Investing for income has never been harder. The Federal Reserve continues to indicate further interest rate increases are on the horizon. This makes bond buying dangerous for those seeking capital preservation in the face of rising rates.
This danger shows in the graph below, which indicates a strong probability of another rate hike at the Fed’s next meeting in June.
What makes this chart so interesting is that recent economic data doesn’t support the Fed’s conclusions. In the past several weeks, we’ve seen weakness in consumer spending, including negative consumer spending revisions, and falling prices. It goes without saying that falling prices aren’t a harbinger of a strong economy or strengthening GDP.
These are on top of abysmal auto numbers that show steep declines in sales and an exceptionally high 70-day supply.
Even so, higher rates aren’t exactly leading income investors to the Promised Land. While June might see another rate increase, it will only be the fourth such increase since 2006 — leaving rates in the 100-125 basis point range. The difference to income investors is negligible.
So what is an income investor to do?
Well, there are safe places for income investors to invest with better than average yields.
Take the Liberty All-Star Equity Fund (NYSE:USA), for example.
The Liberty Fund is a closed-end equity fund that truly invests in all-star stocks. The following table lists the fund’s top 3 sectors.
|Sector||Percentage of Assets|
The fund purchased most of the stocks in its portfolio when the assets were relatively undervalued. The fund has since rebalanced when valuations on its holdings have become stretched — in the same way that many value investors, like Warren Buffet, do.
And it works. The fund has averaged a total return of 14.3% return since the end of the Great Recession in 2009 while also trading at a 14% discount to its net asset value (NAV).
But for income investors, the best news is that Liberty All-Star Equity Fund yields an impressive 9.37%. That’s $937 in annual income for every $10,000 invested. And because the fund invests in solid stocks, the risk of higher rates will have no impact on an investor’s principal.
This makes the Liberty Fund a must-buy for investors looking for steady income.
Here’s another long term winner…