Income alternatives to bonds as interest rates rise
As interest rates rise and bond market uncertainty grows, financial advisors are suggesting alternative income-generating strategies. These include assets like REITs, dividend stocks, and covered call ETFs, though experts warn these carry higher risks than traditional fixed-income investments.
Why it matters
Investors are forced to re-evaluate portfolio diversification strategies in a high-inflation, high-interest-rate environment to maintain yield without excessive risk exposure.
For some investors, uncertainty in the bond market and a relentless rise in rates driven by inflation, geopolitical concerns and other factors is enough to throw in the towel, or at least significantly limit their exposure to fixed income .
While many advisors and strategists said bonds should remain part of a diversified investment portfolio, they are shifting allocation to lower-duration alternatives such as ultra-short bonds . Others are looking for complementary non-fixed income products for investors who want less exposure to bonds. "There are certainly a host of alternative strategies that can create current income in a portfolio," said Tyler Glover, managing director of private wealth management consulting services at William Blair.
These options include insurance-linked securities, master limited partnerships, covered call ETFs, dividend-paying stocks, REITS, preferred stocks, asset-backed securities and merger arbitrage trades.
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