Monday, October 18, 2021

The top dividend-growth mutual funds for your 401(k)

What they are: High-quality, mid-cap dividend growth mutual funds. These funds hold high-quality, dividend-paying companies. Those with strong fundamentals are stable with good growth potential. You’ll find solid companies in industries such as consumer staples, financial services, energy, technology and utilities. The goal is to help your portfolio return the inflation rate and provide attractive long-term total returns. Investing in dividend-paying stocks will help protect your principal by creating a cushion to offset the erosion of principal caused by inflation.

How they work: Low-cost, diversified dividend mutual funds pool your portfolio’s investment dollars so you have more ability to invest in a way that’s tax efficient. You buy mutual funds at a reduced price that reflects the asset class you wish to invest in and the fee the fund charges. The primary feature of high-quality dividend mutual funds is that they have the ability to generate high long-term total returns from current market-beating dividend payers.

Where they’re best: For the long term, consider high-quality dividend mutual funds that invest in high-quality dividend payers, such as Vanguard’s Dividend Appreciation ETF (VIG) or Fidelity High Dividend Yield fund (FHDGX).

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