22 Oct 2020
Market Metrics: Yield
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
Yield represents the income earned from an investment in the form of either interest income, rental income or dividend income.
If we go back four decades to 1980 we see that both income from growth assets (rent from property and dividend from shares) has dropped and income from defensive assets (interest from bonds) has dropped.
The biggest collapse in yield has been in defensive assets, example the Commonwealth Government 10 Year Bond yield has fallen from over 16% to 0.9% current.
The most reliable yield has been divided income from Australian listed companies which are currently running at an estimated 3% to 4% excluding the franking credit.
Click for chart.
So what does all this mean going forward?
Being fixated on purchasing assets for just yield alone to meet your living expenses in retirement is like walking around with one eye closed. You can still see but you have increased the likelihood of having an accident.
Investors should always have one eye focused on income and the other eye focused on growth when investing and be comfortable with part selling capital to meet living expenses in retirement if an when income is insufficient.
The myth that it is a complete disaster to part sell assets to meet living expense in retirement is simply false.
If you are using the right investment tax structure there is no difference between receiving income or part selling capital to meet your living expenses in retirement which then shifts the investment focus to the real challenge – maximising total return for a given risk profile.
WARNING, this does not constitute Personal Advice and is general in nature. To discuss if this is appropriate for your given circumstances please do not hesitate to contact us directly.
At Newealth we are always looking to support and promote our clients wherever possible and if you have any ideas or comments, please feel free to email me or to call me on +61 2 9267 2322.