Can I Really Retire on High Yield Stocks or Should I Focus on Growth Instead?

If there is one thing we can all be sure of, it’s that we all want to retire as soon as we possibly can. The goal is to either to make as much money as possible through working or invest smartly and end up with as much money as you can before finally deciding to call it quits from the workforce. 

For one Redditor posting in r/YieldMaxETFs, there is a real hope that they could come up with a plant that allows them to ride off “into the sunset” with all of the money they could ever need. Of course, this is likely the dream of billions, so this Redditor is hardly alone in their hope. 

The Big Retirement Question 

At one point, the Redditor, in their own words, believed they would be able to retire and ride off into the sunset on some Caribbean island. Of course, this is everyone’s dream, including mine, so I completely hear what they are saying. 

The challenge is that, right now, the Redditor is unsure whether they can do what they had originally planned. To be fair to the Redditor, they rightfully and openly acknowledge that their original plan isn’t as solid as it was previously, so they have changed their strategy and are now using distributions from high-yield stocks to fund growth stock purchases. 

I think it’s essential to note that this Redditor is likely on the right track, considering that with YieldMax funds, there is considerable uncertainty about whether distributions will decline over the next year, three years, and five years. 

The Allure of High Yield

It’s also safe to say that I used to think of high-yield stocks as something of a ticket to freedom. Like this Redditor believed, the plan was relatively simple as you throw a bunch of money at high-yield stocks or ETFs and then sit back and watch the dividend earnings roll in.

It’s absolutely safe to say that there was a clear picture of this Caribbean island, living off entirely on distributions and letting the portfolio just work in the background. Unsurprisingly, at some point, reality has to kick in, and this is exactly what happened to this Redditor. Having an 8 or 12% yield is fantastic, until the share price drops more than 20% in a year or the company decides to abruptly end the payout you were counting on to make ends meet in retirement. 

Does this mean that you can’t retire with high-yield stocks? Well, not necessarily, I’d still argue to this Redditor that having them in their portfolio could be a nice piece of their pie. 

Instead, I would recommend that this Redditor should diversify themselves into a mix of high-yield names and steadier, lower-yield dividend growers and growth stocks in general. This way, you’ve reduced the risk of relying too heavily on these risky and potentially fragile income streams. 

Of course, setting aside an emergency fund is also important, as you want to have some breathing room so you don’t have to sell at a loss if the market dips. This is where working with a financial advisor comes into play, as they can help you stress-test whether or not the high-yield holdings you have are going to support or undermine a retirement plan. 

Turn Income Into Growth

If this Redditor sticks with their shifting strategy, I would say this is the right path forward. Instead of focusing exclusively on high-yield stocks like ULTY and MSTY, the focus should be exactly where they are now. I would emphasize sticking to this path of taking the dividend payouts of these high-yield investments and funneling them into growth stocks. 

In other words, this is essentially taking today’s income and transforming it into tomorrow’s wealth, which I would advise this Redditor to pursue as a great plan. This is basically what I would argue is the best of both worlds, as you have the predictability of dividend income, so long as these high-yield stocks remain stable, but you are no longer tying the fate of your retirement to just a few investments. 

The goal of reinvesting these stocks, as this Redditor should be learning, is that they are creating a future safety net that high-yield investments alone are unlikely to provide. This is all about finding the right balance of income today, growth tomorrow, with the flexibility of making adjustments along the way. 

My best advice is to keep blending growth and yield to help balance risk and return. Separately, and preferably with the guidance of a financial advisor, I would also recommend regularly reviewing this strategy to ensure you are aligned with both the market environment and your own personal retirement goals. Of course, don’t forget about the emergency fund to make sure you don’t have to touch any of these retirement-focused investments during a downturn in the market.