I am excited to compare and contrast bonds versus dividend paying stocks in today's video. I know a lot of people are curious about bonds, what they are, and what I think about them. Finally, it's time to discuss why (in my humble opinion) bonds are very weak (and dividend stocks are strong).
First, I start out with the definition of bonds. Bonds are debt instruments, loans that are made to companies or governments. For the buy and hold investor, there is no capital appreciation upside, although one gets some interest payments along the way (albeit at really low levels that are taxed as ordinary income with the exception of munis).
Believe it or not, I actually own a bond mutual fund in an old retirement account. Learn in today's video why! (Hint: It was really a last resort since the stock mutual fund selections in that account are so incredibly poor.) If better funds were available (such as an S&P 500 index) or, better yet, dividend stocks - of course, I'd go that route!
The example shared in today's video tells it all, in my opinion.
* The 10 year treasury currently yields 2.871%
* General Mills (GIS), a dividend stock that I own, has a starting yield of 4.3%. GIS is one of my favorite stock picks for 2018 and I'm actively buying the stock right now. And, GIS has a history of raising their dividend each year.
If you believe there is inflation, that treasury bond yield looks even worse!
Next, I dive into my comparison of bonds versus dividend stocks:
1. Bonds offer no real upside (for the buy and hold investor) other than cash flow. Stocks offer both dividend growth and also capital appreciation.
2. Bonds are more short term in nature, while stocks are long term. If one only has an investment horizon of a few years, perhaps bonds could make more sense. My dividend investing strategy certainly requires a very long term horizon (mine is forever).
3. In the short term, bonds offer less risk, and stocks offer more risk. However, I would argue that in the long term, bonds may offer more risk. And, I'm talking about financial risk here. What about risk of missing out on one's dreams?
4. Bonds are debt instruments and stocks mark equity ownership.
5. Bonds are weak and stocks are strong (in my opinion).
6. Bonds are less tax efficient, dividend stocks are more tax efficient.
At the end of the day, I cannot bring myself to take a bond-centric approach. I have to strive for what I want in life, and I'm willing to take risk. In fact, if I'm not taking risk, I feel like I'm not really living life! The downside of failure to me is really inconsequential as compared to the downside to not pursuing my dreams.
That said, there are folks out there who just can't sleep if they lose money. Those types of investors may be better off in bonds.
Some financial analysts like a strategy of diversification across asset classes. For me, I'm all about focus. Yes, I diversify within my dividend stock portfolio. However, I like to keep things clean from an asset allocation standpoint.
Want to learn why General Mills (GIS) is one of my favorite stock picks for 2018 for early retirement? Check out this video:
Some people think inflation is a big deal. Here's why it's not (for me):
Dividend investors need to be tough! Lean why:
Want to learn about retirement accounts? Here's my investing video on the topic:
Want to learn about investing and taxes? Here are my thoughts:
I made some great profits on Bitcoin. Learn more in this video:
Here's my experience with peer to peer lending:
Let's connect on Instagram:
Disclosure: I am long General Mills (GIS). I own this stock in my stock portfolio.
Disclaimer: I'm not a licensed investment advisor, and PPC Ian videos, Excel files, and content are just for entertainment and fun. PPC Ian videos, Excel files, and content are NOT investment advice. Also, I'm not a tax advisor and PPC Ian videos, Excel files, and content are NOT tax advice. Please talk to your licensed investment advisor before making any financial decisions. Please talk to your licensed tax advisor before making any tax decisions.
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