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How investors get yield wrong and how dangerous that can be

The way many retired investors think about the yield of their investment portfolios is complicated and puzzling. Too often, they blur the distinction between yield as an investment characteristic and yield as a source of income for retirement spending. My conversations with hundreds of financial advisers and end investors over the past few years have taught me that there is a peculiar psychology of yield. 

This may have been true in the good old days when investors stuck to CDs, conservative bonds or a collection of stable blue chip stocks offering moderate yields. However, with current yields at historical lows, investors are confronted with unsatisfying incomes from these traditional investments. 

Chasing yield can lead investors to concentrate their portfolios into those asset classes, sectors and securities that supposedly offer higher yields. But those yields can come with additional risks. Investors also need to keep in mind another old adage: “There's no such thing as a free lunch.”

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