advertisement
I launched a new portfolio for income investors on Oct. 14 with my column "5 energy stocks for income investors" because I thought these investors could use whatever help I could offer in a very tough market environment.
Yields weren't very tempting: In fact, if you looked at the 4.5% yield on the 10-year Treasury note, they were downright disappointing. And as if that weren't enough, the Federal Reserve was firmly locked into a series of interest-rate hikes well into 2006 that would knock down the price of any bond an income investor bought.
Two months later, a lot has changed. But not for the better.
The 10-year Treasury note still yields a low 4.42% as of Jan. 10, to be exact. But now there's even less reason to go long since, thanks to the Federal Reserve, short-term rates have moved up so that two-year and five-year Treasury notes yield almost as much as a 10-year issue. The Federal Reserve looks like it will raise rates one or two more times. The Wall Street consensus calls for an end to the rate hikes at 4.5% or 4.75%, up from the current 4%.
Investors face more uncertainty in 2006
But what happens after that is even more uncertain than it was two months ago. Will the Federal Reserve put its rate moves on hold after those increases for the rest of 2006? Or will it be forced to actually reverse course and cut interest rates as the economy weakens in the second half of the year? Traditionally, when the interest-rate curve inverts -- with short-term rates climbing above long-term rates -- as it is near to doing, it signals a potential economic recession. Outgoing Federal Reserve Chairman Alan Greenspan says not this time, but hey, he'll be playing tennis when this pudding gets eaten.So, right now, income investors are facing low yields, near-term rate hikes that will drive down the price of bonds and other income vehicles and increasing uncertainty about the direction of interest rates for the second half of 2006.
Related news and commentary on MSN Money
Yep, I guess it's time to offer up the rest of my 10-stock portfolio for income investors. For context, here are the first five securities in the portfolio and their current yields (which may have changed since Oct. 14):
I also have an important update to that article at the end of this column. I am tracking this 10-stock portfolio called "Dividend stocks for income investors" here. There is also a link on the left side of this column.
How to manage risk and get paid for it
The name of the game right now, in my opinion, is:- Managing the risk that interest rates, inflation or the economy will kick your income portfolio where it hurts, and…
- Getting paid decently for the risk you do take.
With those principles in mind, I've divided my second five income picks into two parts. The first three picks are stocks that pay a bit more than market rate and where the risks are a bit less than for the fixed income market as a whole. My last two slots are reserved for two ways to keep your money safe -- at the best return -- while you wait for either lower risk or higher yields as 2006 develops.
Rate this Article
High
