What To Do As Bond Yields Approach Zero?

With many retirees relying on fixed income securities like bonds to earn a decent, stable stream of income in retirement, bond yields which have hovered below 1% for some time now for any bond with a maturation of less than 10 years is insane.

The “TINA” trade (There Is No Alternative) has resulted in many seniors resorting to investing in the equity markets, perhaps taking on more risk than they otherwise would, in search of yield.

As we’ve seen with recent carnage in the global stock market, this scenario has not turned out to be pretty for most investors.

For those who have indeed chosen to place the vast majority of their retirement funds into the stock market, there are a couple things I’d suggest keeping in mind.

The first, and perhaps most important factor to consider in the dividend-paying stocks one is considering today (in these volatile times) is just how stable one believes the payout is likely to be over time.

If, for example, a company is paying out far more than it earns in dividends as a result of this demand and supply shock, one must call into question the viability of the dividend of the company in question and potentially forgo said investment.

Additionally, if the yield on a company one is interested in breaches double digits, or becomes sufficiently elevated to the point that one must ask the question of “will this dividend be cut?,” it may simply be too risky at this point.

Invest wisely, my friends.