How to Secure Income and Ensure Safety Amidst the Worldwide Asset Decline

As the stock market experiences significant declines, investors are urgently seeking safe havens and income-generating options. On Monday, U.S. stocks plummeted in a global sell-off driven by recession fears. Concerns arose from a disappointing jobs report on Friday and speculation that the Federal Reserve may have delayed rate cuts for too long. Investors flocked to safety, causing Treasury yields to drop, with the 10-year yield falling over 10 basis points earlier in the session. Bond yields and prices move inversely, and one basis point equals 0.01%. This decline in Treasury yields has led Collin Martin, a fixed income strategist at Schwab Center for Financial Research, to adjust his perspective. He previously advised investors to gradually extend duration to intermediate, high-quality bonds. While these assets still have a place in portfolios and could become more appealing if yields rise, they are not as attractive as before, he noted.

Instead, Martin sees potential in investment-grade corporate bonds, which currently offer average yields around 5%, compared to the 5-year Treasury’s yield of approximately 3.66%. He finds this particularly appealing given the significant drop in Treasury yields. Investment-grade corporate bonds, issued by strong, high-quality companies, provide a way to secure attractive yields with relatively low risk. Although they might underperform temporarily, they are unlikely to experience severe declines, Martin added. He acknowledged that there could be some volatility, especially if economic growth slows, but believes the downside risk is limited.

Barry Glassman, a certified financial planner, recommends locking in slightly longer-term duration bonds. He suggests that if the current trend continues, these yields might not be available for a long time. Glassman, founder and president of Glassman Wealth Services and a member of the CNBC Financial Advisor Council, advises turning to core diversified bond funds, which typically include investment-grade government and corporate bonds, as well as securitized debt. These funds offer flexibility to shift between safer, shorter-term investments and diversified quality assets across global regions.

For CFP Chuck Failla, the next steps depend on the structure of one’s portfolio. He advises clients to segment their portfolios based on cash needs and time horizons. Money needed within 12 months should be placed in a money market. For a one- to two-year horizon, he recommends allocating 15% to 20% in equities and the remainder in high-quality, short-term bonds like Treasurys and investment-grade corporate bonds. For a three- to five-year range, Failla suggests high-quality corporate bonds of intermediate duration or less, and for the six- to ten-year category, he includes high-yield bonds and plans to add private credit. The ten-year and beyond category should hold about 90% equity. If a portfolio is structured this way, no immediate action is necessary since stocks are a long-term investment. However, if an investor lacks a cash-flow plan and is overly invested in stocks, Failla advises withdrawing at least 12 months’ worth of funds now. When the market recovers, consider further adjustments. His advice is not based on market predictions but on ensuring sufficient income based on a cash-flow analysis.