Pension Savings: Dividend holdings offer the fastest route to one million
With monetary policy in a number of economies around the world, it's been declining in the past decade, dividend holdings have provided a clear revenue route for investors. Card savings rates and bond yields have been low, which has led many investors to rely on income-generating shares to create a passive income.
As a result of this increased demand, dividend holdings have also generated better return on capital in many cases. This is despite an increase in interest rates in a number of major economies in recent years, especially the United States.
Here's why dividend holdings can still offer investors the opportunity to generate a seven-fished egg with a pension, with potential total return on offers from them being high.
Dovish monetary policy
Although interest rates in the US and other large economies may increase in the medium term, the pace of their increase may prove relatively slow. There are fears about developments in the US economy, with recent economic data on retail and job growth being weaker than expected.
This may indicate that the interest rate increase over the past couple of years is now starting to adversely affect the growth rate. As such, the Federal Reserve can adopt a more bold stance on monetary policy, leading to lower interest rates than expected in the medium term.
Furthermore, the Chinese economy is experiencing a slowdown, while other risks such as Brexit and the prospect of a trade crisis remain on the horizon. Together, these risks can convince decision makers to keep up with interest rate increases, with increased fears about the potential for a more hawkish monetary policy to cool economic growth.
Increasing appeal
The effect of a slower-expected interest rate increase on dividend holdings may be positive. Other income-generating assets such as bonds and cash can still offer relatively low returns at a time when many large global stock markets are still trading at their 201[ads1]8 highs. This may indicate that the shares provide good value for money, as it is possible to generate a relatively high income return from dividend paying companies.
Although the growth stock may also become increasingly attractive, interest rates should not rise significantly, they may be held back by the weaker investor's feelings. Investors can become increasingly cautious about the aforementioned risks facing the world economy and may decide that they would rather buy low risk dividend stocks instead.
Although no asset class is rising forever, dividend stocks appear to have something to go before reaching their peak. From an income perspective, they seem to be very appealing to other asset classes. Meanwhile, their perceived lower risk against growth stocks that may be more cyclical may mean that they manage higher valuations over the next few years, as the risk to the global economy increases.
As such, now can be the right time to add a range of dividends to a portfolio, with those who have the potential to generate a large and even seven-figure, next-generation retirement.
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