by Nancy Shewfelt, B.A., FCSI, CIM
Senior VP and Investment Advisor at Wellington West Capital Inc.
Investing for Income in Retirement. What a challenge for today’s active retiree to secure predictable monthly income while GIC rates are at their lowest levels in over 50 years!
The question most often asked of me as an investment advisor for the past 27 years is, “What can I invest my money into, to get me the highest monthly income with the lowest amount of risk?” Without getting too detailed, I will give you some suggested investments to look at for alternatives to GIC’s (Guaranteed Investment Certificates) from your bank or credit union.
Please get the appropriate financial advice from your trusted investment advisor who will assess your ability (emotionally and financially) to tolerate any sort of risk before you jump into any of this.
Government Bonds:
Government bonds can be bought and sold any business day of the week. The interest rates are fixed when the bond is issued (e.g. Government of Canada 4%, June 1 2019) and then the price can fluctuate daily based on market expectation of future interest rates.
All government bonds (municipal, provincial and federal) are assigned credit ratings. The higher the credit rating (i.e.: government of Canada is AAA) the safer they generally are. However, this also means a lower yield. The lower the credit rating, the higher the yield (municipal bonds usually have a higher yield than a federal government bond).
Interest is paid semi-annually on most bonds.
Investment Grade Corporate Bonds:
These are bonds of great companies that have borrowed money to fund some of their operations. These ratings can range from BBB to A with various ranges in between (i.e: TD bank bonds have A credit rating).
The current yields on these bonds range from 4-6% depending on their credit rating and maturity dates.
High Yield Corporate Bonds:
High yield bonds are debt obligations of corporations that have credit ratings below BBB and are considered riskier. These pay substantially higher income and, in my opinion, this is the current sweet spot of the bond market for investment opportunities after 2008’s global credit crisis.
Yield opportunities can range from 6% to over 10% in this category, but wise investment advice and professional management is recommended.
Convertible Corporate Debentures:
These are hybrid bonds which give you the upside of the underlying corporate growth along with the income characteristics of a bond. With the market drop of 2008, convertible debt is very attractively priced for income and capital growth. Please seek investment expertise before investing in this area.
I could go on to describe bond funds, ETF’s, preferred shares, income trusts, annuities, and high dividend paying stocks also for income needs. These are all attractive ways to get good after tax income and should be discussed with your trusted advisor for suitability.
Finally, look at a diversified basket of various investments to supply you with your required monthly income. This might include a laddered portfolio of bonds, some high quality preferred shares and some convertible debt.
By balancing it out into various baskets, you can potentially increase your monthly income and protect yourself against the foreseeable inflation impact expected over the next decade.