8 Treasury Bond Alternatives for Investors Who Need Income in 2019 and Beyond

Investing

Published: September 4, 2019 8:10 am

Last Updated: March 13, 2020 4:08 pm

It’s becoming a difficult sell to ask many retail and income-oriented investors to buy Treasury notes and bonds now that the yield curve has inverted and long-term yields are at historic lows. Quite simply, the U.S. Treasury bond and government agency bond markets have become rather unattractive for new money to go into in 2019. As of the start of September 2019, there was nearly $22.5 trillion worth of total public debt outstanding that the U.S. government owns.

Many investors absolutely must have income in their portfolios. This may be to help supplement their retirement needs, or it may be part of a long-term investing strategy to keep reinvesting interest payments or dividends throughout the ups and downs of the market cycles for total return. The U.S. recovery is now well over 10 years old, but this also has been the weakest post-war recovery.

Investors had to deal with nearly a decade of short-term interest rates near zero percent. That drove them to stocks, but now that the economic growth is starting to falter, some investors will have concerns about chasing stocks into a downturn.

To look for bond income internationally is becoming impossible. There is close to $15 trillion worth of sovereign debt in the world that comes with negative bond yields. That means bond buyers in Europe and Japan are actually losing money just to hold the safety of a full return of their capital upon maturity. That seems savage enough, but trillions of dollars worth of government and other debt around the world pay almost zero in interest.

The yield on the 10-year Treasury note was last seen down at 1.455%, almost 40 basis points less than the 1.94% yield of the 30-year Treasury’s “long bond.” These will not only keep you from being rich, but there are still taxes that have to be factored in for many investors in need of income.

There are multiple alternative avenues for traditional bond and income investors to chase yields and income. None of these holds the traditional guarantee of a sovereign bond, and most will not be immune to selling pressure if the next recession is even remotely close to what was seen in the Great Recession.

24/7 Wall St. has put together a list of eight alternatives for Treasury and traditional bonds investors who must have income to help supplement their lives. This is meant to be a go-to guide of alternatives as the market stands at the start of September 2019. These are certainly not the only alternatives and they are not ranked or in any specific order at all. All these alternatives are easily accessible and can be researched by any level of investor today.

1. The S&P 500 and the Dow

It’s hard to imagine, but the Dow Jones industrial average and the S&P 500 are offering better overall yields than long-term Treasuries. That is not always the case, but most investors assume that over the course of a decade or so that even the worst timing on the initial purchases will be higher in the years ahead. One keep-it-simple strategy at this point is to buy mutual funds or exchange-traded funds (ETFs) that directly track the Dow or the S&P 500. They always tend to outperform bonds in the long run, and major sell-offs allow investors to buy more or reinvest their dividends at lower prices.

The S&P 500 and Dow now handily outyield the 10-year Treasury note, and most seem to outyield even the 30-year. Of the 30 Dow stocks, only six yield less than 1.50%: Apple, Microsoft, American Express, Walt Disney, Nike and Visa. Exactly half of the 30 Dow stocks now yield over 2.5%, and 10 of them have yields ranging from 3.2% to over 5.0%.