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An Income Toolkit for a Changing Market

by AAII Staff | October 30, 2019

There are many headlines warning investors about the next possible financial emergency. When it will occur is anyone’s guess. In this week’s digest we look at income streams and how they perform in periods of volatility.

The Importance of Dividends in a Low-Return Environment

By John Snare

Over the past eight years, financial markets have delivered relatively attractive returns with relatively few bumps in the road … yet, this desirable environment may not last forever. Dividend-paying stocks may not offer as much capital appreciation potential as higher-growth, non-dividend-paying stocks, but they tend to offer some downside protection when the market swoons. The article “The Importance of Dividends in a Low-Return Environment” was written in 2004, but the conclusions it draws are timeless.

Some of the topics covered in the article include:

How to develop systematic investment and savings plans that will take advantage of market volatility
Why dividends are an important component of that total return
How to make sure dividends are protected

Whether you believe a market downturn is coming in the next year or five years, this article is a must read for all investors looking to protect their investments.

Why Buy Bonds If Interest Rates Will Rise?

By Hildy Richelson and Stan Richelson

Many individual investors wish to buy bonds to achieve a secure cash flow and to reduce their risks in the stock market. However, with interest rates at a low level, some investors are concerned that after they purchase bonds, interest rates will eventually rise, and their bonds will decline in value. The article “Why Buy Bonds If Interest Rates Will Rise” examines the validity of this concern, certain alternatives to bonds and a proposed solution to low interest rates.

Some of the areas covered in the article include:

The problem of low interest rates
Mark-to-market accounting
Alternatives to individual bonds
The benefits of a bond ladder
Recommendations for a low-interest-rate environment

Many investors seek bond income to supplement their portfolio returns while at the same time insulating themselves from market declines. However, it’s important to remember that all bonds are not made equal. We hope this article from the archives offers insight as the current market adapts to changing interest rates.

Investor Classroom: Evaluating Dividend-Paying Stocks

A dividend-yield strategy can help you find potentially undervalued stocks with low downside risk, provided the dividend is secure and expected to grow, and the firm is financially sound. AAII provides a simple Valuation Worksheet that you can use to assess whether a dividend-paying stock candidate is overvalued or undervalued in our Investor Classroom called “Evaluating Dividend-Paying Stocks.” It’s helpful for beginners who need guidance on locating dividend stocks to evaluate and gathering the data needed to perform the evaluation. Make the most of your AAII membership by learning the basics of valuing a dividend stock in this step-by-step course. More »

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