Investment opportunities in bonds for investors looking for income
Hello advisers,
In today’s current bond market conditions, how much of a challenge is it for investors looking for income?
How much risk should they be taking?
Thanks
Ima
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4 responses from the Newspage communityCopy all
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In today's bond market, UK investors face a twofold challenge: rising yields offering apparent income opportunities, yet undermined by high inflation. While higher yields might seem attractive, it's crucial to remember that inflation erodes purchasing power, leaving investors with negative 'real' yields. Striking the right balance between income generation and preserving value becomes paramount in such a volatile landscape.
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We take the view that even if a client needs income, we'll invest for growth and design a plan to sell down shares/units when needed. This gives a much broader range of investment options.
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Short-term bond yields are above their recent long-term averages, which seems like a lucrative opportunity for those seeking passive income to capitalise on. And while that might be the safest option, it might not be the most efficient, especially when inflation is expected to remain above 5% for the foreseeable future. As such, those searching for income during a period of inflation may find it difficult.
Nonetheless, those who are willing to take a little bit of risk may want to consider blue-chip stocks with asset-based dividend yields, such as Taylor Wimpey. These companies tend to promise higher dividend yields than short-term gilts while giving investors a sense of security as their payouts are less impacted by earnings.
Nonetheless, those who are willing to take a little bit of risk may want to consider blue-chip stocks with asset-based dividend yields, such as Taylor Wimpey. These companies tend to promise higher dividend yields than short-term gilts while giving investors a sense of security as their payouts are less impacted by earnings.
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Those looking for an income would be better off owning companies via shares and benefiting from the dividends rather than loaning to companies via bonds and getting interest. After all, the companies are borrowing via bonds to increase their profits which they pay out via dividends.