Dividends Only Offer So Much Protection Against Inflation
Transcript:
Katie Nealis:
Would investing in dividend ETFs be a good hedge against inflation?
Tom Vaughan:
Investing in dividend ETFs means that you’re investing in stock market and the stock market is an awesome inflation hedge historically, what I just talked about, like during these hyper inflationary periods where the stock market can kind of struggle, it is a piece of that overall puzzle. But if you look long term as inflation picks up, you need some assets that can grow at a higher rate than inflation and the stock market is one of them. And the real estate is another one that is often used as an inflation hedge. So when you’re buying a dividend, you know, producing ETF, you’re buying stocks. And those that’s that’s to me that’s more important than the dividend is the stock because, okay, maybe you’re getting a three, four or 5%, you know, dividend. But that stock might average an 11% return like the S&P 500 has long term. So that’s a bigger impact the actual growth of those pieces. And so that’s why I’d be a little bit cautious about a dividend ETFs purely because they’re actually lower growth.
One of the reasons that these companies are AT&T is a great example. So AT&T has been struggling with its growth, but it pays a really big dividend. Although they just announced they were cutting it back after the they spun off Time Warner, but you’re not really buying AT&T at this point for its high growth, you might be buying Microsoft or Apple for growth. So I actually think that growth type stocks are a better hedge against inflation than dividend paying stocks, but I don’t have a significant problem with dividend paying. I just don’t think it’s the best avenue for fighting inflation as far as that goes. And generally speaking, when we do get these higher inflationary spikes, if we do have that again, then actually you want to have kind of more rounded portfolio, you know, altogether, and beyond kind of that value side. So the dividend itself is useful, it just might not be enough to really help you. If inflation does get really hot.