A Top Income Alternative For 2022

A Top Income Alternative For 2022

The End of the Bond Bull Market?

This is one of those moments in market history you might want to remember. We are witnessing a historic event, the end of the greatest bond bull market in history. Since I came into the business in 1981 when Fed Chairman Paul Volker decided to let rates be determined by the market instead of the government, interest rates have collapsed from their all-time high of 20%+ to a little above 0%.

To deal with the Dot.Com bear market implosion, the Financial Crisis, and the COVID pandemic the Fed had been stepping in to support the economy and markets by lowering interest rates and flooding the markets with liquidity. It seems the liquidity and massive stimulus programs over the past 10 years may finally pull the “rabbit out of the hat” by giving us an economic expansion with a viable growth rate.

That’s the good news. The bad news is I believe we are in for a period of above-average inflation because of the distortions caused by the government’s interference in normal capital formation and allocation. The Fed will have no choice but to respond with a tighter monetary policy if the economy continues to grow and inflation trends firm.

The Problem for Retirement Accounts

While the stock market may experience another taper tantrum as the Fed adjusts policy, it will likely move back into a strong bull market trend. On the other hand, bonds will experience a much more dramatic and long-term sell-off as interest rates are adjusted higher. With larger and larger portions of the U.S. investor base moving into and through retirement, we believe the safety of their principal in bonds will be called into question for the first time in four decades.

The conundrum is that the interest from bonds has been the primary support for retirement income, and fixed income allocations make up the majority of many retirement portfolios. But what do you do when an asset class that was once viewed as safe with low volatility turns out to be risky and highly volatile? Where do you go for income?

Where Can Investors Find Income?

I believe the only logical choice is high-quality, high-yielding dividend-paying stocks. Companies typically increase dividends over time which helps keep pace with inflation. Dividend-paying stocks also tend to outperform non-dividend-paying stocks over multiple market cycles. In addition, high-yielding dividend-paying stocks have outperformed lower-yielding stocks handily. And, high quality, high dividend stocks can be the best performers.

Divided-Growers-Chart

Not all dividend-paying stocks are created equally, and the highest-yielding stocks can be a sinkhole for your capital if you don’t do careful analysis. In this case, the income received looks great but you are sacrificing your capital to get the extra yield. As pretty much everyone knows, if you run out of capital your income stream ends forever. The S&P 500 Index has been the best performing index recently due to a few growth and tech stocks that make up a large part of the index’s weight. However, over the last 40+ years, dividend payers and growers have significantly outperformed the S&P 500 and non-dividend payers.

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DISCLOSURES

Past performance does not guarantee future results.

Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. For a prospectus and summary prospectus containing this and other information about the Fund please visit our website at www.wbietfs.com. Read the prospectus carefully before investing.

S&P 500 PR Index: includes a representative sample of large-cap U.S. companies in leading industries

S&P 500 TR Index: includes a representative sample of large-cap U.S. companies in leading industries where all cash payouts (dividends) are reinvested automatically.

Bloomberg US Aggregate Bond TR Index: a component of the US Universal Index and covers the USD‐denominated, investment‐grade, fixed‐rate, taxable bond market of SEC‐registered securities.

Although a company may pay a dividend, prices of equity securities – including those that pay dividends – fluctuate. Investing on the basis of dividends alone may cause an investor to buy or sell certain securities when circumstances may or may not be favorable.

You are not permitted to publish, transmit, or otherwise reproduce this information, in whole or in part, in any format to any third party without the express written consent of WBI Investments, Inc.

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