If you are trying to live off your investments, you may be struggling right now.
That’s because interest rates are lower than they have been in years and the prices of many household items are rising.
What can you do if you need income?
Following are three options to think about:
Blue-Chip Stocks: Many large, solid companies offer dividend yields greater than 3%, which is an appealing alternative to bonds for many investors. And there are an increasing number of equity-income mutual funds designed to invest in an assortment of such stocks.
Selective Bonds: Bonds are a tough sell right now for investors seeking income, but there are good options out there. Treasury inflation-protected securities, which are bonds issued by the government, may be the most appealing option because they pay a certain interest rate plus the official inflation rate each year. Another option is high-yield corporate bonds. Although they are issued by riskier companies, and thus can be very volatile, they may provide higher income. The same is the case with government bonds issued by emerging-market countries such as Brazil and Malaysia, where faster economic growth means interest rates are already high and may be less likely to rise higher.
CD Ladders: Certificates of deposit (CDs) are the simplest way to earn interest while protecting principal, but they lock up your cash, meaning you will miss out on an opportunity if interest rates rise any time soon. A more compelling option may be a CD ladder. With a CD ladder, you simply put your money in a number of CDs that mature at various times over two or three years. As each CD matures, you roll the money into a new longer-term CD. That way you earn slightly more interest without losing liquidity.
Your financial advisor can help you determine if any of these options is suitable for you.
Contact your advisor for details.