Today’s Surprising Best Income Investment
Reliable investment income is a main goal of investors who are retired or near retirement. It’s been in short supply for years, primarily thanks to the aggressive monetary policy of the Federal Reserve and other central banks around the globe. Near-zero interest rates in the U.S., and negative interest rates in a few countries, sent investors searching the global markets for alternatives.
In recent years, income investors sought to achieve their income goals by investing in high-yield bonds, master limited partnerships, stocks with high dividend yields, real estate and more.
The results have been mixed. More importantly, volatility returned to markets since the Fed became more serious about ending its accommodative monetary policy. The historic risks in these alternative sources of income have returned. Investors who are in or near retirement don’t want to see wide fluctuations in their principal, but that’s what they experience in 2018 and are likely to continue experiencing in 2019.
Today’s best investment choice for investors in or near retirement just might be one they heavily favored before the financial crisis but ignored in recent years: the two-year U.S. Treasury bond.
The two-year treasury has many features sought by retired and near-retired investors. The U.S. Treasury backs the principal and interest, so it’s as safe an investment as you’re likely to find. The bonds can be purchased through the Treasury Direct program without sales costs, and many brokers charge very low fees for facilitating purchases. The treasury bond market is among the biggest and most liquid in the world, so bonds can be converted to cash quickly and at low cost.
Among the array of treasury offerings, the two-year is the most appealing these days. It’s a relatively short-term bond, so its value isn’t going to fluctuate much as market interest rates change. That’s not important if you plan to hold bonds to maturity but can be important if you need or want to sell the bonds.