If You’re in Retirement, it’s Time to Emphasize Safety

We’ve reached the phase of the economic and investment cycle when income investors need to throttle back their expectations, cautions fund and ETF expert Bob Carlson, editor of Retirement Watch.

We need to focus primarily on preserving capital. We’ll take the income the markets give and won’t stretch for higher yields. Interest rates are likely to continue rising.

More importantly, slower growth will continue to raise concerns about the safety of many income sources investors flocked to in recent years. Emphasizing safety now is easier, because interest rates on safer investments are well above their levels of just a couple of years ago.

We are once again recommending one of our old favorites, DoubleLine Emerging Markets Fixed Income (DBLEX). We sold our position in this fund position a few years ago after the Fed stopped quantitative easing.

Since then, emerging market bonds and currencies have gone through a bear market. There are signs they are reaching a bottom and there are genuine bargains in these markets.

DBLEX has several advantages. It doesn’t take extra risks to maximize income. Safety of principal is fundamental. Also, most of the bonds it holds are denominated in U.S. dollars. There is very little currency risk in the fund right now.

The fund doesn’t try to mimic an index. It won’t own a bond or bonds from a country simply because that’s what’s in the index. The fund excludes entire countries or regions when they don’t meet the fund’s standards.

The recent yield was 5.10%. In the last four weeks it has returned 0.99%. For the year to date, DBLEX is down 3.36%. The fund has two share classes. To avoid the $100,000 minimum investment of the DBLEX share class, buy the DLENX shares.

Meanwhile, real estate investment trusts (REITs) have been a bright spot in our portfolio. We added REITs in late 2017 after they had a tough period. They looked undervalued and ready for a recovery.

Cohen & Steers Realty Shares (CSRSX) returned 4.29% for the year to date. The fund held only 44 REITs recently. The fund looks for companies with both quality management and quality properties.

Cohen & Steers Realty also develops an economic outlook and tries to focus on REIT sectors and geographic areas that will do well in that environment.

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