How can income-oriented investors survive in today’s climate?
With the Fed keeping rates near zero seemingly forever, it’s hard. Many investment portfolios grew during the ‘80s and ‘90s and stagnated during the ‘00s, but now investors need their portfolios to produce income.
In the past we’ve encouraged an all-of-the-above approach that uses corporate bonds, dividend-paying stocks, long-dated municipal bonds, and even limited partnerships to replace the income that formerly came from a simple ladder of Treasury Notes. We live in interesting times; what worked before may not work anymore.
Corporate bonds are particularly interesting. Unlike equities, they represent a contractual claim on cash, and so they are likely to be less volatile than stocks. But by taking some credit risk, investors can generate more income. That’s important, because “safe” Treasury Notes now yield less than inflation—so they are guaranteed to lose money in real terms.
Every investment carries risk. If we understand the risks we’re taking, and choose wisely, our investments should be able to meet our needs.
Douglas R. Tengdin, CFA
Chief Investment Officer
[tag risk/return, bonds, credit]