Today’s income investors face a substantially different environment than their parents did in retirement. Inheritances and traditional pension benefits are no longer the primary sources of retirement income. Longer life spans mean retirees must rely more than ever on converting their own nest eggs to a sustainable, monthly income stream through higher-yielding investments. But a single investment focus—maximizing yield for income today—may not be the best strategy over the long term.
A single strategy for current income may not account for two major factors that can significantly affect income in the future: 1) capital appreciation (the other contributor to total return, to protect and increase purchasing power over a long retirement), and 2) overexposure to equity, credit or interest rate risks (which have the potential to destroy wealth).
Multi-asset income portfolios can be a useful tool because they look beyond the singular dimension of yield. Such investments can include a variety of underlying asset classes, including equity components (such as global stocks, real estate investment trusts, and utilities) and fixed-income components (corporate bonds, government bonds, and currencies) for a more diversified potential income stream. Fund managers can look for opportunities across multiple asset classes to take advantage of the shifting landscape for attractive yields.
Generally, as interest rates rise, bond values will decline. The opposite is true when interest rates decline.
Diversification does not assure a profit nor does it protect against loss of principal.
The opinions expressed are those of our investment professionals, and are no guarantee of the future performance of any American Century Investments® portfolio. This information is not intended to serve as investment advice; it is for educational purposes only.