With treasury yields well below 4%, and even decent corporate paper not yielding much better, the question I keep hearing from my elderly clients who live off of their investment income is where are they going to get the income needed to meet their expenses. Thrown into the mix that, in four years million and millions of baby boomers are set to retire, so they will also need to start adjusting their portfolios to be more income oriented. I anticipate that we will see continued demand for high-rated bonds and, as such, I can't imagine that we will see yields back above 6% on good corporates.
What to do? The answer to that question is more involved than this space permits, but take a look at preferred stock to help supplement income. My buddy, Zack Miller had a nice post about this a while back. The problem with preferred stocks is that it's hard to get information on each issue and the terms of the issue. Also, liquidity can be an issue. That's why I like the POWERSHARES ETF TRUST (AMEX: PGF). The ETF is well diversified as it holds about 28 issues. More important is that it is yielding a shade under 7%. With preferreds having been slammed over the last few months, there may be some opportunity for some capital gains as well.
Living off fixed income? Check out preferred stocks.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer has a position and is long PGF. He has no positions in any stock mentioned as of 1/27/08
Many investors over the past couple of months, sensing volatility in the market, have been rebalancing their portfolios away from stocks and toward fixed income. Last week, we saw people stepping up and buying preferred stocks as well.
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