Strategies for clients seeking income
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Hi, I’m Inga Rachwald, Senior Investment Portfolio Strategist with Schwab Asset ManagementTM. We know 2022 was extremely challenging for stock and bond investors alike. And while it’s easy to get caught up in headlines about market performance, the good news for investors seeking consistent income is that the outlook for meeting their needs appears brighter here in 2023.
At Schwab Asset Management, we typically think of income-seeking investors as falling into one of two categories. The first category is investors looking for relatively stable income and preservation of capital. And the second is for investors seeking income that can increase over time, while also achieving potential capital appreciation.
Onto the first category, stable income and capital preservation. For your clients who need a reliable income stream, consider looking at fixed income. The highest U.S. inflation in 40 years and the most aggressive Federal Reserve rate hikes in decades drove bond yields up sharply in 2022. But here in 2023, these yields represent opportunities for income seekers to potentially lock in attractive yields not just at the short end of the yield curve, but within longer duration bonds as well. Looking at this chart, fixed income yields across a range of government, credit, duration, and liquidity spectrums started out 2023 near their highest levels in more than a decade.
At Schwab Asset Management, our Wasmer SchroederTM Strategies, backed by over 40 portfolio managers and analysts, offer separately managed account fixed income solutions across a range of taxable and tax-exempt formats, and across the full credit/quality/duration spectrum. And if you’re looking for a traditional mutual fund or ETF wrapper for your clients’ fixed income needs instead of a separately managed account, Schwab Asset Management has several offerings in these investment vehicles as well.
Now let’s focus on the second category, investors seeking an increasing income stream and potential capital appreciation. For these clients, dividend-paying stocks might be a good fit, albeit one that is riskier than bonds. Dividend-paying stocks can potentially provide consistent dividend income, dividend growth, and capital appreciation if the underlying stocks perform well. Dividends are always positive and have consistently contributed to equity market returns over time. 373 companies in the S&P 500 Index raised their dividends in 2022, paying out a record $565 billion, and as reflected in this chart, since 1970, S&P 500 companies that grew their dividends generally outperformed non-dividend-paying stocks during periods of rising inflation.
Schwab Asset Management’s ThomasPartners® Strategies are separately managed accounts designed to provide clients with income, income growth, and competitive total returns over time through an actively managed approach centered on selecting stocks of companies expected to raise their dividends over time. As with our fixed income opportunities, Schwab Asset Management offers dividend-paying stock strategies in mutual fund and ETF wrappers as well.
And, finally, we also offer the Schwab Monthly Income Funds, which are designed to provide investors a choice between three income strategies across asset classes and income sources. No matter which direction the markets may be headed, some of your clients are likely to need income. Learn more about the many income strategies Schwab Asset Management has to offer your clients at schwabassetmanagement.com. Thanks for listening.
Inga Rachwald, Senior Investment Portfolio Strategist for Schwab Asset Management™, discusses investment strategies that advisors might consider for clients who are seeking income.
Some clients may be seeking relatively stable income with capital preservation, while others may be seeking increasing income with the potential for capital appreciation. Schwab Asset Management offers advisors a range of strategies and products to address clients’ diverse income needs.