The high risks of investing for retirement income

If you think this can't happen to today's blue chips, think again. When the economy suffers, businesses cut dividends, particularly those that pay high dividends. S&P Dow Jones

reports that 50 S&P 500 issuers decreased or suspended their forward dividend rate by $29.0 billion in Q2 2020, pointing to a lower Q3 2020 payment. Sometimes, too, sector-specific woes

can hurt dividend investors. ExxonMobil had losses during the first half of this year as oil futures briefly traded at negative values. Who would have imagined having to pay someone to take

delivery of oil? One key reason the yield at ExxonMobil is so high is that the price of the stock has fallen so much. Over the past five years, ExxonMobil has lost over 5 percent a year,

including dividends, while the U.S. stock market as a whole gained nearly 12 percent annually, according to Morningstar. You may think you're getting more protection in a basket of

stocks within the same sector, but that's not always true, either. Take Master Limited Partnerships (MLPs), which are pipeline networks that make money as companies pay to have oil and

gas transported. They have high yields. “It's like owning a toll road and every bit as safe as a bond” — or so I've heard countless times. But according to Morningstar, a fund that

owns these MLPs (Alerian AMLP) has lost an average of 11.71 percent annually over the past five years, as of Aug. 10, despite its current 13.3 percent dividend yield. HIGH-YIELD BONDS With

a five-year Treasury bond yielding a paltry 0.29 percent annually, and even a broader investment-grade bond fund such as the iShares Core US Aggregate Bond ETF (AGG) yielding 1.20 percent

annually, we want more income. So we buy riskier bonds and reach for yield. We buy something like the iShares iBoxx $ High Yield Corp Bd ETF (HYG), providing an attractive 4.54 percent

yield. “High yield” is Wall Street's genteel way of saying “low credit quality." The problem is that when the economy goes south, many of these companies with low credit scores

default on their bonds. When GM filed for bankruptcy, bond holders got back very little. A more recent example is Hertz Global Holdings (HTZ), which filed for bankruptcy this year. Of

course, no one saw the auto-rental business crashing as a victim of COVID-19. High-yield HYG crashed with stocks, though it recovered and is down 0.11 percent for the year as of Aug. 10. On

the other hand, the higher-quality AGG fund stood its ground during the COVID-19 crash and is up 7.66 percent for the year. Another name for high-yield bonds is junk bonds; I like that

description. A BETTER STRATEGY