The Best Income Solutions are Durable

As interest rates have continued their almost forty year decline (interest rates in the modern era peaked early in the Reagan Administration), more and more investors and savers have discovered that there is nothing “fixed” about fixed income investing. 

CD, bond and annuity buyers have all succumbed to lower and lower rates in their investment and savings portfolios over the years. Each time an item matured, the owner experienced the risk and consequence of fixed income investing. Which is to say that the problem with fixed income is that someone other than the investor is fixing the rate; and for most of the last 40 years they have been fixing them lower.

That has been a very tough reality for the fixed income investor, but not all income investors are fixed income investors. Another segment of income investors have focused upon durable sources of income and they have had a very different experience.

Among variable income options, one source, blue-chip dividend stocks, stands out for not only maintaining income over the decades, but for the long-term investor increasing income. While all stock investors, including the more conservative investors in blue-chip stocks, assume increased price risk and risk to principal, blue chip stocks have proven to be an exceptional source of dependable income. Historically, the longterm trend (think 100-150 years) among blue-chip companies has been towards regular increases in their dividends as company profits increased.

The resulting gap being experienced between “fixed income savers” and “dividend investors” is one of the reasons for America’s income disparity (but certainly not the only one) not to mention the resulting wealth disparity.

At Iowa Wealth Management, we employ Prudent Man Theory in equity selection, resulting in a focus upon blue-chip stocks that we believe have the financial wherewithal to pay healthy dividends and possibly increase their dividends in the future. While there is no replacement for fixed income when you absolutely know you’ll need the use of your principal, our experience leads us to prefer a prudent approach to investing focused on durable sources of income for long-term investors.

 Past performance is no assurance of future results. Iowa Wealth Management is a registered investment adviser with its principal place of business in the State of Iowa. Opinions expressed are those of Iowa Wealth Management and are subject to change, not guaranteed and should not be considered recommendations to buy or sell any security.