Yield not to the yield

The $87 billion Future Fund warned investors to be cautious when chasing high-yielding assets, noting that recent market moves and record low interest rates have pushed up share prices and that yield alone shouldn't drive investment decisions.

Mark Burgess, the general manager of the Future Fund, advised investors: "Don't just look at the yield, look at what risk you're prepared to take," emphasizing that higher yields can come with higher or hidden risks.

The article says record low interest rates have pushed up share prices, which can make high yields look more attractive but may also reflect compressed income and increased valuation risk.

Everyday investors should look beyond headline yields because yield can be influenced by market conditions like low interest rates; evaluating the risks you’re prepared to take helps avoid overpaying for income that may be unsustainable.

The Future Fund benefited from recent market performance, which is part of the context for its cautionary message to investors about chasing yield.

In this context, 'high-yielding assets' refers to investments that currently offer higher income or yields, which have been especially sought after as investors look for returns in a low interest rate environment.

The practical takeaway is simple: don’t make investment choices based only on yield—consider how low interest rates have affected prices and be clear about the level of risk you’re prepared to accept.

Knowing that low interest rates have pushed up share prices should prompt investors to be cautious about chasing yield, to reassess risk tolerance, and to remember that higher apparent yields may reflect market valuation rather than safer income.