The Higher the Dividend, the Higher the Risk.

The Higher the Dividend, the Higher the Risk.
Should you invest in that “high-yield” savings account, brokerage account, private equity or cash app, or is it a trap?
 
Learn what those high-yield opportunities aren’t telling you (the risks and disclaimers). I’ll also cover some of the loopholes and potential gates (you can’t get your money out), fees (that wipe out your income) and restrictions (illiquidity) that await unsuspecting investors. Even when we are not properly informed of the fine print, the disclaimers are legal protection.
 
While everything feels stable right now, we only have to look back a few years to March 2023 for bank failures. The former head of the FDIC, Sheila Bair (Republican), recently warned that there is more risk in the U.S. banking system than the stress tests reveal. In an interview with Politico last week, Bair said:
 
"I hope and pray that we don’t have another big bank get into trouble. But the trajectory of these capital rules, make no mistake, is weakening the resilience of the banking system and significantly lowering capital for the larger banks who have already been taking on a lot more leverage since the pandemic… The market needs to believe that they [the Feds] have the political will to actually put these folks into some kind of a [temporary government-run company to run the bank’s operations until it’s sold or liquidated], wipe out the shareholders, impose losses on unsecured creditors, as you would in a bankruptcy proceeding, and if you just did that once, you would probably end bailouts."
 
This is a banking insider warning us and reminding us that banks can and do fail and that shareholders who are invested in the stock lose everything, as can depositors with uninsured deposits (above the $250,000 limit). So, how do we protect ourselves?
 
Here are the Topics I’ll Cover in This Blog.
 
High-Yield FDIC-insured CDs
Money Market Funds
Are the Cash App, Venmo, PayPal FDIC-Insured?
What about the FDIC-Insurance Offered by Brokerages? How Safe Is the Sweep?
Are the Stablecoins FDIC-Insured?
Annuities
Private Equity and Credit
Dividend Stocks and That Warren Buffett Deepfake Video
Where Can I Earn a Safe Income?
 
And here is more information on each topic.
 
High-Yield FDIC-insured Certificates of Deposit
While an FDIC-insured account is backed by the full faith of the U.S. government (up to the $250,000 limit), do we really want to go through the stress and uncertainty of a failed bank? Are you aware that a lot of U.S. banks are rated BBB – the lowest rung of investment grade? Did you check the credit rating of the bank that’s offering the higher yield? Most “high-yield” rates are less than a percentage point above the 2-year Treasury bill rate. Are the extra pennies worth the risk?
 
A simple search on any AI platform seeking the credit rating of the bank will easily reveal the risk assessment that rating agencies offer. As for community banks, they often are not rated (too small), and they can carry a great deal more exposure to the distressed commercial real estate sector (those empty office buildings). Almost 500 banks failed in the Great Recession.
 
One bank that I researched for a coaching client was a junk bond (below investment grade), until it was rescued by another bank that currently has a BBB rating (the lowest rung of investment grade). The marketing didn’t mention those details. The bank was offering 4.10% yield, which is less than the current yield of the 2-year Treasury bill (4.17%).
 
Money Market Funds
People are sold into money market funds for the convenience and liquidity. However, these funds are not FDIC-insured, can go down in value, often get into trouble during recessions and can impose mandatory liquidity fees in the event of elevated investor selling.
 
One of my clients had quite a large sum in a money market account. He was surprised to learn that the fund can impose a liquidity fee – charging investors to withdraw their money (under certain circumstances). The whole point of the money market fund was for this person to be able to access the money at any time – particularly if the economy starts to weaken and real estate market prices become more affordable. However, that’s exactly the time when money market funds can get into trouble, triggering the mandatory liquidity fee that is enforced by the SEC. According to the SEC final rule, “The amendments require certain money market funds to implement a liquidity fee framework that will better allocate the costs of providing liquidity to redeeming investors.” In other words, if you want your money back at a time when everyone else is worried and wants their money, too, you’ll have to pay for it.
 
Another downside to holding too much cash in a money market fund is that the SIPC insurance limit is $500,000 per customer, with a $250,000 cash limit. At least 29 (and potentially up to 62) funds broke the buck in the Great Recession but were quietly bailed out.

