Typical income strategies based on bonds became harder to justify as interest rates ground lower in the 2010s in the wake of the global financial crisis and income-seeking investors are effectively forced up the risk curve, toward corporate bonds, high-yield bonds, cash-generating real asset investments, and the share market.
What is more, according to experts, Angela Ashton, founder and director of managed account provider Evergreen Consultants, and Jamie Nemtsas, director at independent financial advisory firm Wattle Partners, the income aspect of share dividends – turbo-charged by Australia’s dividend imputation system – became a major attraction, with effective yields in the 6%–8% range readily available.
They said investors would need to accept that the dividends should not be considered certain until they are paid; two, dividends were paid at the company’s discretion, and could be cut at any time – even abandoned; and that they bore the capital risk of the share market.
“As interest rates have come down over the past decade, we've had to change the way that we look at income; it's become quite driven by growth assets,” Ashton said.
“Having the central part of a portfolio with respect to income production in growth assets like property or shares introduces a lot more risk, unfortunately for clients, but that's the way you need to generate income today.”
On the other hand, Nemtsas stressed that high income was...