If you can see retirement on the horizon, now is the time to move some of your money into retirement income funds. Yes, these funds are usually subject to some hefty taxes, they also offer you the opportunity to continue to get a paycheque long after you clean out your office for the final time. In some cases, you’ll even earn capital appreciation. What’s more, although retirement income funds contain some debt obligations, they also contain the great opportunities for diversification.
So, now that we know that you should invest in income bonds and why, how do you know which funds are worth your attention? There are actually several different things to look for when choosing the best fund for you.
Of course, the goal of an income fund is to create an income stream. So, you’ll want to choose one that has an above-average yield. To do that, however, you’ll have to be comfortable with a little bit of risk. Corporate issues are better investments because they won’t drop as much. When rates increase overall, the risk premium that is part and parcel of many corporate issues will go down.
Most investors don’t have the funds to create their own bond portfolios. Because of that, most people will invest in mutual funds that contain only bonds. Why? Because doing so streamlines and simplifies the process of investing because you can base your decisions on historical performance records. Look for an income fund that has a strong historical track record and that offers good returns on your investment. The result will be a safer option for your retirement income investment.
Funds that offer a high stream of positive inflow or that have a large capital base are good choices because they offer you the chance for great liquidity. This is an important aspect of any investment, but particularly important when considering an income fund because the entire reason to have an income fund is to have a stream of income to which you have easy access. When the fund is properly funded, its risk of being closed is dramatically reduced.
In conclusion, although there is some risk involved in investing money in income funds, the income asset class is a requirement for all investment portfolios. Choosing the right one is absolutely imperative, as it will make a huge difference in the success of your portfolio and your ability to create an income stream after retirement.