With plenty of volatility in global markets over the last few weeks, many investors may decide to shift some of their portfolio focus.
One option is to look for exposure to more defensive shares.
However another option is to start focussing on passive income rather than growth.
In volatile markets, prices swing unpredictably. If you're focused on growth, your returns depend heavily on when you buy and sell.
With income investing:
- You're paid regardless of short-term price movements
- You don't need to sell assets in a downturn to generate cash.
For example, if markets drop 20%, a growth investor may decide to sell at a loss.
A dividend investor can live off distributions and wait it out.
It's important to note that volatility doesn't mean you suddenly shift your entire portfolio.
However, allocating some exposure to passive income may be worthwhile.
One way to do this is through diversified dividend ASX ETFs.
Here are three to consider.
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Vanguard Australian Shares High Yield ETF (ASX: VHY)
This ASX ETF is one of the most popular passive income generating funds.
It seeks to track the return of the FTSE Australia High Dividend Yield Index.
Essentially, it targets stocks that have higher forecast dividends relative to other ASX-listed companies.
Security diversification is achieved by restricting the proportion invested in any one industry to 40% of the total ETF and 10% for any one company.
Australian Real Estate Investment Trusts (A-REITS) are excluded from the index.
It currently provides a dividend yield of approximately 4%, paid quarterly.
Betashares Australian Dividend Harvester Fund (ASX: HVST)
HVST ETF aims to provide franked income that exceeds the net income yield of the broad Australian sharemarket on an annual basis, along with exposure to a diversified portfolio of Australian shares.
The ETF's share portfolio is generally selected from the largest 100 Australian shares on the ASX, screened for high dividend and franking outcomes based upon expected future gross dividend payments.
The share portfolio is rebalanced approximately every three months, with the aim of including the shares that are expected, within the next rebalance period, to provide the highest gross yield outcomes.
It pays distributions monthly, and has a 12 month gross distribution yield of 7.0%.
iShares S&P/ASX Dividend Opportunities ETF (ASX: IHD)
This ASX ETF includes roughly 50 ASX listed stocks that offer high dividend yields while meeting diversification, profitability and tradability requirements as well as being screened for sustainability considerations.
It also tracks an S&P/ASX ESG benchmark.
According to iShares, it has a 12 month trailing yield of 4.32%.
Distributions are paid quarterly.
