When it comes to risk and reward, it seems that everyone who invests in growth stocks pretty much knows the score: the higher the possible return, the higher the risk. There are no free lunches. You can get an edge by outsmarting the market occasionally, but not every time. Wonderful! It’s nice to see that people are listening when financial writers such as myself and many, many others, explain market fundamentals.
Except there’s a problem. When it comes to stocks with high dividend-yields, we haven’t done nearly as good a job of informing people of the market’s nature. I know this, because I so frequently investors who believe they’ve cracked the market’s code by finding a dividend paying stock that routinely pays 5%, 8%, even 10% or more. When I explain, as of course I must, that what they are doing is risky, these investors inevitably respond by explaining why the fund or stock they are in isn’t actually risky.