A Blue Chip Down Payment

I've been looking into high yield dividend mutual funds as a possibility for investing our down payment money for the next house. This would be an alternative to keeping the money in our money market account paying 0.85%.

Blue Chip stocks are those companies that are generally worth billions, thus established in their field, often a household name, and pay steady or rising dividends each year (paraphrased from Investopedia). The mutual funds I'm looking at invest in these blue chip stocks, like Coca Cola, IBM, UPS, and Exxon.

The returns on these funds the last few years are definitely better than the 0.85% we are getting on our money market. Of course, the money market account is less risky than stocks. Stocks do fluctuate, thus that risk scares me a little bit given this is a short term investment of 2 years...maybe 3.

I do need to convince my husband it is the right thing to do. I think he will trust my judgement. Thus I really need to convince myself!!

Generally, this isn't something I would advise anyone to do because of the risk, but with additional risk, often comes additional reward. Does anyone reading this know of anything that should keep me from taking the risk of investing in a Dividend Growth fund?

I'm looking at VDIGX and VDAIX, which are both held at Vanguard. Both have 5 star ratings from Morningstar. If we had held VDIGX two years ago, our money would have increased by nearly $7K by now. However, if our two year period was April 2007 to today, we would have lost $6,700 from our initial investment.

The dividends that are paid would be reinvested to buy more shares, and would be taxed just like ordinary income, which is no different than if we earned interest. If someone were to hold this fund in a retirement account, those reinvested dividends are tax deferred until retirement.

I feel positive about the over all outlook, so I think it should be a buy. What do you think? Anything else I should look at?