Are the Cash App, Venmo, PayPal FDIC-Insured?
Digital payment apps and offerings from fintechs that are not banks are not FDIC-insured. Under certain circumstances these companies will offer “pass-through” relationships with banks that offer the FDIC-insurance. However, it’s important to remember that if the fintech fails, your money is not FDIC-insured (only if the bank does). Voyager Digital is one example of this. (See below for more details.) The FDIC has a Bank Find tool, where you can see if the company is insured or not.
https://banks.data.fdic.gov/bankfind-suite/bankfind
 
 
What about the FDIC Insurance Offered by Brokerages? How Safe Is the Sweep?
If you’ve purchased an FDIC-insured C.D. through a brokerage, then your money is clearly at the bank and is protected up to the FDIC-insurance level. However, brokerages are not banks and are not FDIC-insured. This is an important distinction that we’ve already seen in action. When Voyager Digital collapsed in March of 2022, the FDIC sent a cease-and-desist letter to the brokerage for making false and misleading statements. Depositors had to wait out the bankruptcy liquidation plan (mid-2024). Eligible creditors with a valid claim ultimately received about 70% on the dollar. Voyager Digital was an example of a brokerage that offered a very high interest rate, which ultimately lost investors 30% or more of their principal investment or promised assets.  

While broker cash sweep programs promise that millions can be FDIC-insured, again, if the brokerage fails, the cash might be tied up while the trustee untangles the knot of which investors get what and where all the assets are hiding. After the Oct. 2011 MF Global Bankruptcy, it took almost five years for investors with allowed claims to get all their money back (2016). Voyager Digital’s business practices were fraudulent. MF Global suffered from a misguided and highly leveraged investment strategy (betting on Greek bonds).
 
Do you know the creditworthiness of your brokerage, how well capitalized it is, how long it has been in business, and whether the C-Suite should be trusted? The same applies to the funds we purchase.

Are the Stablecoins FDIC-Insured?
Stablecoins are not FDIC-Insured. However, they are required to have a 1:1 reserve of safe, highly liquid assets (U.S. dollars, short-term Treasury bills and repurchase agreements). The Genius Act specifically prohibits the stablecoin from offering a yield. However, loopholes have been exploited. The TerraLuna stablecoin failure was at the heart of the crypto implosions of FTX, Voyager Digital, Three Arrows and more in 2022. (Sam Bankman-Fried is in jail, with a release date of 2044.)
 
Annuities
Annuities are sold as a great way to keep your money safe with no risk of loss. However, the minute you buy it, you lose up to 7-10% and must wait up to a decade for it to come back. How many investors are aware of the “surrender” fees that are imposed even if the insurance company gets into trouble and you want out. Insurance companies are not FDIC-insured. If the insurance company fails, our claim goes to the state insurance guarantee corporation, where we will likely be receiving less than we were counting on. (California guarantees 80% up to $250,000.) If AIG had not been bailed out in 2008, more than 76 million global policies would have been in trouble.
 
To make matters more concerning, the annuities I’ve been reviewing for my private clients are paying half of the current yield (2%) of T-bills. At that rate, it would take us 36 years to double our money. How many investors would bet on the insurance company over the U.S. government, particularly if they knew that their return was lower than the rate of inflation?

​Private Equity and Credit
Another sinkhole that lures us in with promises of income can be private equity and credit. I’ve seen retirees promised that they owned “real estate” and were earning income on it, when in fact they owned equity in a private company that was cash negative for years. Instead of earning income, this couple lost $18,000 of their principal investment – money they really couldn’t afford to lose. Read their story (in their own words) in the guest blog, “They Trusted Him. Now He Doesn’t Return Calls.”

Another client was sold into a private credit fund for the “high” income. The fund had alarming fine print that wasn’t read, including the disclaimer that the shares were illiquid and couldn’t be sold and that the firm invested in junk bonds. Private credit is one of the areas of concern in the economy right now. Some of the funds have gated withdrawals. (You can’t get your money out). Many have lost a great deal of their share price. Blue Owl Capital (symbol: OWL) has lost -57% over the last year, at a time when the S&P500 is up 19%. Learn more in my The Venus Flytrap of Private Credit blog.  
 
 
Dividend Stocks and that Warren Buffett Deepfake Video
Warren Buffett was always careful to protect Berkshire Hathaway’s principal and recently said that the price of stocks is silly – contrary to what the deepfake video says. Buffett famously exited GE stock just a few months before the company slashed its dividend (in 2017) and lost half of its share value. Before the cut, GE was a “Dividend Aristocrat” offering a high yield. Investors should be aware that a higher dividend often comes with much higher risk of losing money – more than the dividend can make up for and often indicating that there is a risk of a dividend cut or suspension.
 
