Should you focus on just dividends?

Dividends appear to be easy to focus on because their returns are expressed in yield, which we translate to an interest rate in our brains. People compare this “interest rate” to returns from stocks, or to CDs, savings accounts, etc., in order to make a selection as to which one they prefer … of course they gravitate towards the higher “interest rate.”

Problem is…comparing interest rates to dividend yields and these to stock returns is more difficult than that because they all change and are subject to different measurements that derive that singular number (“interest rate”) people tend to use.

Chasing returns, yields, interest rates, or dividend yields all tend to mean you are going, most often unintentionally, towards more risk. Why? Because high rates go hand in hand to high risk … one doesn’t come without the other.

As the article below points out … money doesn’t care where it comes from since it is all spent the same way in the end. More important that return (which comes with some form of risk regardless of where you invest), is the size of your wealth … do you have enough to sustain retirement, or for the goal the money is set aside for?

Moral of the story: approach balance in everything and a practical approach that is structured so that when most possible events occur, something is in your portfolio to respond to most of those possible events.

Prediction addiction.

 

About Larry Frank, Sr.

Larry R Frank Sr., MBA, CFP®, is an experienced financial advisor and a published author on Retirement Planning Research. Have a financial question? Click Here to Ask Larry

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