Just Give Me 5%

Ten years ago, income investing was next to impossible.

Money markets paid nothing. The dividend yield for the S&P 500 Index was 2%, and the 10-Year Treasury yield was stuck between 2%-3%. Retirees who had spent a lifetime accumulating a nest egg of a few million dollars with the expectation of living on the income would say to their financial advisors, “Just give me 5%, that’s what I need to live on.”

But any honest advisor had to explain that the only way to 5% was by sacrificing liquidity, using leverage, or reaching for yield in lower-quality fixed income. For many, accepting the increased risk of a higher allocation to equities was the answer to earning 5% returns, but it came with more restless nights when volatility inevitably struck stocks.

Fortunately, the era of no income is over, and I am hopeful it will stay that way. Today, money markets yield over 5% and the 10-Year Treasury yield is 4.3% after peaking near 5% in October.

Each Monday our fixed-income team reviews the landscape of the fixed-income markets, and we see 5%+ yields across the credit spectrum. Government-backed mortgages yield 5.5%, Investment Grade Corporate bonds yield close to 6%, High Yield corporate bonds and Emerging Market bonds yield over 8%, and floating-rate bank loans yield over 9%.