At Citrin Cooperman Wealth Management, we make sure each client has an investment policy statement that expresses clearly-defined investment goals. Each client is different, so we tailor a customized approach based on the particular facts and circumstances. Some clients are focused on long-term growth, whereas others are primarily concerned about generating current income. Frequently, a client may have several accounts, each with different goals. For instance, a client may have a multigenerational trust designed for long-term appreciation and an IRA, from which the client is taking distributions, where the objective is to maximize income. It is the latter situation that is the focus of this article. With such paltry interest rates on money markets, CDs and treasuries, where is an income investor to turn?
Over the past 15 years, there has been a significant decline of interest rates. For example, in 1999, the average rate for a 10-year treasury was 6 percent. Today, it is about 2.6 percent. Simply buying longer duration bonds to obtain a greater yield is rarely the answer, especially if one is concerned about bond values declining in a rising interest rate environment. CCWM employs several strategies to generate yield. These include looking beyond traditional bond categories such as U.S. government debt, municipal bonds and bonds of large U.S. companies. In some cases, it is recommended to consider being overweight in high-yield bonds, international bonds and floating-rate notes. Other sources of income can include asset classes other than bonds, such as real estate investment trusts, master limited partnerships or stocks that pay handsome dividends. Lastly, for clients to whom income is more important than liquidity, the use of annuities, especially so-called “single premium immediate annuities,” can be part of the solution.
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