It’s a dismal time for many that are watching their retirement portfolios, and while those that have decades left until retirement can afford to ride out the current volatility and downturn, for those at or near retirement, it’s a much more urgent matter.
Bonds have been a sturdy investment choice for retirement income over the last few decades but in an environment of rising rates and quantitative tightening, they have rapidly become a source of bleeding for many retirement portfolios.
What’s of greater note however is the fact that bonds have actually been offering diminishing returns for a while, reported Kiplinger. It’s been a more than a six-fold decrease in income from investing in a 10-year U.S. Treasury bond in 1990 to investing in one today.
Image source: Kiplinger
As interest rates continue to rise, they drive down the value of any existing bonds, meaning that any bonds purchased now will carry less value in the future.
When it comes to portfolios, bond fund managers are often buying and selling bonds for the portfolio, with lower-yield bonds generally sold at a loss. It’s a loss that carries over into the net asset value of the bonds for the portfolio, equating to a loss over time for the bond fund holdings of the portfolio.
Investing in high-yield bonds aka “junk bonds” can be a temptation when seeking income opportunity, but these can be particularly fraught in rising rate environments as the odds of default or missed payments by the companies invested in grows as economic growth slows. In an environment where advisors and investors are risk-off, these can be some of the riskiest plays.
While there is an assortment of retirement plan options for financial advisors looking to meet the income needs of their client, Nationwide a variety of actively managed ETFs within equities for advisors. These funds cater to a range of investment exposures and strategies, all seeking income generation with a measure of downside protection within the major indexes.
For more news, information, and strategy, visit the Retirement Income Channel.