Income-focused exchange-traded funds, or ETFs, and mutual funds are another option for income investors who want to avoid dividend stocks. While some of these funds invest in dividend stocks, many others focus on preferred stock, bonds, and other income-related securities. They also provide built-in diversification.
Like any ETF or mutual fund, income funds have expense ratios that can impact long-term performance. Investors should also carefully consider a fund’s portfolio, liquidity, turnover, and other risk factors before making an investment. Low-cost index funds tend to offer the best performance and the lowest cost of ownership.