How To Stop COVID-19 From Derailing Your Retirement

April 9, 2021

The challenge in today’s market environment is the risk of holding bonds. While bonds have historically been a safe-haven investment, ultra-low interest rates have made them a lot riskier in the eyes of Warren Buffett and other prominent voices. Meanwhile, the tendency to turn to riskier bonds, such as junk bonds, negates their safe-haven status of these investments.

There are several alternative sources of income to consider:

  • Preferred stock is higher on the liquidation preference ladder than common stock, and often pays an attractive dividend yield.
  • Convertible bonds are convertible into common stock, which means that their valuations are tied to more than just interest rates.
  • Municipal bonds are government securities that enjoy certain tax advantages over corporate and federal bonds, making them more compelling options.
  • Dividend stocks may be attractive options for retirement-age investors seeking income for their portfolios without the risk of holding bonds.

Use the Dividend Screener to find high-quality dividend stocks. You can even screen stocks with ratings above a certain threshold.

Investors may also want to consider diversifying their bond holdings across issuers and geographies. For example, a diverse set of developed market, emerging market and corporate bonds will have less risk than exclusively holding U.S. corporate bonds. Many mutual funds make this kind of diversification easy to achieve at a relatively low cost.