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The Income Gap and Your Mutual Fund Investments


income gap and retirement The recent low interest rate environment has resulted in lower income from short-term fixed income investments. Relying on yields alone may not generate the cash flow needed to meet your income requirements in retirement. If you are looking to generate more income, consider adding dividend-paying stocks to your retirement portfolio.

Dividend stocks may provide income through dividend payments as well as the potential to benefit from stock price appreciation. Further, these dividend payments may soften losses during turbulent markets, particularly when investors incur negative returns. This means that when dividends are paid out, they act as a cushion and are positive whether stock returns are positive or negative.

The image compares the annual income return for the S&P 500, Dividend Composite and Dividend Leaders index over the past 10 years. As seen in the image, dividend-paying stocks produced higher income returns relative to the S&P 500 over this time period. The 10-year average income return for the S&P 500 was 1.9%, compared with the Dividend Composite and Dividend Leaders indexes, which returned 3.1% and 4.5%, respectively.

Stocks that pay dividends may serve as an income source while also providing investors with exposure to the growth potential of the stock market. Consult your financial advisor to learn more about adding dividend-paying investments to your portfolio.

Past performance is no guarantee of future results. Dividends are not guaranteed. Diversification does not eliminate the risk of experiencing investment losses. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Government bonds are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than the other asset classes. Income return and total return are represented by the compound annual return over the time period analyzed.

The Morningstar Dividend Composite Index captures the performance of all stocks in the U.S. Market Index that have a consistent record of dividend payment and have the ability to sustain their dividend payment. Stocks in the index are weighted in proportion to the total pool of dividends available to investors. The Morningstar Dividend Leaders Index captures the performance of the 100 highest yielding stocks that have a consistent record of dividend payment and have the ability to sustain their dividend payments. Stocks in the index are weighted in proportion to the total pool of dividends available to investors.

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