Portfolios are like cows, we must learn to milk them for yield……
During an accumulation phase of building resources for retirement, many investors overweight on stocks and stock funds, rather than bonds, looking for growth rather than current income. Investors transitioning into retirement need to take a hard look at income, as well as capital preservation, that is, preserving hard earned capital that may not easily be replaced.
While there are many types of bonds, corporate bonds and securities particularly should be considered to help provide predictable income for financing retirement. Investment grade corporate bonds typically have less standard deviation, that is, less variance in their valuations during a holding period, than do stocks. They typically pay interest twice yearly at a stated coupon rate. If longer maturities, 15 years or more, are selected, coupons for investment grade bonds can exceed 4%.
Bonds are rated for credit quality by ratings agencies, including Standard & Poors, Moodys, and Fitch. Advisors work with their clients to help them understand what these ratings mean in judging how the bonds may perform over time.
While bond funds and ETFs are another investment option, the dividends paid from these instruments may not approach those paid by actual bonds. A careful review of the choices available is prudent, when planning for the annual income necessary to finance household budgets.
*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
This information is not intended to be individualized investment advice, nor is it a solicitation to buy or sell any securities. Always consult a qualified financial professional before investing. Securities involve risk and are not FDIC insured, bank guaranteed, and may lose money.