Two reasons why income funds deserve a place in your portfolio
I’m talking about the following investment vehicles: Income funds, domestic bond funds, global bonds funds and flexible funds.
Our South African Investor
asset allocation model tells you to focus at least 20% of your portfolio in bonds and funds that offer the best income-returns on the market.
Now 20% of your capital sounds like a lot. But there are two good reasons why we suggest you allocate that much to these perpetual income money-generators:
They’re immensely safe. In most cases, you’re guaranteed to get back the money you invested at maturity. That’s a huge advantage over stocks in uncertain markets (especially now that South Africa is on the verge of recession.)
And they generate perpetual income on your behalf.
So which income fund should you park your cash in today?
A great place to generate cash if you want your money to sit on the sidelines
If you’re looking to park some money out of the market for a year, income funds are the perfect way to do it.
These funds emphasise current income, either on a monthly or quarterly basis, as opposed to capital appreciation. They do this by holding a variety of government, municipal and corporate debt obligations, preference stocks, money market instruments and dividend-paying stocks.
Right now, they have a great outlook and many of their yields are beating those offered by corporate bonds.
These have a longer maturity than money market funds but less than traditional short-term bond funds.
Significantly, the performances of the top performers have come in ahead of inflation during the past three years. This has been led by, a firm favourite in the sector, the Stanlib Income Fund
Knowledge brings you wealth,
If you have any doubts or questions about your investments or if you're a subscriber to one of our paid products and you need clarity on an investment or investment tips, please feel free to ask your questions on The Investors Club
. Grant Tucker, for example, was very worried about some of the tips we gave in the January issue of Red Hot Penny Shares
, but Francois Joubert set his mind at ease with thorough explanantions why certain investments were a go, regardless of what the markets were doing. Read the question and response here...
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