The ETFs in the chart aren’t distributing as much to shareholders because their holdings aren’t producing as much cash flow. Investment portfolios are producing less income than almost any point in recent history.
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Why yield matters
Yield dictates returns for income investors. Growth investors can always theoretically pick the next Amazon, but there’s more of a cap on income strategies.
There’s a clear trade-off between yield and risk. If you want to achieve higher yields, you have to accept an increased likelihood of something catastrophic happening. High-yield bonds carry additional default risk. High dividend yields are signals that the market expects a company to reduce its distributions.
It’s not responsible for investors to fill their portfolios with risky securities. In fact, they should probably be ignored altogether. You want to reduce volatility and big losses. Years of hard work can be destroyed by investment plans that are needlessly aggressive.
