The past week’s reads:
- The Money-Market Bonanza is Over. So is Now the Time for Stocks? This headline from The Wall Street Journal (paywall) struck me as odd. First, the bonanza continues to . . . “bonanze.” A year ago, the Vanguard Federal Money Market Fund yielded 4.21%. On January 26, 2024, it yielded 5.28%.
Some economists expect the U.S. Federal Reserve to cut short-term interest rates in 2024. A cut would trim yields on money market funds. Maybe the Fed will cut. Maybe not. But right now, yields remain attractive.
Second, I did a double-take at the premise that a change in short-term interest rates should trigger changes in our mix of stocks and bonds. That premise is inconsistent with principles for long-term investment success.
Money market funds are a great place to park cash that we might need in the next two years or so. They’re not an alternative to the stocks and bonds that can help us finance life after labor.
- 15 Top Wealth Creators in the Fund Industry. Morningstar’s Amy C. Arnott, CFA identifies the funds and fund managers that have created the most wealth in the past decade. This ranking isn’t a measure of fund performance, as Arnott notes. Wealth creation (and destruction) is a function of both performance and the dollars subject to that performance. “By definition, the biggest funds will create or destroy more value in dollar terms,” Arnott explains. Even so, the results are illuminating.
- Can You Live On Dividends From Your Portfolio? As I’ve thought about what it will take to finance life after labor, I’ve hoped that I might accumulate a stock portfolio large enough to pay my bills with the dividends. I’d leave the principal to compound at rates that match or exceed returns on bonds or cash. My hope may be in vain. At the end of December 2023, the S&P 500 Index yielded 1.5%–$15,000 in annual income for every $1 million invested.
I’d need a $5,000,000 stock portfolio to generate $75,000 in (pre-tax) dividend income. Ritholtz Wealth Management’s Ben Carlson explores the challenge.
–A. Clarke