CIS Model Portfolio for Income
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Investments to Avoid:
We know certain asset classes do particularly poorly during rising inflation and interest rates. So, when putting together our Model Portfolio for Income, we eliminated certain asset classes due to their poor performance during rising interest rate environments. All of these investments may have attractive current yields, but the potential losses of principal are too great. A 6% current yield doesn’t make up for a 20% principal loss.

Excluded:
Preferred Stocks - No maturity, so they can decline as long as rates are rising.

Long term bonds - Even thought hey have a maturity value, the price on the secondary market can fluctuate widely and why hold a long term low yielding investment while rates are rising?

Junk Bonds - Low rated bonds bring an additional risk - default. As rates rise, the issuer can have trouble and actual default on the bond. This means the bondholder may get nothing. Zero.

Intermediate term bonds - Like long term bonds, they can fluctuate widely as rates rise. Again, why hold onto a ten year bond as rates are rising on new bonds?

Financial Stocks - Possibly the riskiest investments during a rising rate environment. They can be highly leveraged and get squeezed as rates rise. This could force dividend cuts or elimination.

Mortgage debt - Long term by nature, mortgage debt can also fluctuate widely as rates rise.

REITs - Many REITS are just mortgages on commercial real estate. Our research indicates that the commercial real estate area still has more trouble to go and defaults are likely.

QUINT-ESSENTIAL STRATEGY

PORTFOLIO ALLOCATION CHOICE'S

PORTFOLIO CONSTRUCTION

MODEL FOR INCOME

ECONOMIC CYCLES

INVESTMENT PRINCIPLES

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