Whenever you invest, the choice is always what are the alternatives and how much risk there is. If the alternative is to by a Triple A bond yield 10% or invest in the stock market and hope, you might logically pick the bond. However in our reality, interest rates are close to 0 and one of the most important people who have a say on interest rates is Federal Reserve Chair Jerome Powell.
In an article by Howeard Schneider and Ann Saphir of Reuters, Mr. Powell said interest rates are not going up soon. Mr. Powell testified before the US Senate banking committee, the proceedings are televised and the words of Mr. Powell are analyzed in many reports afterwards. In the hearing, Mr. Powell said expect us to move carefully, patiently, and with a lot of warning. (if policies change to raise rates, it will not be a surprise).
The Fed has helped the economy through a $120 billion in monthly purchases of bonds both government and corporate. The policy is continuing for the forseeable future. Mr. Powell talked about the missing 10 million jobs, not pressure on the economy expanding. Mr. Powell recognized reality by saying the economic recovery remains uneven and far from complete. In the Washington Post, there is a running total of the number of people vaccinated. Mr. Powell said the economy or the return to normal depends on the number increasing to much higher numbers.
Linking to dividend paying stocks, with low interest rates investing in profitable companies which pay dividends is a very good alternative. If and when interest rates go above the average dividend yield, then money will flow to alternatives even though some do not debt. The world has $23 trillion in government spending and we still have low rates, perhaps dividend paying companies will never go out of style.
There are more questions than answers, till the next time – to raising questions.