Hello, YieldAlley readers! In this issue:

• The Real Deal About Dividend Investing & Why Smart People Disagree

• U.S. Stocks Retreat as Fed Signals Patience on Rate Cuts

• How to retire without regrets

• And more!

NEWS

Standout Stories

🧠 What AI knows about you (Axios)

📱 Apple’s Next Device Is an AI Wall Tablet for Home Control, Siri and Video Calls (Yahoo Finance)

🥤 The $58 billion Slurpee acquisition (Sherwood)

🏖️ Retire Without Regrets (HBR)

 🇨🇳 Are Investors Ready for Trump vs. China, Round 2? (Morningstar)

MARKET THOUGHTS

U.S. Stocks Retreat as Fed Signals Patience on Rate Cuts

• U.S. stocks ended the week lower:

  • Nasdaq led declines with significant tech sector weakness

  • Dow Jones and utilities demonstrated defensive outperformance

  • Markets reversed 50% of post-election rally gains

  • Trading volatility increased amid shifting Fed expectations

• October retail sales revealed mixed momentum:

  • Overall sales increased 0.4% month-over-month, beating expectations

  • September figures received upward revision to 0.8% from 0.4%

  • Control group sales disappointed with -0.1% decline vs +0.3% forecast

  • Vehicle sales emerged as the primary driver of headline growth

• Bond market developments:

  • Treasury yields extended upward trajectory throughout the week

  • December rate cut probability dropped from 80% to below 60%

  • Yield pressure reflected shifting monetary policy outlook

• Federal Reserve policy shift:

  • Powell delivered notably hawkish message, emphasizing patience

  • Fed projected to potentially skip upcoming meeting before rate reductions

  • Rate cut target range revised to 3.5-4.0% from previous 3.0-3.5%

• Global market landscape:

  • Asian markets displayed mixed performance

  • China retail sales posted strongest expansion in eight months

  • Crude oil marked 5% weekly decline amid IEA surplus forecast

• Forward outlook:

  • Consumer spending expected to maintain resilience supported by:

    • Declining gasoline prices providing household relief

    • Continued income growth momentum

    • Appreciating asset values across portfolios

  • Economic expansion trajectory anticipated through 2025

  • Critical December Fed meeting contingent on upcoming data

  • Potential impact of new administration's pro-growth policies on inflation remains in focus

INCOME BUILDING

The Real Deal About Dividend Investing & Why Smart People Disagree

There was a very good interview in Morningstar about some of the misconceptions of dividend investing. In a nutshell, while investors often divide into pro and anti-dividend camps, the reality is more nuanced. The debate centers around whether dividends create value beyond total return. Critics argue dividends are just an inefficient way to get your money back, while dividend fans love the reliable cash payments. Both sides make good points, and the truth lies somewhere in between.

To understand this debate, we first need to tackle a fundamental misconception - the "dividend fallacy." This is when investors believe that dividends give them extra returns on top of their stock investment. Think of it like a Halloween candy bar - when you get a dividend, it's like breaking off a small piece of your chocolate bar. You might feel richer because now you have two pieces, but your total amount of chocolate hasn't changed. The same goes for stocks - when a company pays a dividend, the stock price drops by exactly that amount. It's not extra money appearing out of thin air, even though many investors mistakenly believe they're getting some bonus on top of their stock returns.

This debate hasn't always been so heated. Looking back to the late 1800s through Robert Shiller's research, companies today pay out a smaller portion of earnings as dividends compared to the mid-20th century. While higher-yielding stocks have historically outperformed over very long periods, recent decades have seen the broader market outperform dividend-focused portfolios. What changed? The rise of technology companies and a shift in how businesses return money to shareholders.

