Dividend Stocks Yielding More Than Bonds

A weird thing happens when investors start seeing signs of a recession or just start convincing themselves that a recession is inevitable and coming soon; interest rates begin to fall, which means bond yields begin to drop. Most investors are told when they start investing that stocks are risky, but they offer better long-term growth, while bonds are safer, but they don’t offer investors as much potential growth.

While these statements may be true during certain situations, they certainly don’t always hold true. Sometimes, stocks may be both less risky and offer higher growth than bonds. I personally believe now be may one of those times.

As things sit now, bonds are offering rather low yields. The three-month treasury is paying 1.78%, the 12-month treasury is paying 1.75%, while the even longer five-year treasury is only offering a yield of 1.56%. The ten-year treasury is at 1.68%, and the 30-year treasury is sitting at 2.13%. These returns are hardly likely to keep up with inflation over those longer periods. Buying an investment that may just keep up with inflation seems somewhat risky to me.

Even the bond ETFs that have performed well year-to-date and pay yields to their investors aren’t currently offering anything much better than what investors can get from Treasuries. The Vanguard Long-Term Corporate Bond ETF (VCLT) which is up 21% year-to-date is offering one of the best yields at 3.5%. But this ETF is rather risky considering if, and when interest rates turn around, this fund will get hit.

On the other hand, certain stocks are currently offering higher yields, while also offering the chance for stock price appreciation, regardless of which way interest rates run. Let’s take a look at a few of my person favorites equity Exchange Traded Funds, which offer both growth and healthy, reliable yields. Continue reading "Dividend Stocks Yielding More Than Bonds"

ETFs Will End The Use Of Mutual Funds

When Jack Bogle started the Vanguard Index Fund, he essentially changed the investment management game forever. He found a way to reduce the fee’s they charged investors, which in turn, brought Vanguard more investment money than they could have ever imagined.

If the move to lower investment fees was the first landed punch in the fight against mutual funds, the rise of the Exchange Traded Fund is the nuclear bomb in the fight against mutual funds. And well to most market participants, the reason is clear, ETFs are way cheaper and easier for all parties involved.

But, why do lower fees matter? Yes, and the math, while perhaps not simple is straight forward. The idea is that if you invest the same amount each year, we will say $10,000, and in one scenario you pay 0.1% in fee’s and commissions and another you pay 1.5% in fees and commissions. Over 30 or 40 years of investing, the difference of 0.1% and 1.5% will add up because of compounding interest. How much of a difference, well that all depends on your annual return rate, how long you stay invested and how much you are investing, but it could add up to not thousands of dollars, or even hundreds of thousands of dollars, but millions of dollars.

Some quick back of the napkin math looks like this, just to prove my point. A 0.1% fee on $10,000 during one year is just $10. Now a 1.5% fee on $10,000 during one year is $150. Let’s say your account never grows higher than $10,000 over 10 years, (I know very unrealistic, but follow along.) If your fee’s where 0.1% you would pay $100 in fees throughout those 10 years, ($10 a year time 10 years). Now let’s say your fees where 1.5% on your $10,000 for 10 years, (and again it never changed from $10,000) you would pay $1,500 in fees over the 10 years. $100 in fees or $1,500 in fee’s, which would you rather pay? And again, that’s just on a $10,000 investment, imagine if you have $100,000, $500,000, $1 million or more invested. Continue reading "ETFs Will End The Use Of Mutual Funds"