFs is that VIG tracks the S&P U.S. Dividend Growers Index while VYM tracks the FTSE High Dividend Yield Index.
VYM has a more diverse set of holdings compared to VIG.
The top 10 holdings for VIG make up 31% of its portfolio while for VYM it’s 23%.
This has led to better performance from VIG but doesn’t guarantee that will continue.
For example, VYM is outperforming VIG over the last year even with a higher dividend yield.
No Minimum Investment
VYM and VIG are both exchange-traded funds (ETFs) so there is no minimum investment. Investors looking to buy fractional shares can use platforms like M1 Finance.
Normally, fractional shares are not available for ETFs but with M1 Finance you can purchase fractional shares with no commission.
Buying fractional shares allows you to maximize your investment.
There are two easy ways to invest in VIG or VYM commission-free.
Both of these options are free. This is important because fees can lower our returns.
I like M1 Finance as the best option because it gives you the flexibility to purchase VIG, VYM, and thousands of other stocks.
I also use Personal Capital to track my investment fees. They have a free Retirement Fee Analyzer that tells you the future impact of fees on your portfolio.
Personal Capital’s free tools allow you to easily find which of your investments has high fees so that you can switch them to low-cost options. (Get a $20 Amazon Gift Card with this link when you add at least one investment account containing a balance of more than $1,000 within 30 days)
Which Is Better VYM or VIG?
VYM has been better compared to VIG over the last 10 years. VYM offers more diversification, less volatility, and a higher dividend yield. It also has a similar performance over the long term.
Some of the higher returns provided by VIG are due to the higher proportion of technology stocks.
This outperformance of growth stocks might not continue since over the long term value stocks tend to outperform.
VIG offers stable performance and holds companies that increase their dividend yield over time.
VYM offers stable performance and higher dividend income with less volatility.
If having a larger basket of stocks helps you sleep at night, then VYM would be a better option.
If you are seeking the highest possible returns and can handle the increased volatility then VIG might be a better option.
Lastly, it’s important to consider costs and fees because they can cost you in the long run. That’s why it’s so important to purchase and sell your shares commission-free.
You can buy and sell these ETFs commission-free either on Vanguard’s platform or using M1 Finance.
Is VIG or VYM Better for Financial Independence?
Both VIG and VYM have performed well enough to get you to Financial Independence Retire Early (FIRE). They both have performed great over the last 10 years and have low expense ratios.
Lower fees are a guaranteed way to keep more money in your portfolio!
Being part of the FIRE community, we aim for the highest return and the most diversification.
For those reasons, I prefer VYM over VIG.
It’s important to note that both VIG and VYM might be better held in tax-advantaged accounts like a Roth IRA.
This is because the higher dividend payouts can cause a tax drag on your portfolio while you are in the accumulation phase of financial independence.
My winner is VYM based on the increased number of holdings and the higher dividend yield.
That said, VIG is a strong option to consider, especially if you pair it with other funds.
You can consider pairing these ETFs with other funds to increase diversification such as the FIRE community’s favorite VTSAX.
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This information is my opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.