Today's market looks very different. Share buybacks have become the trendy alternative to dividends, with companies buying their own shares instead of paying cash dividends. This approach can be more tax-efficient for shareholders, but here's the thing - many investors just don't get the same satisfaction from buybacks. There's something powerfully motivating about seeing actual cash show up in your account. Even the tech sector is finally joining the dividend club. Among the top 10 companies by market capitalization, only Amazon remains as a non-dividend payer. But don't get too excited - tech companies like Apple, Microsoft, Alphabet, and Meta are pretty stingy, paying less than 1% yields. It's more of a symbolic gesture than serious income.

When hunting for those cash payments, investors need to watch out for deceptive yields. These "dividend traps" can snare unwary investors - stocks that look attractive because they have unusually high yields. But here's the catch: a high yield often comes from a falling stock price, not company strength. For example, if a stock pays $1 per year in dividends and trades at $20, that's a 5% yield. If the stock price drops to $10 but keeps paying the same $1 dividend, suddenly it's a 10% yield - but that higher percentage is a warning sign, not a bargain.

Despite these challenges, dividend investing offers some unique benefits, particularly for retirement planning. Rather than following the traditional 4% withdrawal rule, investors can build portfolios yielding 3.5-4% in dividends, providing steady income without forced selling decisions. This approach eliminates the psychological stress of deciding which shares to sell. Even more fascinating is how dividend investing affects investor behavior - while financial theory might say dividends aren't optimal, they seem to help people stick to their investment plans. Many investors track their growing dividend income like a high score in a video game - first covering small bills, then bigger ones.

While the debate between dividend supporters and critics continues, the reality is that dividend investing isn't perfect, but it works well enough for plenty of smart investors. Sometimes the strategy that looks best on paper isn't the one that works best in real life. The key is finding an approach that keeps you invested for the long haul, whether that includes dividends or not.

INCOME BUILDING

Cash Rates

Government Money Market Funds (7-Day Yields)

• SNVXX (Schwab Government Money Fund - Investor Shares): 4.35%

• SPAXX (Fidelity Government Money Market Fund): 4.47%

• TTTXX (BlackRock Liquidity Funds: Treasury Trust - Institutional Class): 4.55%

• VMFXX (Federal Money Market Fund): 4.61%

Brokered CD Rates (6-Month Rate)

• Charles Schwab: 4.45%

• E*Trade: 4.40%

• Fidelity: 4.40%

• Merrill Edge and Merrill Lynch: —

• Vanguard: 4.40%

ETFs

• SGOV (iShares 0-3 Month Treasury Bond ETF): 4.75%

• BIL (SPDR Bloomberg 1-3 Month T-Bill ETF): 4.54%

• USFR (WisdomTree Floating Rate Treasury Fund): 4.62%

• TFLO (iShares Treasury Floating Rate Bond ETF): 4.65%

BONUSES

Brokerage, Bank and Credit Card Bonuses

Brokerage Bonuses

• E*Trade (still active): Up to $4,000 in bonuses for deposits made within 60 days of enrollment. The lower deposit bonuses are also excellent, with E*Trade offering a bonus of $100 for a deposit of just $50. Offer here.

  • Use promo code PROMO24.

    • $50+ will receive $100

    • $1,000-$24,999 will receive $150

    • $25,000-$49,999 will receive $150

• tastytrade (still active): Offering up to $5,000 in bonuses. Lower deposit bonuses are attractive, with a $100 bonus for a deposit of $5,000 (2% return). Offer here.

• Robinhood (still active): Offering a 1% bonus for transferring any table brokerage holdings. No maximum, but deposits must be held for two years after account opening. Offer here.

Bank Bonuses

• BMO Harris (active) — Earn up to a $560 bonus when you open a new Smart Advantage or BMO Harris Premier checking account. Offer here.

  • Availability: Nationwide

  • Soft credit inquiry

Credit Card Bonuses

• Chase Ink Preferred (active) — Get 120,000 Ultimate Rewards bonus points when you spend $8,000 in the first three months after account opening. Offer here.

• American Express Hilton Surpass Card (active) — 150,000 points Hilton Honors points after spending $2,000 in 3 months. Get an additional 50,000 points after spending a total of $10,000 within the first 6 months. Offer here.

Picture of the Week