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The 2010s bull market was the first one to ever celebrate its 10-year anniversary, and while the COVID-19 pandemic caused its fair share of challenges, the market quickly roared back to all-time highs. It’s impossible to know how long the S&P 500 will continue to march higher, but for investors who are nearing retirement, it makes sense to try to protect against the possibility of a lengthy downturn.

Whether or not you have stable sources of retirement income such as a pension or Social Security check, you may want to consider purchasing income-producing investments to generate predictable income that can help you meet your financial needs.

What are Income-Producing Investments?

Income-producing investments prioritize regular streams of income over increases in portfolio value. Common income-producing investments are bonds and high-dividend stocks. If you are retired or nearing retirement, including income-focused investments in your portfolio could help you meet your monthly financial expenses in any market environment.

Investors can purchase their own income-producing investments, but high bond investment minimums (often around $1,000) and the time and expertise that is required to manage your own portfolio make income ETFs a better option for many investors.

What Are Income ETFs?

An income ETF is a type of exchange-traded fund (ETF) that allows investors to build a diversified portfolio of income-focused assets. There are income ETFs that specialize in dividend stocks, corporate bonds, municipal bonds, Treasury bonds, and more. 

ETFs are also cost-effective investments; the average ETF expense ratio was 0.45% in 2019. This means that most ETFs don’t eat into your investment income too much.

Why Income-Focused Investments Help to Diversify Against Stock Market Risk

Since the 1980s, bond yields have been trending lower, leading many investors to lower their exposure to bonds. At the same time, tech stocks that pay low or no dividends have accounted for a large percentage of the stock market’s gains, making high-dividend stocks look less attractive, relatively speaking.

Change, however, is the only constant in the market. And you don’t have to look too far back to see a time when income-focused investments reigned supreme: in the 2000s, many bond funds significantly outperformed the S&P 500.

Bonds are one of the few asset classes that have a low correlation with stocks. This has led to a risk-on, risk-off market —in which changes in investor risk tolerance drives price behavior— increasingly being the norm, where investors shift their investment allocations based on risk profiles. 

Since bonds are one of the most risk-off investments, income ETFs provide excellent diversification benefits. This diversification is particularly important for those in or nearing retirement, many of whom would struggle to endure another decade like 2000-2009 with an all-stock portfolio. 

Certain Income ETFs Can Provide a Good Mix of Yield and Diversification

With income ETFs, you have a wide range of possibilities that can meet your investment objectives. U.S. Treasury bond ETFs, for example, are extremely safe long-term investments since the U.S. government is incredibly unlikely to default on its debt obligations—but that safety comes at the cost of lower returns. Investors who have a higher risk tolerance, on the other hand, may elect to invest in stock or bond ETFs that have attractive yields, but riskier cash flows.

If you are interested in adding income ETFs to your portfolio, you should insist on investing with a firm that uses carefully designed strategies to provide solid returns in any market environment. VanEck has been doing just that for more than six decades and offers a wide range of income ETFs including those offering exposure to corporate bonds, equity income, municipal bonds, and international bonds. Some of its ETF options include the VanEck CEF Muni Income ETF, VanEck Fallen Angel High Yield Bond ETF, and the VanEck BDC Income ETF.

Even though income-focused investments are providing lower yields than in years past, their diversification benefits are perhaps more valuable than ever. By putting the right income ETFs in your portfolio, your investments are more likely to support you through all of your retirement years.


This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.

ETFs that invest in high-yield securities are subject to subject to risks associated with investing in high-yield securities; which include a greater risk of loss of income and principal than funds holding higher-rated securities; concentration risk; credit risk; hedging risk; interest rate risk; and short sale risk. Investors should be willing to accept a high degree of volatility and the potential of significant loss. High yield bonds may be subject to greater risk of loss of income and principal and are likely to be more sensitive to adverse economic changes than higher rated securities.

The principal risks of investing in VanEck ETFs include sector, market, economic, political, foreign currency, world event, index tracking, social media analytics, blockchain and non-diversification risks, as well as fluctuations in net asset value and the risks associated with investing in less developed capital markets. The Funds may loan their securities, which may subject them to additional credit and counterparty risk. ETFs that invest in high-yield securities are subject to risks associated with investing in high-yield securities; which include a greater risk of loss of income and principal than funds holding higher-rated securities; concentration risk; credit risk; hedging risk; interest rate risk; and short sale risk. ETFs that invest in companies with small capitalizations are subject to elevated risks, which include, among others, greater volatility, lower trading volume and less liquidity than larger companies. Investing involves risk, including possible loss of principal. Please see the prospectus of each Fund for more complete information regarding each Fund’s specific risks.

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