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Last month, the yield curve inverted for the first time since 2007. Since an inversion is one of Wall Street's favorite bellwethers for a coming recession, investors are starting to prepare for a downturn.
And income investing is a powerful tool to make sure you stay in the green during a market downturn.
While bear markets are a normal part of the business cycle, they can be particularly dangerous if you're near retirement. Volatile markets can put years of steady gains a risk – and make your nest egg vanish in the blink of an eye.
However, there's one surefire way to protect your portfolio from the ravages of a bear market: income investing.
You see, income investing orients your portfolio toward the kind of investments that consistently generate returns in almost any market condition.
And that allows investors to pull profits out of Wall Street's pockets no matter which direction stocks are heading.
Today, we're going to show you three types of income investing that can help your retirement strategy weather the worst of what's to come.
In fact, our last method can do more than just protect your portfolio – it could net you a killing even in the worst market conditions…
Income Investing Strategy, No. 3: Blue-Chip Stocks
One of the most time-tested methods for sheltering retirement investments from stormy market conditions is investing in blue-chip stocks.
You already know these large, established firms by name. But their enormous size and profitability helps them pay reliable dividends, which is extra income right into your portfolio.
As Money Morning Chief Investment Strategist Keith Fitz-Gerald points out, dividend investing is one of the most reliable sources for wealth building.
"If you want income right now, quarter after quarter or even month after month, dividends can be extremely powerful income generators to secure your 'second salary,'" he says.
Because of their size and resources, these stocks are reliable investments. They simply aren't going out of business anytime soon, and their enormous profitability means they'll keep paying their dividends even if the market sells off.
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As Keith notes, dividend stocks are "fantastic insurance against market corrections, and they're indispensable when the Federal Reserve is punishing savers and income investors by keeping interest rates near zero."
And if you're looking to add some of these income stocks to your portfolio, we've got you covered.
Royal Dutch Shell Plc. (NYSE: RDS.A) pays a 5.83% dividend yield and is an excellent buy right now. Shell has a perfect Money Morning Stock VQScore™ of 4.75, putting it right in the "Buy Zone."
Johnson & Johnson (NYSE: JNJ) is another income stock in our "Buy Zone." It pays a healthy 2.65% dividend yield, nearly double the S&P 500 average. Plus, Johnson & Johnson is a dividend aristocrat, which means it's hiked its dividend for 25 years straight.
That makes it a reliable income stock that will keep padding your portfolio for years to come.
But if you find stocks too risky, these are better plays…
Income Investing Strategy, No. 2: Bonds and Income Funds
For those looking to avoid volatile stock market conditions altogether, bonds and income funds are a perfect investment opportunity.
A bond is an investment instrument that allows an investor to lend money to a company in return for regular interest payments over a fixed period of time.
Historically, bonds have acted as a counterweight in the average investor's portfolio to stocks, which take the lion's share of volatility.
And the bond market tends to do better during times of volatile stocks thanks to the reliability of returns from bonds.
That's because they regularly pay out a fixed amount to investors. As a result, there's no need for Wall Street to continually re-estimate their value as it does day in and day out with stocks.
However, bonds do have one big downside – they don't deliver much bang for your buck.
While bond returns might be reliable, they're typically a low-yield investment that generates small returns overtime. So, while they may be a safe bet, they're relatively low on return.
That's why many investors turn to income funds as a balance between the safety of bonds and the profit of blue-chip stocks.
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Income funds are bundles of stocks, bonds, or both that spread out the risk of investing by bundling several types of securities together and placing them into one investment tool.
By spreading out the risk across several across several companies, investors avoid the fallout from one company failing to deliver returns – while that stock may tank, its fallout is covered by the other strong stocks in the fund.
Two funds we like are the Strategic Global Government Fund Inc. (NYSE: RCS), which pays a handsome 7.8% dividend yield, and Oxford Lane Capital Corp. (NASDAQ: OXLC), which pays a massive 16.46% yield.
While income funds are one of the most popular forms of investing on Wall Street today,
they also have downsides.
Every form of fund charges fees that can eat into returns and even end up delivering a negative return in particularly bad years.
Investors also have no say in what kind of assets are in an income fund – as a result, they force you to give up control of your portfolio and place it in the hands of someone else.
And that can be particularly dangerous if a panic sweeps though Wall Street.
However, you don't have to give up control of your financial future in order to ensure strong returns in rough market conditions.
In fact, you can have both with our top income investing strategy…