The world is changing. Even as short-term interest rates move upward, longer-term rates — as well as overall stock and bond returns — are expected to be low for some time.

What are today's income challenges?

Income investors are facing some new realities:

  • Be selective, tactical and risk-aware. In the search for yield, downside protection is important. Investors taking withdrawals face more downside risk and have more difficulty recovering when the market rebounds if they have already drawn down their nest egg.
  • Seek efficient income to boost return potential. With overall growth expected to remain low, investors will have to rely on higher bond yields, preferred stocks and cost efficiencies to boost overall portfolio returns.

 

Seek efficient income

Investors today face a balancing act between earning income and losing capital.

THE TRADEOFF OF INCOME INVESTING

Chart: The tradeoff of income investing

Source: BlackRock, Bloomberg. Maximum drawdowns are since inception of the fund’s current strategy (11/28/11) to 3/31/16. For illustrative purposes only. The Fund represented by 30-Day SEC Yield for Inst. share class (Subsidized), all other share classes will vary. 30-Day SEC Yield (Unsubsidized) for Inst. share class is 4.80%. Index yields are shown for illustrative purposes only and do not predict or depict the yield of any BlackRock fund1. Yields for the indices have material differences including investment objectives, liquidity, safety, guarantees of insurance, fluctuation of principal or return and tax features. Fixed income yields are yield-to-worst, equity yields are current dividend yield and MLP’s yield consists primarily of return of capital which reduces the investors adjusted cost basis. The maximum drawdown is the largest historical decline in net asset value from peak to trough.

Performance data quoted represents past performance and is no guarantee of future results. Investment returns and principal values may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than that shown. Refer to blackrock.com for current month-end performance. Investment returns reflect total fund operating expenses, net of all fees, waivers and/or expense reimbursements. For MAI Fund performance, click here.

 

Look for income while trying to manage risk to principal:

Seek efficient income

BlackRock’s municipal platform seeks tax-advantaged income through diverse interest rate environments.

KEEP MORE OF WHAT YOU EARN
After-tax yield and risk

Chart: After-tax yield and risk

Source: Morningstar as 3/31/2016. Yield represents 30 Day SEC yield. Taxable equivalent yield is based on the highest tax rate on income in 2015 (39.6%) plus 3.8% tax from the Affordable Care Act and average highest marginal state. If the fund expenses have waivers, the subsidized yield is based on the net expenses. Unsubsidized 30-Day SEC Yield is based on total expenses of the fund. Tax-equivalent yield is for illustrative purposes only. All returns assume reinvestment of all dividend and capital gain distributions. Other classes of shares with differing fees and expenses are available. Investment returns reflect total fund operating expenses, net of all fees, waivers and/or expense reimbursements. Index performance is shown for illustrative purposes only. It is not possible to invest directly in an unmanaged index.

Performance data quoted represents past performance and is no guarantee of future results. Investment returns and principal values may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than that shown. For SMO Fund performance, click here.

 

Investors may need to minimize the tax bite with municipals and consider preferred stock strategies:

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