Watch: The Benefits of Dividend Harvesting to Combat Low Bond Rates

Kelly HooverMarch 3, 2021

Video: Power of Dividend Harvesting Investments

With additional stimulus monies, new vaccines, and fed support, our economy is starting to improve, and with a stronger economy comes higher interest rates. Generally, higher interest rates are bad for bond prices as they work inversely. In early 2021, we’ve already seen bond values decline. You can learn more about the issues facing the fixed income market in this video.

It may be time to revisit your bond allocations and see what we can do to better position the portfolio for a rising interest rate environment. Dividend harvesting is one strategy to consider.

Dividend harvesting works by first investing a portion of your taxable account in dividend yielding stocks. Our team would then purchase and sell a put and call option at the current market price (known as an option collar). These stock options would protect the downside if the stock dropped in value but also eliminate the upside if the stock increased in value, thus leaving you to only receive the dividend and none of the volatility of the stock.

In many cases, the goal of this options program would be to generate a steady or increasing annualized income above 5%. This is much higher than high-interest savings accounts, CDs, and money market accounts are providing.

For more information on how dividend harvesting works and how to leverage it in your portfolio, check out our latest short video about this strategy.

In this video we explain:

  • Why interest rates are likely on the rise
  • What impact that may have on bond positions
  • How dividend harvesting works and how it can help you earn higher returns in a rising rate environment

Looking for additional strategies to combat low fixed income returns?

Read our blog and watch our videos about two other equity investing strategies, hedged equity funds and defined outcome ETFs, that your advisor may recommend you consider to diversify your portfolio.

At Hoover Financial Advisors, our mission is to help you achieve your financial goals. Please reach out to us with any questions (610-651-2777).

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