Income Funds and Investment Strategy

There is a view of the market that accepts its inevitable rises and fall. As a function of a global economy, United States markets sometimes react to world events and news in unexpected ways. The market can show amazing resilience and continue on an upward surge as it did in 2014 despite turmoil in the Middle East, open warfare in Eastern Europe and a revival of the Cold War with Russia. The market interprets events and trends such as a record-setting level of crude oil production in the United States and the resistance to production cuts from OPEC in the face of a worldwide crude oil glut. For many experts, the answer to the volatility of the market is to take profits whenever possible.

Income Funds Create Balance

Income funds can consist of high dividend stocks, high-yield bonds, and fast growth issues of every description. Mutual funds can capture the dynamics of income producing stocks by incorporating indexes that focus on regular, substantial income. In terms of investment goals, retirement and other investor circumstances can indicate a need to include more income stocks and bonds in a portfolio. Income funds can hedge against other sources of volatility such as interest rates and economic downturns by providing income streams while market corrections and trends develop.

Five Leading Income Funds

The Vanguard High Dividend Yield Index Fund (VYM) with low .20 percent fees and a 12 percent year to date yield, is a leading income fund. This income fund tracks the FTSE High Dividend Yield Index. The ProShares S&P 500 Aristocrats ETF (NOBL) is a dynamic, low fee, equity oriented fund that yields 13.74 percent on a year to date basis. It tracks the S&P 500® Dividend Aristocrats® Index which is the highest classification for dividend stocks with long continuous histories of meeting and increasing dividend commitments. The SPDR S&P Dividend ETF (SDY) also tracks the S&P 500® Dividend Aristocrats® Index. It returns 11.99 percent year to date. It tracks the leading long term dividend index with criteria of 20 consecutive years of increasing dividends. WisdomTree Dividend ex-Financials Fund (DTN) offers a year to date return of 12.01 percent with fees of 0.38 percent. It tracks the WisdomTree Dividend ex-Financials Index. Schwab US Dividend Equity ETF (SCHD)has a year to date return of 10.21 percent and fees of 0.07 percent. It tracks the Dow Jones U.S. Dividend 100 Index.

Flexibility and Profits

Income funds provide a stream of income that can balance volatility in other sectors of the market. The current market phase co-exists with a period of record low-interest rates. It also moves with falling oil prices and a worldwide slowdown reflected in lower demand for crude oil. Income streams can hedge against changes in interest policy for those with substantial holdings in bonds. It can soften the impact of the global economic slowdown which can depress equity growth in some sectors. Income funds are not just for retirees or those about to retire. Income funds add flexibility and the critical ability to act quickly to take advantage of market developments and opportunities. There is room in nearly every portfolio for income funds.