Plenty of investors put investment income at the top of the list of their investment goals. But let’s face it, these days, income can be hard to find.
If you are an investor looking for income from the stock market, you are likely to be disappointed—after a long period of rising stock prices, the S&P 500 Index currently has a dividend yield of less than 2 percent.1 And if you are hoping to generate income from bonds, relatively low interest rates have held down fixed-interest yields.
However, there is an asset class that may help fill the income gap: alternative investments. Alternatives are a broad category that includes direct real estate, energy, corporate credit, private equity, and commodities.
Many types of alternative assets seek to deliver income. For example, real estate investments deliver income from rents. That income may even offer a hedge against inflation, because a lot of real estate assets have short-duration leases that can be renegotiated when interest rates and inflation rise. Corporate credit investments deliver income from interest payments, and if the underlying loans pay floating-rate interest, this income may also offer some protection against inflation. Finally, private equity funds may deliver income from dividends paid by the companies they invest in.
This means that an allocation to alternatives may help boost a portfolio’s income-generating potential. The chart below shows the relative income yields of a traditional 60/40 portfolio alongside one that includes alternative assets.
* Past performance is no guarantee of future results.