S&P 500 Dividend Yield versus 10 Year Treasury Yield*

Chart of the Week for December 12, 2008 - December 18, 2008

The 10 year U.S. Treasury yield has been greater than the S&P 500 Index dividend yield since 1958. However, in November 2008 the roles reversed when the S&P 500 yielded more than 10 year Treasuries. The chart above compares these yields from November 1993 to November 2008. Why do stocks, as represented by the S&P 500 Index, now yield more than bonds, as represented by the U.S. 10 Year Treasury?

Experts differ on the reasons, but one reason is simply market forces. The 10 year U.S. Treasury yield has been driven down as investors have moved out of stocks and into the safety of U.S. Treasuries, driving bond prices up. Bond yields go down when bond prices go up. The S&P 500 dividend yield has increased due to the recent sharp declines in stock prices. Dividend yield represents the trailing annual dividend per share divided by the current share price. Current stock prices have dropped at such a sharp rate that when dividing trailing annual dividends by current price, the dividend yield increased.

In the current environment, it remains unclear whether this "anomaly" will continue. If enough companies cut dividends, dividend yield may be driven down. The stock market may rebound, which would drive prices up and dividend yield down. Dividends are important to some stock investors because they provide income and offset some stock price depreciation. While the current dividend yield of stocks may be appealing compared to bonds, investors must weigh the risks of further stock price declines or future stock dividend payment cuts.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

Please consult both the current applicable prospectus and MAKING SOUND INVESTMENT DECISIONS: A Retirement Investment Guide carefully for a complete summary of all fees, expenses, charges, financial highlights, investment objectives, risks and performance information. Investing in mutual funds and other investment vehicles involves risk, including possible loss of the amount invested. Investors should consider the Fund's investment objectives, risks, charges and expenses before investing or sending money. The prospectus contains this and other information about the investment company. Please read the prospectus carefully before investing. All Vantagepoint Funds invested through 401 or 457 plans are held through VantageTrust. Vantagepoint Funds are distributed by ICMA-RC Services LLC, a wholly owned broker-dealer subsidiary of ICMA-RC and member FINRA/SIPC. For a current prospectus, contact ICMA-RC Services, LLC.

The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.