Our Dividends and Fixed-Income Outlook - Adviser Investments

Our Dividends and Fixed-Income Outlook

How should investors think about protecting their gains after the recent market rebound, and when should playing defense become a bigger consideration? Equity Research Analyst Kate Austin discussed defensive allocations to bonds and markets’ potential to decline again in our recent quarterly webinar*—Take Your Pick: Recession or Recovery?

Please enjoy the excerpt below and click here for the full webinar replay to hear more.   

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Kate Austin: Dividend mutual funds and stocks can be a great investment and option. We like dividend stocks and mutual funds that not only pay a dividend, but also raise it every year, as these stocks or the companies that make up these funds tend to be more financially sound. Historically, dividend-paying stocks have tended to also outperform the market when times are good and recover faster after a downturn, which I think is something that everyone can agree is really good in any portfolio.

So we like those and obviously we think that they will bode well for the future. Now flipping to the fixed-income side, both Treasurys and Treasury funds tend to have a lower yield relative to their corporate counterparts, but they’re also backed by the full faith and credit of the U.S. government.

So if you think about it, they’re about as close to risk-free as you can get [when it comes to defaults]. But because they are less risky, you should expect a lower yield. Now investment-grade corporate bonds are a little bit riskier as they’re issued by companies and not the government. And while it doesn’t happen too often, these companies can default on their debt or not pay back all the money that they owe to the bondholders. So because they’re a little bit riskier, you can expect a little bit higher of a yield.

If you’re looking at Treasurys versus corporate bonds, it’s really a little bit of a risk-reward tradeoff that you need to be comfortable with going forward. But also who’s to say that you can’t have a bit of both?

For more on the risks and benefits of bonds, check out our blog post: Bonds 101.

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Click here for a replay of Take Your Pick: Recession or Recovery? Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions.

*Webinar recorded after the market closed on Wednesday, July 22, 2020.

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