For many retirees, income generated from investments is crucial. However, in today’s low-yield world, it’s not so easy to find an investment that provides a decent return. For example, at one point this past spring, a 10-year U.S. Treasury note was yielding just above 2 percent, and other income investments weren’t yielding that much more.
One option is investing in high-yielding bonds. While these bonds typically offer higher yields than investment-grade bonds, they also present more risk in the form of defaults by bond issuers. And many high-yield bonds are currently trading at record-high prices, which exposes investors to the possibility of a dramatic decline. The yield on the Barclays U.S. Corporate High-Yield index, which tracks high-yield bonds, recently fell below 5 percent for the first time in history.
Generally speaking, risk-sensitive retirees may want to look elsewhere for an alternate source of income than high-yield bonds. One alternative is to invest in stocks that pay dividends. Another possibility is investing in preferred stocks.
These typically have a higher claim on assets and earnings than common stock, and dividends on preferred stock are paid out before dividends on common stocks. On the down side, preferred stock does not normally come with voting rights, which may concern some investors.
Of course, no investment is right for every investor, so if you’re seeking income in a low-yield environment, it is best to consult your advisor. He or she can help you determine which investments meet your individual financial circumstances and goals.