Options for Income

Since the Global Financial Crisis of 2007-09, fixed income investors have suffered the worst of both worlds. For a dozen years they endured the stingiest of yields on their fixed income holdings. This was followed by painful losses in 2022 as the Federal Reserve finally raised rates to combat the worst inflation seen in a generation.

Although bond yields are now closer to their historic levels, bond investors are still nervous and uncertain about what comes next. Investors with income needs are wise to diversify the risk of being wholly dependent on the whims of the Federal Reserve monetary policy and seek other options for income.

Diversify Income Sources or Rely on the Fed

The chart below compares the implied volatility of stocks compared to bonds. The blue line is the VIX index, commonly called “the fear gauge.” Many people are familiar with the VIX, a measure of sentiment and the anticipated volatility of the S&P 500. A higher VIX reading generally indicates higher uncertainty, fear, and anticipated volatility while a lower VIX suggests the opposite. Fewer investors are familiar with the bond market equivalent, the MOVE index, shown below in red.

VIX vs move