Minding The Income Gap

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Paul Ohanian
Founder and CEO, Scottsdale Wealth Planning, Inc.


There was a time when you could walk into your local bank and buy a 9 percent Certificate of Deposit (CD) as a common investment option. Today, that income staple is extinct. What was once a fairly cyclical pattern: interest rates go up and interest rates go down–has steadily declined to flat line. And while low borrowing costs may have been a boon to many borrowers, it has become the bane of savers and retirees. How has this declined and what is the solution to “fill the gap.”

The table below illustrated short/intermediate CD and US Treasury yields for the past 30 years:


The degree of income loss has been devastating. In real life terms, a basket of investments that once provided consistent 4 percent to 5 percent yields (or around $4,000 of income a month on a $1 million portfolio,) now requires four times as much principal (over $4 million) to attain the same level of income. Savings rates have been anchored well below 1 percent for more than seven years – the next 10 years could be characterized by pervasively low rates. As long as these conditions persist, investors with income and retirement needs can’t bank on CDs and “plain vanilla” market yields as viable investment options.

For thoughtful investors, there are a variety of strategies and asset classes to engage with to counteract this ongoing assault on savers. These include investments that are broadly across the yield curve, utilize defensive bond structures such as high-coupon callable bonds and gain exposure to a diversified mix of higher income/cash flow asset classes. These include “chicken equity” asset classes such as convertible bonds, high yield bonds, floating rate and bank loan securities, asset backed securities and real assets including real property and REITs (Real Estate Investment Trusts). These “chicken equities” are high cash flow assets that enable investors to retain some exposure to an improving economy without the same degree of stock market volatility, and with less interest rate risk than traditional plain, vanilla bonds.

Yields exceeding 4 percent and approaching 7 percent to 8 percent can now be found in several of these less homogenous-fixed income asset classes. The key is to be both adept at navigating the waters of these asset classes and discerning the true value in each. A depth of experience through several interest rate cycles and the necessary perspective is needed to assemble genuinely diverse portfolios and achieve real risk reduction – consequently, the current times requires a lot more thought and strategy then simply a walk to the bank for a simple investment purchase to see a real return.

Paul Ohanian, is founder and CEO of Scottsdale Wealth Planning, Inc., an Old Town-based registered investment advisor, and Certified Financial Planner® with more than 25 years of experience providing financial services to the Valley. Visit him at www.scottsdalewealthplanning.com. Refer to the next page ad for services Paul provides.


This article was written in combination with Paul Ohanian and Anthony Tanner.


Anthony Tanner is a Chartered Financial Analyst and investment strategist with more than 20 years of experience building and managing bond portfolios.


Information contained in this article is for informational purposes only and should not be considered investment advice. Advice may only be provided after entering into an advisory agreement with Scottsdale Wealth Planning. Information is at a period in time and subject to change. Scottsdale Wealth Planning’s current Disclosure Brochure is set forth on Form ADV Part 2 and is available for your review upon request.