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By Jason Stipp | 12-19-2011 01:00 PM

On the Radar for 2012

Morningstar's Christine Benz offers tips for dividend-seekers, emerging-market devotees, and fixed-income worriers as we head into the new year.

Jason Stipp: I'm Jason Stipp for Morningstar.

2011 blindsided even some of the best investors, and 2012 likely has a few surprises up its sleeve. But Morningstar's Christine Benz, director of personal finance, says there are few specific things that investors can put on their radars for next year. She's here with me to explain. Thanks for joining me, Christine.

Christine Benz: Jason, great to be here.

Stipp: So, a few things that investors might want to look out for in the coming year. The first one involves a very hot topic around here: income investing, dividends in particular. This is a very popular thing among investors right now. What should they be thinking about when it comes to dividend payers?

Benz: You're right, Jason. Everywhere I go, people want to talk about dividends, MLPs, anything that kicks off an income stream, in part because bond yields are so low right now. But I do think investors looking at dividend-paying stocks need to keep a couple of things in mind. First, I'm getting a little concerned that some investors are using dividend-paying stocks to completely supplant bonds.

They're worried about bonds they're fed up with the low yields on their bonds. But I am concerned that investors maybe are underestimating the volatility potential that dividend-paying stocks have versus bonds. So, a back-of-the-envelope look at standard deviation, the typical large-cap value fund that has any dividend yield at all has a standard deviation of about 16 over the past decade. The typical intermediate-term bond fund has a standard deviation of just 4.

Stipp: So, quite a difference.

Benz: Quite a difference. So, I think you need to be careful, and you really need to think twice before taking your whole fixed-income portfolio and swapping in dividend-paying stocks, because your stability of principal will just not be there for you.

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