about 1 year ago • 1 min
For a long time after the global financial crisis, stocks were the only game in town if you were looking for decent returns. The situation even gave rise to a new term: TINA, short for “There Is No Alternative”. See, for about a decade after the crisis, interest rates were near zero and bond yields were paltry, especially compared to stocks. Investors who wanted returns had “no alternative” but to invest in riskier assets like stocks.
But, hold up, there are serious contenders now. With US 10-year Treasury yields now at close to 4% (back to their pre-2008 levels), these risk-free assets are looking more attractive than riskier, high-dividend-paying stocks. What’s more, it’s tough to find shares with dividends high enough to rival these yields: only 16% of S&P 500 stocks have an annual payout above 4%. And as interest rates continue creeping higher, stock valuation multiples will likely see more deflation and companies will be thinking twice about increasing dividends.
But higher interest rates aren’t necessarily bad news for your portfolio. For one thing, they can train you to be a better investor: you’ll have to put in the work to pick good companies – blindly investing in a single sector, region, or asset class doesn’t pay off in a higher-rate world. For another, they can make a whole host of assets more attractive – for example, Treasury bills, US Treasury inflation protected securities (TIPS), and investment grade bonds, all of which you can invest in easily through ETFs.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.