TY - JOUR T1 - Income Investing in a Low Yield Environment JF - The Journal of Wealth Management DO - 10.3905/jwm.2021.1.147 SP - jwm.2021.1.147 AU - David M. Blanchett Y1 - 2021/09/09 UR - https://pm-research.com/content/early/2021/09/09/jwm.2021.1.147.abstract N2 - There is relatively limited guidance on how to build efficient portfolios for “behavioral” investors, such as retirees, who typically have a strong preference for income. This article explores this effect using historical data for 16 countries from 1870 to 2019, primarily leveraging the Jordà-Schularick-Taylor Macrohistory database. We find that optimal equity allocations for income-focused investors increase considerably when dividend yields equal or exceed bond yields, especially when considering taxes, even if equity price returns are reduced significantly. Therefore, given the current yield environment, equities may be an attractive substitute for bonds for income-focused investors.TOPICS: Portfolio construction, in portfolio management, global markets, performance measurementKey Findings▪ Portfolios optimized to generate income can look very different than portfolios optimized based on total returns.▪ Today’s low bond yield environment presents a unique challenge for investors focused on income, which may require considering riskier assets to generate yield.▪ Historical evidence suggests that equities have been an attractive way to generate income when dividend yields equal or exceed bond yields, consistent with today’s yield environment. ER -