Okay, in a bit of a dilemma. I have money that I don't want to lose. It's in a 5% savings account. But, after paying my marginal tax on the interest income, the after-tax yield kind of sucks.

Other alternative is to get dividend income that has preferential tax treatment (15% in U.S.). So, I could invest in high dividend yield stocks like Bank of America, GE, Washington Mutual, Citigroup, etc. BAC (Bank of America) has a dividend yield over 4%. After taking out 15% tax, it's actually more after-tax income than my 5% saving account after-tax.

Downside is that I could lose some money if one of those stocks were to tank and I need to pull the money in the next few years.

I want to preserve the money, but want to get a decent yield. What would MAI (Money and Investing) do?

 

You said it, you want to preserve your capital. So I would just stay put.

Also, those stocks that currently pay out high dividends might not pay it in the future if the Board of Directors decide to retain the earnings or for whatever reason. Chances are that you won't earn just the dividend because of the volatility involved in those companies.

 

...A few years...

Honestly, leaving the money in a savings account is a disservice to your money. I think you should definitely invest in a diversified set of big cap, dividend backed stocks or get a dividend oriented fund.

The risk of capital loss in great value stocks is slim to nil when you average it over 2-3 years time. Sure if we were talking about a few months then you are better where you are but for a few years you should be in something better.

 

Here's a suggstion (do your own research)

Split your money into 5 equal lots of:

T, GM, MRK, IBM and WFC

and you should be good for a 12-15% annual return over the next 3 years and a very low risk to your capital value.

 

Thanks for the advice. I will definitely heed it in the future. Right now, I have cash set aside for two new car purchases in the next year or so. So, I guess I'll leave it in my 5.2% MM account for now.

Bonus money in December will probably go into a high dividend yield stock portfolio.

It is nice having a stockpile of cash in a savings account, but I just turned 30 and I'm wondering if I'm being a bit too conservative with my money.....

 

It's not doing you any favours, that's for sure.

 

A few you may want to look into for high dividend yields:

GMR- 21% yield
NAT- 20% yield
TRU- 16% yield
FRO- 15% yield

My info is a bit old, you may want to double check current yields in the last few months.

Christian

 

Maybe not, but it allows me to sleep comfortably at night.

I do have IRA accounts and an after-tax brokerage account, so I do have SOME money in the market. I am maxing my 401k too.

 

What about hedging with options to limit downside risk if you are concerned about a possible economic downturn?

 

Not a big fan of options, unless they're covered.