Rediscover the Value of Yields in Recessions

Rediscover the Value of Yields in Recessions Cornerstone Wealth Management

Rediscover the Value of Yields in Recessions Cornerstone Wealth Management

For decades, the name of the personal finances game has been an asset or equity growth. High-growth tech stocks grew to dominate the market, some of which have grown to be among the largest companies in the world. And if you owned stock in those companies while they made their meteoric rise, your overall wealth may have ballooned in the process. But how safe do you feel with your wealth in those stocks? Would you feel comfortable with a 5% drop right now? A 10% drop? Maybe even more? If such a drop is a significant setback, ask yourself if your assets alone can reliably pay the bills.

Ask Your Money a New Question

If your retirement accounts have been invested in the general stock markets for the past decade, you’ve likely gotten used to the idea that equities in high-growth sectors grow at faster rates than lower-growth value equities. Dividends and their percentage yields have been so low that the consistent double-digit growth usually dwarfed any benefit from a small, diminishing yield percentage.

But now, the tides have turned in the markets. And to seek protection for your portfolio, it’s time to rediscover the value of yields and compounding interest rates. Firstly, when it comes to yielding stocks, don’t think about general stock charts or average year-over-year growth. Those charts don’t show your gains from compounding interest!

What Does Compounding Interest Look Like?

Compounding interest goes like this: $100 invested into an asset with a 10% interest/dividend rate becomes $110 at the end of the period. Then, $110 becomes $121 if reinvested, etc. But the stock chart doesn’t show that! All you’ll see is a note indicating the dividend yield along with a stock chart that likely shows modest gains of, let’s say, 2% in this example.

But remember to think about this: If you add your dividend percentage to the stock price at the end of each annual payment period, you’ll uncover the true growth of your investment. In other words, which of these provides the greatest return; 2% of 100, 2% of 110, or 2% of 121? If you apply compounding interest to even a modest growth rate in equity value, you could see even greater exponential gains.

In addition, stable yielding assets often don’t see declines as steep as high-growth stocks, helping maintain your asset value during downturns. However, not all yield-paying assets carry the same risk level.

Look Out for Yield Traps

There are some yielding assets available to you that provide double-digit dividend yields but, in turn, see even steeper equity declines on a consistent basis. This type of investment is known as a yield trap because you end up losing money altogether, even with such a high dividend yield.

Another type of yield trap may come in the form of a stock whose previous dividend payments are abnormally high and irregular, showing a higher percentage than what is realistic in the future. Check dividend history and payment reliability and consistency of each dividend payment before investing in a high-paying dividend stock.

Finding the right assets to add to your portfolio is not as easy as it sounds. If you want to make sure your investments are better positioned to provide you with a comfortable retirement, Click here to sign up for a complimentary review of your financial plan with us, and we can build a comprehensive retirement plan.


The article and opinions in this publication are for general information only and are not intended to provide specific advice or Recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your Individual situation. This content was created by Lone Beacon.

Registered Representatives offer securities through Independent Financial Group, LLC (IFG), Member FINRA/SIPC. Investment Advisor Representatives offer Advisory services through Independent Financial Group, LLC (IFG), a Registered Investment Adviser. Cornerstone Wealth Management, Cornerstone Tax Advisory and IFG are unaffiliated entities.

This material was partially prepared by Lone Beacon and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate.

The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

Share This Post:
Cornerstone Wealth

SERVICES

Cornerstone Wealth

Schedule a Call

Ready to take control of your financial future? Schedule a call with Cornerstone Wealth Management today.

Join Our Mailing List

FINANCIAL INSIGHTS DELIVERED STRAIGHT TO YOUR INBOX

Birthdays Over 50 Worth Celebrating
READ OUR LATEST GUIDE

Birthdays Over 50 Worth Celebrating

Before you start planning for retirement, make sure you put these relevant dates in your calendar. Beginning at 50 years old, there are several birthdays that are essential to be aware of as they can influence your retirement timeline and overall financial plan.

The Fundamentals of Estate Planning
READ OUR LATEST GUIDE

The Fundamentals of Estate Planning

Estate planning can be an emotional process. After all, it’s difficult to think about things like who will raise your children, or which loved one will best manage your financial assets. Estate planning is necessary, however, because without a will, your estate may end up in court. This means it could be divvied up based on a judge’s ruling, rather than on your personal wishes.

Making the Transition to Retired Life
READ OUR LATEST GUIDE

Making the Transition to Retired Life

After all your years of hard work and disciplined saving, you’ve made it to retirement – congratulations! Now, the challenge becomes tackling common retirement transition concerns so that you can live out the ideal retirement you’ve dreamed of.

Addressing Market Volatility in Today's World
READ OUR LATEST GUIDE

Addressing Market Volatility in Today's World

Planning for retirement is never a “set it and forget it” task. There are unexpected disasters, market drops, and changing laws that could cause retirees to reevaluate their financial situation. Ultimately, there’s no way to predict everything that will cause market downturns. However, you can prepare yourself for one by having a solid financial strategy in place.

What to Consider in Your Charitable Giving Plan
READ OUR LATEST GUIDE

What to Consider in Your Charitable Giving Plan

Congratulations! You’ve decided to give to a charitable organization. Charitable giving is a wonderful way to help further causes you are passionate about and feel good while doing it.

The Importance of Designating Beneficiaries
READ OUR LATEST GUIDE

The Importance of Designating Beneficiaries

When life gets hectic and your to-do list seems endless, it can be easy to let financial planning details slip through the cracks. However, updates to your designated beneficiaries on 401(k) plans, IRA accounts, and other retirement assets is vitally important.

Managing Inflation in Retirement
READ OUR LATEST GUIDE

Managing Inflation in Retirement

You may have noticed that the things you buy regularly have become more costly, and you may be pondering if inflation will stay high. For individuals close to retirement or already retired, it is essential to take measures to protect themselves from the eroding effects of inflation.

Birthdays Over 50 Worth Celebrating
READ OUR LATEST GUIDE

Birthdays Over 50 Worth Celebrating

Before you start planning for retirement, make sure you put these relevant dates in your calendar. Beginning at 50 years old, there are several birthdays that are essential to be aware of as they can influence your retirement timeline and overall financial plan.

The Fundamentals of Estate Planning
READ OUR LATEST GUIDE

The Fundamentals of Estate Planning

Estate planning can be an emotional process. After all, it’s difficult to think about things like who will raise your children, or which loved one will best manage your financial assets. Estate planning is necessary, however, because without a will, your estate may end up in court. This means it could be divvied up based on a judge’s ruling, rather than on your personal wishes.

The Birth of a Grandchild
READ OUR LATEST GUIDE

The Birth of a Grandchild

Congratulations! The arrival of a grandchild is always an exciting time. Since many grandparents wish to assist in covering their grandchildren’s future financial needs, it’s also a good time to consider financial preparations for the future. If you hope to provide funds to your grandchildren, both 529 plans and trusts are beneficial options.

Cornerstone Wealth

WELCOME TO OUR NEW SITE

We've Made Some Big Changes

We’re delighted to introduce our new and improved online space tailored to elevate your online experience.

If you have any thoughts, questions, or if you’d like to schedule a consultation drop us a line. Your insights help us refine our services.

Making the Transition to Retired Life
READ OUR LATEST GUIDE

Making the Transition to Retired Life

After all your years of hard work and disciplined saving, you’ve made it to retirement – congratulations! Now, the challenge becomes tackling common retirement transition concerns so that you can live out the ideal retirement you’ve dreamed of.

Skip to content