Advisor’s Corner is a collection of columns written by certified financial planners, financial advisors and experts for everyday investors like you.
Even when the market is in rip-roaring growth mode, most investors in or nearing retirement are wise to consider adding income-producing assets to their portfolios.
These assets typically don’t have the same returns as growth stocks, but they also carry less risk.
Income-producing assets provide steady cash flow and can mitigate equity market volatility. That can help smooth an investor’s total return, meaning there’s less ground to make up in a year such as 2022, when the broad market posted a decline.
The rise in interest rates over the last few years resulted in some investors being able to dial back their equity exposure in favor of income-generating assets, says Dan Tolomay, chief investment officer at Trust Company of the South in Raleigh, North Carolina. That lowers portfolio volatility.
Within client bond portfolios, Tolomay says, he removed short-term bond positions that were in place to lower interest rate risk and hedge against rising rates. As the Federal Reserve eases interest rates, longer bonds may be beneficial.
“We have increased our duration, or interest rate sensitivity, to be in a position to benefit from the market’s expectation for lower rates from the Fed,” he adds. “We expect money market yields to follow the fed funds rate lower when the Fed eases.”
Widely used income-producing investments include:
