Consider this extreme example.
You have won a special lottery of $1,000,000. You have 2 choices:
- 100% of the proceeds go into an S&P 500 Fund and you can receive the dividends annually. The dividends today are 1.4% of $14,000. At the end of 10 years, you would receive shares of the S&P 500 Index Fund
- 100% of the proceeds are placed into a 10-year treasury bond backed by the full faith of the U.S. Government and you can receive the interest annually. The 10-year treasury currently pays interest at 1.6% or $16,000. At the end of 10 years, you would receive $1,000,000
The S&P 500 has a dividend growth rate of 6% since WWII (dividends are NOT guaranteed).
In the above example, dividends from the S&P 500 index fund would total $184,527 vs. receiving the guaranteed $160,000 from the 10-year treasury.
Which would you choose?
For me, I will take the S&P 500 Index Fund and bet on a diversified portfolio of companies for the long run.
Information in this material is for general information only and not intended as investment, tax, or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.
This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing. All investing involves risk including loss of principal.
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