For the millions of Baby Boomers about to enter their golden years, replacing lost income has become the topic du jour for many financial planners. Products such as annuities have become increasingly popular for investors as they seek to continue their monthly paychecks throughout retirement. However, many of these plans come layered with various fees and surrender charges. In addition, payout rates for annuities have fallen over the last few years. With the cost of living steadily rising and other traditional income products like the iShares Barclays Short Treasury Bond (NYSE:SHV) paying next to nothing, retirees face a serious income crunch. Luckily, there are several other avenues for investors to explore.
TUTORIAL: Exchange Traded Funds
Plenty of Options
With so much attention being thrust towards replacing lost wages, the number of options for investors looking for dividends has increased exponentially of the last few years. The boom in the exchange-traded fund industry provides investors several ways to add dividend income to a portfolio. Both the iShares Dow Jones Select Dividend Index (NYSE:DVY) and Vanguard Dividend Appreciation ETF (NYSE:VIG) hold the lion's share of assets in the space. However, they are not the only games in town. New asset classes, once reserved for institutional investors, are now available for retail investors. By tapping into some of these choices, portfolios now have a way to add diversification benefits and potentially higher yields. After all, since the 1960s, dividends have accounted for nearly 65% of the total return of the S&P 500 in sideways moving markets. Here are some of the new and interesting ways to add that extra income.
A Preferred Play From up North
Preferred shares quasi-stock/bond nature is becoming quite popular with income seekers. In exchange for zero voting rights, holders get a steady stream of dividend payments and preference in bankruptcy situations. The iShares S&P U.S. Preferred Stock Index (NYSE:PFF) has nearly $8 billion in assets, but a better play may come from our neighbors in Canada. The newly launched Global Canada Preferred ETF (Nasdaq:CNPF) holds about 60 different Canadian preferred stocks and allows investors to profit from the strength of the loonie versus the U.S. dollar. CNPF's yield is roughly 4.52%, but has the potential to be higher as the dollar continues its long-term slide. Holdings in the fund include preferred shares from the Bank of Montreal (NYSE:BMO) and TransCanada (NYSE:TRP). Similarly crossing the stock-bond tight rope, convertible bonds could be a great fit for investors. The SPDR Barclays Capital Convertible Bond (NYSE:CWB) offers a way to play that asset class.
The rise in living costs is a major concern to retiring investors. Floating rate bonds and senior loans adjust rates every 30 to 90 days, making them quite attractive in rising rate environments. Both the Market Vectors Investment Grade Floating Rate ETF (Nasdaq:FLTR) and PowerShares Senior Loan Portfolio (Nasdaq:BKLN) focus on these types of bonds. Each offers investors the ability to bet on different levels of credit quality, with FLTR tapping into the upper part of the floating-rate market and BKLN holding junk bonds. Both funds pay monthly dividends and will benefit as the Federal Reserve begins raising interest rates in the future.
Go Anywhere Plays
Holding a number of different asset classes, including common stocks, REITs, closed-end funds, MLPs, preferred stocks and Canadian royalty trusts, the Guggenheim Multi-Asset Income (NYSE:CVY) is an interesting broad choice for portfolios. Top holdings include SeaDrill (Nasdaq:SDRL) and the Eaton Vance Limited Duration Income Fund (NYSE:EVV). The "yield hog" fund pays an impressive 4.5% dividend. For those investors who want a strictly international go-anywhere play on dividends can use its sister fund, the Guggenheim International Multi-Asset Income (NYSE:HGI).
With replacing lost income on the minds of many retiring Baby Boomers, the options for dividend-focused investing continue to grow. The ETF boom has opened many higher yielding asset classes to the retail world. The previous funds, along with the iShares High Dividend Equity (NYSE:HDV) are just some of the variety now available for portfolios.
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