A lot of personal-finance guidance begins and ends with a simple idea: Invest steadily in an inexpensive index mutual fund. Nothing very wrong with that. The index fund provides diversification and is inexpensive, and steady investment eschews the idea that you can time the market. But received wisdom seems suspect these days. Which prompts the quasi-heretical question: Would it be wiser to buy a basket of five high-dividend-paying stocks rather than sticking with that index mutual fund?
The answer depends a great deal on your own temperament. If you hate risk, stick with the fund. A core aspect of any long-term investment strategy is sleeping well at night. If you are comfortable with a bit more risk, you should consider accumulating the individual stocks, perhaps as an augment to a fund-focused strategy. Dividend payers have become popular because their relative yield has started to look pretty good compared to everything else. Ten-year Treasurys yield 2.5%, and after inflation is taken into account, a scant 1.7% in real terms. Corporate-bond yields have similarly dropped. Bank accounts, certificates of deposit and money-market funds also sport very low yields.
Source: Wall Street Journal
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