Videos

The Hidden Risks In Some High-Yield Investments

Christine Benz says retirees who are looking for extra yield should use some caution.

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q2 hedge fund letters, conference, scoops etc

High-Yield Investments
Pexels / Pixabay

The Hidden Risks In Some High-Yield Investments

Transcripts

For Morningstar and Jeremy Glaser interest rates may be rising but retirees are still looking for extra yield to help fund their retirement.

I'm here with Christine Brown she's our director personal finance to look at where there could be some risks in seeking high yield investments. Christine thanks gentlemen. Jeremy it's great to be here. We're going to look at three different types of investments today that might have some risks that investors aren't fully aware of or haven't fully thought through. And the first or a high yielding 4 in dividend paying stocks or foreign dividend paying funds. Why is this an area that could potentially have some risks.

Well first of all we'll start with the attraction which is that yields can be really attractive relative toU.S. equity dividend yield so yields are like 4 percent. Right now if you buy sort of a basket of high yielding foreign stocks so that's a that's a big plus. I do think that investors need to be mindful of the risk factors not that they should definitely avoid this category but a couple of things she'd want to keep in mind. One is that anytime you're looking at a high dividend yielding product or high dividend yielding stocks you're usually getting a little bit of value orientation. So if you're buying a fund that tracks some high dividend yielding universe you're going to end up with a value tilt. So that's one thing to keep in mind you may end up with a little bit more economic sensitivity with that portion of your portfolio as well. The other thing to keep in mind is that you may be geographically less diversified than would be the case if you bought say a total foreign stock market index fund you probably will get a little less. Japan for example because dividend yields oftentimes are lower in Japan than elsewhere in the developed world. So that's another thing to keep in mind mind. The geographic exposures recognize that you may be making certain bets there by focusing on dividend yield with your foreign stock portfolio. Another thing to keep in mind is that dividend yields overseas tend to be a little more ephemeral than is the case in theU.S. where ifU.S. company is paying a dividend it will sort of turn over every cupboard in order to maintain that dividend not necessarily the case in foreign markets where dividends might come and go a little more and this will be a particular issue for investors who want to buy an individual company that is that happens to have a high yield attached to it. So something to keep in mind and certainly anytime you're talking about yields whether from bonds or stocks you want to bear in mind tax consequences as well. So if you are someone who's interested in making a big play in four and high yielding stocks check with your tax adviser to talk about where to hold that particular product or or individual security in Guernsey risk shouldn't be overlooked. Absolutely. Thank you for reminding me. Anytime you have a foreign foreign stock or foreign fund that is unhedged you are exposing your.