Finding Income Beyond Bonds May Be Easier Than You Think
Many ETF investors find themselves in that unhappy place between a rock and a hard place this year. Stalling global growth has seriously crimped stock portfolio returns, while delays to further interest rate hikes are likely to keep bond yields tightly leashed well into 2016.
To the rescue come equity and alternative income sources, such as master limited partnerships (MLPs), real estate investment trusts (REITs) and high-dividend stocks. Exchange traded funds investing in these asset classes offer investors a shot at capital appreciation, while their attractive yields pad out portfolio returns.
Mike Dickson, director of structured financial solutions at Horizon Investments in Charlotte, N.C.: “Overall we advocate tilting a portfolio towards more equity-centric allocations to generate income from the larger capital appreciation of the equity markets over time. A well-managed income portfolio should resemble a “barbell” investment strategy. Small allocations to low-volatility short-duration bond ETFs should be used to provide liquidity as a spending reserve, while larger equity and alternative allocations should be used to generate capital appreciation and replenish this spending reserve. Breaking down an income portfolio based on volatility in this manner ensures investors can take withdrawals even in down markets without locking in losses and having to sell losing positions.”