Is seeking income possible in this uncertain, low interest rate environment?

Generating income from investments has become increasingly tricky.

On one hand, bank interest rates have fallen to levels where they cannot keep pace with inflation. On the other hand, investing in stocks and properties is now riskier compared to the period before Covid-19, as much of the world is in recession.

This has put investors in a quandary as they seek to find a sweet spot that will allow them to earn some income while potentially benefitting from a recovery in the financial markets.

One solution for investors facing this dilemma is to consider investing in mutual funds that make regular payments to unit holders. Widely known as income funds, these funds invest in bonds, other interest-bearing securities, real estate investment trusts (REITs) and stocks that pay relatively high dividends.

These different asset classes can potentially provide yields that are higher than what U.S. treasuries offer, as seen from the table below.

Source: Bloomberg and Manulife Investment Management, as of July 31, 20201.

Income funds tend to be safer and less volatile than growth funds, thanks to the buffer provided by the dividends and interest payments they receive from the…

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