More recently, Whirlpool suspended their dividend. Ford Motor Company has been in and out of junk and investment grade status multiple times over the past decade and is still rated speculative by Moody’s. Learn more about these events in my blogs; click on the blue-highlighted words to access.
 
Because of the heightened debt in the U.S., combined with elevated equity prices and lower yields, we’re using value replacement funds. The Peru fund (symbol: EPU) is up 175% over the past three years, while earning a higher yield than a comparable U.S. based value fund (IWS). Learn more in my Hot Countries blog.
 
We focus on value replacement funds and how to earn a competitive income safely at our Financial Freedom Retreat. The next one is Oct. 10-12, 2026. Get the best price when you register by July 31, 2026.
 
Where Can I Earn a Safe Income?
So, what in the world should you do with your cash? It’s tricky. However, it is not difficult. You just need to know a few of the main mantras. FYI: We’ve been using these strategies for decades, and those who follow them are not experiencing paper losses. Many doubled their money in real estate, when interest rates were at zero.
 
Earning an Income in 2026+ Safely Rules.
1. Keep the terms short.
2. Keep the creditworthiness high.
3. Lean into newer companies and avoid the older companies, which might have more debt and leverage, lower profit margins and flat or negative revenue growth.
4. I’m more interested in short-term Magnificent 7 bonds (excluding Tesla) than Treasuries or C.D.s at this moment. Read my blog to learn why. (They have a lot of cash, low debt, impressive year-over-year revenue growth and unbelievable profit margins.)
5. Hard assets hold their value better than paper in a highly leveraged Debt World.
6. Real estate is at an all-time high, making it difficult to buy at a reasonable price. There’s a Real Estate section in The ABCs of Money, 6th edition that includes many case studies and a 10-Point Checklist. I will be hosting a Real Estate masterclass next Spring. If you’re interested in the recording from the 2025 masterclass, email [email protected].
 
Learn more about all the things that I’ve covered in this blog in the blogs below.
MMFs vs. FDIC & SIPC.
 
Is Your FDIC-Insured Cash Really Safe?
 
 
Bottom Line
The higher the dividend, the higher the risk. If it’s a younger company, you need to be concerned about hyper-aggressive, overleveraged, potentially under-capitalized business practices. It’s a good idea to know the credit rating of your bank and brokerage and to understand all the products that you own.
 
A 4% return on $1,000,000 (in your 401K, IRAs, brokerage account, etc.) is $40,000/annually. That’s a nice raise, if you can achieve it without risking your principal investment. Why not invest in wisdom to ensure that you do this? I’m hosting a Bonds & Fixed Income Without Paper Losses masterclass on Oct. 17, 2026. Prerequisite: the Oct. 10-12, 2026, Financial Freedom Retreat. Email [email protected] to learn more and register now.


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​Are you aware that the hot funds we've been featuring in our sample pie charts and retreats performed at the top of Wall Street in 2025? Silver gained 141%. Peru (copper) was on fire with 83% gains. Even clean energy scored 44%... 

Why not treat yourself to the gift of financial freedom to create a New Year, New Me in 2026?
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Email [email protected] for pricing, additional information and to register. Register by July 31, 2026 to receive the best price.

Join us for our Restormel Royal Immersive Adventure Retreat. Spring Equinox 2027. Email [email protected] to learn more. Click for testimonials, pricing, hours & details. Register now to receive two 12-month all-access passes to our online training and four private, prosperity coaching sessions. There are only 3 rooms available. Considering the perks, you're receiving a 65% discount to learn the life math that we all should have received in high school, and the room is free! Email [email protected] to learn more. Yes, it's a great idea to register and start transforming our lives now with the online ABCs of money courses.

Natalie Wynne Pace is an Advocate for Sustainability Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money (6th edition) and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of The ABCs of Money for College are the most recent releases of these books. Follow her on Instagram. 
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Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.​​

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Check out Natalie Pace's Substack podcast and watch videoconferences and webinars on Youtube.

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BRICS Currency. Will the Dollar Become Extinct?
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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly-traded companies, funds or projects mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect an age-appropriate, diversified wealth plan, which has been designed strategically, with the assistance of financial professionals who are familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge, patience and diversified strategy.  
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Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.