- Secular changes need to play a part in portfolio thinking
- Understand where you're taking on frictional or cyclical risk
Income investors are facing a different set of challenges than a decade ago. In the 2010s, low interest rates and quantitative easing (QE) meant government bond yields were rock bottom and riskier high-yield corporate bonds or shares occupied more of portfolios. Now in the 2020s there are attractive yields on offer from UK government bonds (gilts), but the volatility in rates (due to stubborn inflation which also drags on real yields) means there has been significant price volatility in longer-dated gilts.
But, arguably, it is a better time overall to build an income portfolio: there should be some strategic bond fund and gilt fund exposure, but balanced out with dividend-paying stocks. Companies can increase the dividends they pay out if they do well, so are better at maintaining and growing a real yield.
