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- Yields on fixed-income products have tumbled since the rate cut.
- Expect another 50-basis-point cut in rates by the end of the year.
- Sit back and let dividends do the heavy lifting for a simple, steady path to serious wealth creation over time. Grab a free copy of “7 Things I Demand in a Dividend Stock,” plus get our two best dividend stocks to own today. Access 2 legendary, high-yield dividend stocks Wall Street loves.
With the youngest baby boomers (Americans born between 1946 and 1964) turning 60 this year, it is becoming increasingly important to focus on magnificent dividend ideas that will supply significant passive income in or out of designated retirement accounts like IRAs. The Federal Reserve lowered the federal funds rate to revive the economy during the Great Recession. From December 2008 to December 2015, the target rate remained between 0.00% and 0.25%.
While rates trended higher until 2018, the Fed stopped raising the benchmark that year as stocks weakened. By March 16th, 2020, with the COVID-19 pandemic starting to take its toll on the country, the Fed moved drastically and, in one month, slashed rates back to 0.00% to 0.25%.
That all ended recently when the Fed initiated a new monetary easing cycle with a 50-basis-point cut to the fed funds rate, marking the first reduction since March 2020. This follows a 14-month policy pause, and the current fed funds rate dropped between 4.75% and 5.00%.
The big fixed-income winners with rising interest rates for two years were investors and savers who kept their cash in high-yielding money market funds. Some paid monthly, with yields over 5%, and deposits were protected up to $250,000. The minute the rate cut dropped and hit the tape, Wall Street banks began slashing rates on the popular funds. Many fell as much as 50 basis points in a week. The bad news for conservative investors is that the fed funds rate will likely drop another 50 basis points before the end of 2024 and another 100 basis points in 2025. Funds yielding 4.5% will likely fall to 2.5% by the end of next year.
Don’t despair, conservative income lovers
We decided to screen our 24/7 Wall St. fixed income database, figuring there had to be some excellent alternatives for investors. While we discovered four or five contenders, one clear-cut winner came to the forefront after crunching the numbers and weighing all the different items, like management fees.
Not Surprisingly, it’s a Wall Street powerhouse
The fund that is our 24/7 Wall St. #1 best idea is run by BlackRock Inc. (NYSE: BLK). The company was founded in 1988 as an enterprise risk management and fixed-income institutional asset manager; BlackRock is the world’s largest asset manager, with over $10.5 trillion in assets under management. This compares to 8.59 trillion of AUM as of 2022. The total assets under management of BlackRock more than doubled between 2016 and 2024, making it one of the best companies in the world to navigate an environment of lower rates.
And the winner is …
The Blackrock BLF FedFund (NASDAQ: BFCXX). Moody’s rates the fund AAA-MF, while S&P has an AAAm rating; both are the highest available ratings. Here is the description of the fund, which has a $1 net asset value pricing, from the Blackrock website.
FedFund invests at least 99.5% of its assets in cash, U.S. Treasury bills, notes, and other obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies, or instrumentalities, and repurchase agreements secured by such obligations or cash.
The Fund’s yield is not directly tied to the federal funds rate. The Fund invests in securities maturing in 397 days or less (with certain exceptions), and the portfolio will have a dollar-weighted average maturity of 60 days or less and a dollar-weighted average life of 120 days or less. The Fund may invest in variable and floating rate instruments and transact in securities on a when-issued, delayed delivery,
The current 7-day SEC yield as of 9/23/2024 was 4.89%, and dividends are paid monthly. It should be noted that there is a $50,000 minimum investment amount.
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