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Yield Hunting

Sigma Investment Counselors

May 26, 2021

Yield hunting is a term used in the financial community to identify efforts to preserve a desired yield on fixed income investments that are no longer consistent with changed market conditions.   For example, long-time investors may consider 4% as the historical and appropriate yield on the 10-year treasury, when the actual yield, in today’s environment is less than 2%.  Yield hunting comes into play as investors seek to replicate their 4% world without an appropriate understanding of risk.

Any loss of portfolio income is unwelcome, and particularly so, when it represents a material part of total income.  Seeking investments that have the potential to restore previous investment income levels is appealing.  Unfortunately, moving towards higher risk securities can lead to a loss of principal.

There are often less risky portfolio strategies that can, at least partially, mitigate the adverse consequences of a general reduction in interest rates.  Since portfolio decisions are not one-size-fits-all, it is important for investors to review their situation with their advisor(s), in order to find a solution that fits a specific set of circumstances.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®

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