#69: Last time we talked about using a “bond tent” strategy to reduce sequence risk in the years just before and just after retirement.

In FIRE communities, an alternate strategy that has become popular is the “yield shield.”

A yield shield strategy involves holding primarily investments that pay a high dividend yield.

The theory is: if the investment pays a dividend yield of 3-4% that might be all you need to cover your safe withdrawal rate. If you don’t ever have to touch the principal, sequence risk might disappear entirely.

But is it really that simple?

This week, in part 2 of our 3-part series on asset allocation, we continue our discussion with Karsten Jeske, CFA, about the pros and cons of a yield shield strategy. We start by wrapping up our glide path discussion from last week, then dive into a critique of the yield shield.

We discuss:

• How early retirees with kids should plan for key expense milestones during retirement that traditional retirees have already dealt with (college, buying a home, etc)
• Pros and cons of a yield shield strategy
• Whether investing in dividend kings or dividend aristocrats helps to address the cons
• The importance of looking at total return when analyzing the yield shield, and why a high dividend doesn’t translate into higher total return
• Reasons why the yield shield can fall short (and examples where it did)
• The right way to define success of a yield shield strategy
• Why Karsten doesn’t fundamentally believe the yield shield does better than a plain vanilla stock index

Check it out here:

https://hackyourwealth.com/yield-shield-critique

This yield shield critique has been very controversial in FIRE communities. Are you persuaded by it? Or do you believe the yield shield performs better? Why or why not? Let me know by leaving a comment.

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Links mentioned in this episode:

• Dividend ETFs: VYM, NOBL, SDY, DVY
• ERN's Yield Shield critique
• ERN's critique of the dividends-only approach
• Asset allocation: How to use a bond tent to reduce sequence of returns risk (HYW068)
• The shockingly un-simple math behind retirement safe withdrawal rates (Part 1) (HYW035)
• The shockingly un-simple math behind retirement safe withdrawal rates (Part 2) (HYW036)
• Schedule a private 1:1 consultation with me
• HYW private Facebook community

  Intro/Outro: Old Bossa by Twin Musicom.