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®