47 0 0 0 13 6. By Carla Fried and Paul J. Q: With interest rates starting to rise, what’s the best way to invest for income? A: Rates are indeed starting to climb, now that the economy is accelerating and rising stocks to invest in is ticking up.
Since last summer, the yield on 10-year Treasury securities jumped by more than a full percentage point, from 1. For fixed income investors, rising interest rates pose a big challenge, since older, lower-yielding bonds held in a fund are likely to fall in price when market rates rise. Matt Toms, chief investment officer for fixed income at Voya Investment Management. If you’re patient and are reinvesting the income, over time you are going to be better off with the higher income payout. Plus, there are small steps you can take with new money to position your bond portfolio for the new rising-rate environment. Focus on funds that invest in short-term debt—bonds maturing in two to three years or less.
For starters, short-term bonds tend to lose less than longer-dated securities when rates rise. Warren Pierson, senior portfolio manager with Baird. MONEY 50 recommended list of mutual and exchange-traded funds. Floating-rate bank loans are another form of short-term debt — with a couple of big differences.
When rates lift, yields on many of these securities float with the market. Floating-rate securities are also generally issued by companies with less-than-pristine balance sheets. So only own these funds in moderation. For years, investors frustrated by historically low rates have turned to dividend-paying stocks to boost their income. But investors need to be really careful with income-producing stocks, as they are sensitive to interest rate changes.
That’s because when market yields rise, bond investors who turned to dividend paying equities are likely to pivot back to the fixed-income market. While short-term bond funds make a lot of sense, don’t upend your entire strategy. In fact, there’s a strong argument for sticking with your so-called core bond funds even if they include longer-dated debt. Those bonds do a good job of offsetting equity volatility. Money may receive compensation for some links to products and services on this website. Offers may be subject to change without notice. Quotes delayed at least 15 minutes.