This is true despite the fact that the S&P 500 yield percentage are again near historical lows, along with interest rates (
I track the “TTM” or “12-Month Yield” from Morningstar, which is the sum of the trailing 12 months of interest and dividend payments divided by the last month’s ending share price (NAV) plus any capital gains distributed over the same period. I prefer this measure because it is based on historical distributions and not a forecast. Below is a rough approximation of my portfolio (2/3rd stocks and 1/3rd bonds).
|Asset Class / Fund||% of Portfolio||Trailing 12-Month Yield (Taken 4/11/21)||Yield Contribution|
US Total Stock
Vanguard Total Stock Market Fund (
US Small Value
Vanguard Small-Cap Value ETF (
International Total Stock
Vanguard Total International Stock Market Fund (
Vanguard Emerging Markets ETF (
US Real Estate
Vanguard REIT Index Fund (
Intermediate-Term High Quality Bonds
Vanguard Intermediate-Term Treasury ETF (
Inflation-Linked Treasury Bonds
Vanguard Short-Term Inflation-Protected Securities ETF (
Trailing 12-month yield history. Here is a chart showing how this 12-month trailing income rate has varied since I started tracking it in 2014.
Portfolio value reality check. One of the things I like about using this number is that when stock prices drop, this percentage metric usually goes up – which makes me feel better in a bear market. When stock prices go up, this percentage metric usually goes down, which keeps me from getting too euphoric during a bull market.
Here’s a related quote from Jack Bogle (
The true investor… will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.
This quarter’s trailing income yield of 1.73% is the lowest ever since 2014. At the same time, my portfolio value is also bigger than ever. If you retired back in say, 2015, your absolute income from dividends and interest is much higher in 2021, even though your yield percentage is lower. You had a good run right after retirement.
However, this is not necessarily good news if you are retiring today. There are countless articles debating this topic, but I historically support a 3% withdrawal rate as a reasonable target for planning purposes if you want to retire young (before age 50) and a 4% withdrawal rate as a reasonable target if retiring at a more traditional age (closer to 65). However, nobody is guaranteeing these numbers and flexibility may be required if there is a bad stock run right after retirement. The “good ole’ days” include the ability to put your money in a CD or high-quality bond and still keep up with inflation…
If you are not close to retirement, your time is better spent focusing on earning potential via better career moves, investing in your skillset, and/or looking for entrepreneurial opportunities where you own equity in a business asset.
How we handle this income. Our dividends and interest income are not automatically reinvested. I treat this money as part of our “paycheck”. Then, as with a real paycheck, we can choose to either spend it or invest it again. Even if still working, you could use this money to cut back working hours, pursue new interests, start a new business, travel, perform charity or volunteer work, and so on.
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