Are you struggling to achieve your financial goals in this record-low interest rate environment?
You're not alone.
Many Australian and international investors don't know where to put their money in a world characterised by historically low interest rates. You can see the evidence in asset markets everywhere.
For example, some Australian property markets recently rocketed to higher prices as risk-averse investors went in search of 'safe' high-yielding assets. Bond markets are another market to have benefitted.
In the local share market, however, a two-speed pricing system appears to be in effect.
Some shares in discretionary and mining, for example, look to be trading very cheap while others, such as traditional defensive dividend-paying businesses and technology, are priced to perfection.
Just look at the dividend yields on these five blue-chip ASX shares:
| Dividend Yield | |
| Wesfarmers Ltd (ASX: WES) | 4.97% |
| Australia and New Zealand Banking Group (ASX:ANZ) | 7.53% |
| G8 Education Ltd (ASX: GEM) | 6.73% |
| Macquarie Group Ltd (ASX: MQG) | 5.89% |
| Insurance Australia Group Ltd (ASX: IAG) | 6.85% |
Most pay franking credits with their dividends to boot.
Risk-adjusted returns are key
As any good advisor will tell you, however, you should always look at your investments using a risk-adjusted filter.
For example, shares of Wesfarmers, the owner of Coles, Kmart, Officeworks, Bunnings and more, appear fairly-priced. Bunnings and Coles, Wesfarmers' primary drivers of growth, are tracking along nicely, but it's no secret. A higher price can limit your upside and widen your downside in times of volatility.
ANZ Banking Group, Insurance Australia Group, Macquarie Group, and G8 Education yield big dividends because their share prices have fallen hard in recent times. Some may be in the buy zone.
Foolish takeaway
With the spread between interest rates and dividend yields seemingly larger than ever, you may think now is the ideal time to transition more money into the share market. However, while the above dividend yields appear very impressive, it's vital you consider the risks before buying in.
