Finding income continues to be the name of the game for many investors as interest rates continue to remain at paltry levels. Traditional sources such as money markets, CD's and treasury bonds barely provide any distributions and aren't currently beating inflation. In order to find reliable sources of income, retail investors can get an idea of how to position themselves from reading what Wall Street pros have to say. Managing $3.4 trillion in assets including its Nasdaq Composite Index Tracking ETF (Nasdaq:ONEQ), Fidelity certainly qualifies as a pro. With the bulk of these assets located in retirement accounts and workplace savings plans, the firm has spent much time tailoring its research towards those nearing or in retirement. Fidelity's latest missive gives retail investors plenty of opportunities to "reboot" their income streams.
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Simple, but Powerful Income Options
Given the Federal Reserve's pledge to keep interest rates effectively at zero until 2014 and the sheer number of baby boomers entering their golden years, it's no wonder why so many investors have income on the brain. However, those low rates have sent investors to all ends of the market place in order find higher yields. Fidelity predicts a less than 10% risk of another recession happening in the United States over the next few months. The group believes that certain select risk assets will outperform riskless assets such as Treasuries over the year. However, the surging returns seen for many of these assets over the last few years won't be repeated. Nonetheless, many of these assets still will provide quality income streams for investors.
Focus on Growing Dividends
Fidelity's first income idea shouldn't come as that much of a shock to investors. High quality dividend stocks remain at the top of the asset managers list. Conversely, it's not just any stock with a high yield. Only companies with strong, time-tested businesses that can increase dividend payments over time should be considered by investors. By choosing firms with strong economic moats and a history of rising dividends, investors are able to stay the hand of inflation on their income streams. Rival Vanguard offers the Vanguard Dividend Appreciation ETF (ARCA:VIG). The fund tracks a basket of 135 different firms that have a record of increasing dividends over time. This includes holdings in IBM (NYSE:IBM) and United Technologies (NYSE:UTX). While the exchange-traded funds (ETFs) yield isn't that high (2.12%), the fund offers the potential for high dividend growth.
SEE: Build A Dividend Portfolio That Grows With You
Look Towards Asia
The asset manager also thinks investors should look towards the west for higher income. Current dividend yields in Asia are higher than those in the U.S., and have grown at a much faster rate. While the continent has often been seen as a growth element, dividends have been a major contributor to total returns and help identify well-managed companies in Asia. The iShares Asia/Pacific Dividend 30 (ARCA:DVYA) allows investors to bet on a basket of 30 different high yielding stocks across developed Asia. Australia takes the top spot at 45% of assets, with Hong Kong, Singapore, New Zealand and Japan rounding out the exposure. The fund currently yields 4.82%. Likewise, Fidelity sees opportunity in Asian debt. The easiest way to gain access is still the WisdomTree Asia Local Debt ETF (ARCA:ALD).
Take More Credit Risk
In order to gain more income from bond investments, portfolios can either take on more interest rate risk (buy longer maturing bonds) or credit risk. Fidelity believes the best solution is to buy the latter. There's no guarantee that the Fed will actually wait until 2014 to begin tightening rates. It may come sooner than investors think. To that end, Fidelity says keep maturities short. Both the PIMCO 0-5 Year High Yield Corp Bond ETF (ARCA:HYS) and Guggenheim Bullet Shares 2013 HY Corp Bond (ARCA:BSJD) allow investors to bet on short-term junk bonds.
The Bottom Line
For investors, suitable income remains elusive with interest rates at low levels. However, it doesn't need to be hard in order to find great sources of yield. Asset manager Fidelity breaks down some of the best places to gain income exposure today. The previous Fidelity picks along with real estate played via the iShares Cohen & Steers Realty Majors (ARCA:ICF) and convertible bonds played via SPDR Barclays Capital Convertible ETF (ARCA:CWB), make great choices.