For those nearing retirement, figuring out how to transition from accumulating investments to spending that money is a major concern. Income is the name of game. But with interest rates currently in the basement, investors have had to broaden their horizons to new assets classes in order to find yield.

Everything from pipeline master limited partnerships (MLPs) to high-yielding dividend stock funds – like the iShares Select Dividend (DVY) – have now become portfolio staples for investors looking for yields beyond 2%.

Accordingly, building an income plan has become a complex operation, but it doesn’t have to be. A proliferation of exchange traded funds (ETFs) help take the guess work out building income and adding these non-traditional sources of yield. For investors, the multi-asset income funds could be a godsend.

Improving On the “Balanced Fund”

Balanced funds – which blend both stocks and bonds together in one portfolio – have received a face-lift. Wall Street has come to the rescue with a variety of new products designed to make managing income in retirement easier. These new multi-asset plays, include weightings to everything from junk bonds, emerging market equity and preferred stocks, to real estate and pipeline partnerships. These new funds can be an easy way to achieve diversified income exposure and meet a need for higher and more stable income.

The basic idea is that most income investors already have plenty of exposure to traditional income products – Treasury bonds or utility stocks, such as Duke Energy Corp. (DUK), for example. But by incorporating one of these new ETFs into their portfolio, investors gain a higher yield – usually around 5% – long-term capital appreciation potential, as well as broad diversification with lower volatility. At the same time, these multi-asset income plays remove some of the complex tax issues associated with holding some alternative asset classes like MLPs. Most of these funds produce a standard 1099-div form come tax time.

A Few Prime Multi-Asset Picks

While the fund category is still relatively new, there has been an impressive amount of launch activity. Investors do have plenty of choices to add these funds to portfolios.

Launched back in 2006, the Guggenheim Multi-Asset Income (CVY) is the oldest in the category. CVY features a portfolio constructed of common stocks, REITs, closed-end funds, MLPs, preferred stocks and Canadian royalty trusts. Overall, the ETF spreads its $1.2 billion in assets among 150 different holdings. That widespread focus helps CVY produce a 5% dividend yield and a five year annual return of 25%. Expenses for CVY run 0.89%. Guggenheim also offers an international version, with its International Multi-Asset Income ETF (HGI). HGI follows a similar strategy with international stocks and bonds. Ay 3.68%, HGI’s yield is lower.

BlackRock Inc. (BLK) offers the iShares Morningstar Multi-Asset Income ETF (IYLD). IYLD uses a fund of funds approach and invests in other iShares ETFs. Currently, the ETF’s portfolio is tilted towards bonds (60% of assets), with stocks (20%) and alternative income sources (20%) rounding out the holdings. That focus on bonds did make it underperform last year, but does help it generate a 6% yield. For those looking for a bond-only multi-asset ETF, there's the new iShares Yield Optimized Bond (BYLD).

Also offering a high yield (5.89%) is the First Trust Multi-Asset Diversified Income (MDIV). The $600 million fund spreads its bets among 119 different holdings running the gamut of high-yielding asset classes. Top holdings for MDIV include mortgage REIT Annaly Capital management Inc. (NLY) and E&P firm QR Energy LP (QRE). Performance for MDIV has been pretty good as well, with the ETF managing to return 10.98% since its inception in 2012.

Finally, for those investors strictly looking for yield, both the YieldShares High Income ETF (YYY) and Arrow Dow Jones Global Yield ETF (GYLD) each pay 6%-plus. It should be noted that their portfolios are a bit riskier, however.

The Bottom Line

For investors in or nearing retirement, managing an income portfolio can be tricky – especially since low interest rates have pushed investors into new, higher-yielding asset classes. Luckily, there’s a way to get exposure to these alternatives in one ticker.

Related Articles
  1. Investing

    Five Things to Consider Now for Your 401(k)

    If you can’t stand still, when it comes to checking your 401 (k) balance, focus on these 5 steps to help channel your worries in a more productive manner.
  2. Investing Basics

    Explaining Financial Assets

    A financial asset is intangible property that represents a claim on ownership of an entity or contractual rights to future payments.
  3. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  6. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  7. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  8. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  10. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  1. Yield To Maturity (YTM)

    The total return anticipated on a bond if the bond is held until ...
  2. Equity

    The value of an asset less the value of all liabilities on that ...
  3. Real Estate Investment Trust - ...

    A REIT is a type of security that invests in real estate through ...
  4. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  5. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  6. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  1. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  2. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  3. Are spousal Social Security benefits retroactive?

    Spousal Social Security benefits are retroactive. These benefits are quite complicated, and anyone in this type of situation ... Read Full Answer >>
  4. Can my IRA be used for college tuition?

    You can use your IRA to pay for college tuition even before you reach retirement age. In fact, your retirement savings can ... Read Full Answer >>
  5. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  6. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!