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3 Reasons to Avoid Dividend-Paying Stocks – Buffalo News

Certificates of deposit (CDs), money market deposit accounts, and savings accounts are even further along that spectrum. These are some of the lowest-risk asset classes in existence, especially if they’re FDIC-insured. Investors should never count on these cash-like assets to perform like securities. Their interest rates barely exceed inflation in most years, if at all. They’ll never match the long-term performance of dividend stocks, but they’re not volatile.

None of these investments are necessarily superior to dividend stocks — they just perform differently. Bonds and cash instruments might be better suited to certain roles in your portfolio if your goal is to minimize risk.

3. Some other assets can be more tax-efficient

Many people rely on accountants to minimize their taxable income each year, but holding too many dividend stocks could have the opposite effect. Dividend taxation is a complicated topic, so there’s no blanket approach that applies to every investment plan. It’s important to understand how returns from various assets fit into your overall tax situation, and shareholder distributions deserve serious attention.

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