On a fixed-income? Here’s what to invest in … and what to avoid

Short-term bonds. Consider a diversified portfolio of short-term bonds or, for investors in a high tax bracket, short-term municipal bonds. Short-term bonds pay higher interest rates than money markets or CDs. In addition, they will typically lose very little principal relative to longer-term bonds should interest rates go up.

Fixed annuities. Fixed annuities currently guarantee a minimum return of 2.5 percent to 3.5 percent, and the income is tax-deferred, which makes them even more valuable for taxable investment accounts. It is also important to realize that fixed annuities won’t lose principal should interest rates go up.

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Large U.S. corporations paying dividends. High-quality, large multinational U.S. corporations that have provided consistent increases in dividends for 10 to 20 consecutive years are another avenue to consider. For example, look at the S&P Aristocrats Index or the exchange-traded funds that represent this index. These stocks are very large, and they dominate their markets.

These companies are not going bankrupt. They will be around a long time, and a diversified portfolio paying out 2 percent to 3 percent in dividends annually will go a long way in supplementing the lower income received on fixed-income investments. You will also get long-term growth and can wait a long time for market corrections to recover when your stock portfolio is consistently providing dividends of 2 percent to 3 percent annually.

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