It’s only fair that dividend investors about to retire want to increase their yield. There are ways to do it without putting your retirement in jeopardy. There are also better options than gold to protect your income from inflation.
- How to increase your yield without increasing your risk.
- Which sectors are more generous than others for retirees.
- Why ranking your stocks is crucial before retiring and how it makes your decisions easier.
- Ways to replace low yielding stocks.
- How can an investor protect his portfolio against inflation.
- Why dividend growth investing is a better option than gold as a shield against inflation.
You can retrieve the episodes about the REITs, the Utilities and the Healthcare sectors here:
- Get the Best of Each Sector Series – REITs and Industrials
- Get the Best of Each Sector Series – Healthcare and Utilities
Below is the graph about gold and inflation that we discussed in the episode, along with Mike’s comments.
If you search for ways to protect your portfolio from inflation, you will likely end-up on pro gold / precious metals or pro bitcoin articles. In fact, there isn’t a bullet proof methodology to protect your money against inflation. Not even gold. Did you know that since its peak price in the 80’s, gold has never fully recovered when considering inflation? I just found this gem written by Morning Star showing how gold is far from a good hedge against inflation.
Below, you will see a graph showing you how commodities (blue), Real Estate (red), equities (orange), and gold (yellow) did over the last three critical inflationary periods. Shocker: gold is the worst hedge of them all! It worked tremendously well during an episode of stagflation (inflation mixed with a recession) but appeared to be a dud for regular inflationary periods.
The article suggests commodities having the best correlation (e.g., protection) with inflation. However, you must be ready for a wild ride as it is also the most volatile asset class. Real Estate usually does well as landlords tend to pass the inflationary pressure to their tenants. Finally, there isn’t much correlation between stocks and inflation. However, long-term returns from equities tend to be superior to all asset classes. I guess this is how you can protect your portfolio against inflation, right?
I know a way to not worry about inflation though. It’s called dividend growth investing. By selecting companies with the ability to increase their dividends year after year, you protect your retirement income from inflation. In 2020, my portfolio dividend payments increased by 7.7%. That’s more than enough to cover inflation.
If I don’t know what inflation will look like in the future, I also know that capitalism isn’t about to disappear. Great companies making great products or services will continue to expand and pay dividends. If you want to fight inflation, I believe this is a classic “offense is the best defense” situation. Gold has failed many investors, Bitcoin has proven one thing and one thing only (it’s highly volatile), but great dividend growers have always performed well over the long term. I’ll bet my retirement on that too!
It is a simple answer to a complicated question. Sometimes, keeping things simple is the best strategy.