After a decade of near-zero interest rates, investors don’t have to look far to find yield. And bonds aren’t the only game in town.
John Reckenthaler, director of research at Morningstar Research Services, noted that investors are flocking to mid- and long-term bond funds despite poor returns.
“Medium-term funds are in the red after one, two and three years, and are not positive until this year,” he said. Note. In the year In 2023, the decline in long-term funds also worsened.
That begs the question: What’s better than bonds and where can investors get stronger returns?
“We’ve gone from an environment where income and yield were scarce to one where there is now so much abundance that investors don’t have to make as many risky choices to capture income,” said Michael Aaron, chief investment strategist.
State Street
International consultants.
Top on the shopping list: Preferred stocks, which combine stocks and bonds in one investment.
“Electives continue to be an attractive space for investors trying to toe the line between bond-like characteristics, which are stable, steady dividend payments and equity-like appreciation,” he said. “The nominees do a good job of balancing those two things.”
Treasury bills are still paying more than 5 percent, but investors in preferred stocks can get 6.5 percent — an investment-grade security that yields a very strong return — without taking on much credit risk, Aaron said. “For us, this is the most attractive proposition on the market today.”
State Street’s offering is an exchange-traded fund.
SPDR ICE Preferred Securities ETF
(Ticket: PSK), which yields 6.56 percent.
Short-term T-bills are still attractive—the key is to hold the bills to maturity, rather than trying to bet on the direction of long-term prices. of
SPDR Bloomberg 1-3 Month T-Bill ETF
(BIL) yields 4.1%.
ETFs that focus on dividend stocks offer another avenue for income. Here, investors can search for ETFs that dividend aristocrats or companies invest in.
S&P 500
An index with a history of increasing dividends for 25 consecutive years or more.
Among the ETFs that invest in such stocks
ProShares S&P 500 Dividend Aristocrats ETF
( NOBL ), an $11.65 billion fund that tracks the S&P 500 Dividend Aristocrat Index. The yield is 1.95% and the year-to-date total return is 4.43%.
The yield on dividend stocks may not be rosy at first, but there is a long-term reason to consider adding them to your portfolio. “This is investing in stocks, not bonds, and so you get the opportunity for price appreciation,” Aaron said. “And companies that exhibit these characteristics reward investors with long-term gains or better returns than bonds.”
Investors anticipating economic slowdowns and recessions should have high-quality companies in their stock portfolios, and dividend-growers should be high-quality companies, he said.
This year, investors flocked to money market funds—mutual funds with cash and low-risk securities. One of the advantages of these cash-like instruments is that it is easy to transfer money from major broker accounts to them.
Track payments as you shop around. Popular Fidelity Money Market Fund (SPRXX), which yields 5.04%, has an expense ratio of 0.42%, while Vanguard Federal Money Market Fund (VMFXX), which yields 5.27%, costs just 0.11%.
One caveat: Aaron says investors should understand the liquidity, interest rate risk, credit risk and potential volatility associated with money market funds. “Historically, investors get themselves into trouble when the product is juicy and attractive,” he warned.
Write to Lauren Foster at [email protected]
