The Misperception of Safety: Why Quality Dividend-Paying Stocks are a Good Alternative to Low-Yielding Bonds
The current investment climate—a modestly improving economy with high unemployment, a 2008 stock market crash still fresh in our minds, volatility in equity markets and record low interest rates—has made it difficult for fixed income investors to find acceptable yields. Despite these low rates, many investors have raised allocations to fixed income securities based on what we think is an irrational fear driven by uncertainty. This is illustrated by the fact that $52 billion has flowed out of stock mutual funds since May 2010 while $94 billion has flowed into bond funds.
We urge investors to consider that they may be accepting these low bond yields at precisely the wrong time and, indeed, may be putting their long-term income potential at risk by piling into an asset class that is not likely to keep pace with inflation. Let us be clear, Government and low-yielding bonds will be a bad place to invest over the coming decade.
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The current investment climate—a modestly improving economy with high unemployment, a 2008 stock market crash still fresh in our minds, volatility in equity markets and record low interest rates—has made it difficult for fixed income investors to find acceptable yields. Despite these low rates, many investors have raised allocations to fixed income securities based on what we think is an irrational fear driven by uncertainty. This is illustrated by the fact that $52 billion has flowed out of stock mutual funds since May 2010 while $94 billion has flowed into bond funds.
We urge investors to consider that they may be accepting these low bond yields at precisely the wrong time and, indeed, may be putting their long-term income potential at risk by piling into an asset class that is not likely to keep pace with inflation. Let us be clear, Government and low-yielding bonds will be a bad place to invest over the coming decade.