It always comes back to the math.
- Suze Orman says it’s especially important to keep an eye on dividend-yielding stocks that may return less over time.
- Orman encourages listeners to regularly calculate their yield to ensure their investments are performing at their full potential.
- Don’t forget to keep tax implications in mind. Orman says this strategy may be best for retirement accounts with fewer tax ramifications.
Most experts will tell you that investing is a long game. This seems to be particularly true for folks investing for retirement. Indeed, most advice tends to toe the line of more or less ignoring your portfolio on the day to day, with only some general maintenance to keep things balanced.
But there’s a point at which set-it-and-forget-it is no longer practical investing advice. For example, personal finance guru Suze Orman believes that if you’re invested in dividends — especially if you’re actively living off that income — you need to be a more active participant in what’s going on with your portfolio.
“It’s not enough for you to just invest your money and get your dividends,” Orman says, “…when the truth is you’re not getting as much from your money as you could be.”
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Dividends change over time
As Orman points out, it’s all well and fine to make a few good decisions when you initially invest, but you can’t simply assume the return on your investment will stay the same indefinitely.
In her podcast, Orman gives an example of someone who invested in Chevron in 2020. At that time, she says, the return earned would be over 7%, based on the price of the stock and the amount paid out in dividends. However, that same investment now — after the stock price more than doubled — returns a much smaller percentage in dividends: 3.56%.
On the other hand, if that same investment were sold, then reinvested elsewhere — such as in a Treasury note or a stock with a higher dividend — that money could be used to generate higher returns. And in the face of still-high inflation and increasing cost of living, even a modest increase in return could make a big difference in your monthly budget, especially in retirement when you’re less likely to have other ways to boost your income.
As Orman says, “You have to get involved with your money and get the most out of it.”
Calculating your current yield
Rather than assuming you’re still getting a good return on your investments, Orman encourages all of her listeners to take stock of their current positions. Whether they have retirement accounts or just regular investment accounts, anyone with a dividend-yielding investment.
“I want you to figure out what your actual yield is right now,” she says. “What are they paying you in dividends? Divide that by the price of the stock right now. And you’ll get your dividend yield.”
If you’re not earning at your top potential, she suggests looking into other ways to boost your return. Orman is particularly optimistic about energy stocks. But, she says, you don’t have to take that route if it’s too risky. There are other options. The point is to ensure you’re getting the most from your money.
“Maybe these people don’t want to risk it in an energy stock, fine. So buy a certificate of deposit, buy a Treasury note,” she says. “But look at how your income could absolutely increase simply by you paying attention to: Has your money grown? Is it in dividend? Paying stocks? What is the current yield on that money?”
Keep your taxes in mind
One important thing to keep in mind if you’re following this advice is that there may be tax repercussions. That’s why Orman emphasizes that this strategy is best used in retirement accounts where there are fewer tax implications.
“Outside of a retirement account, you have to really take into consideration the tax ramifications before you do something like this strategy,” she says. “So, just don’t go doing it without consulting your CPA, and what it would mean to you tax-wise if you did it. This strategy is mainly to be used really in retirement accounts.”
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