Income-generating assets may help mitigate risks and enhance portfolio resilience across economic cycles. Diversify with funds that hold quality assets and aim to deliver stable income.

Adapted from abrdn Investments, Fighting inflation: Invest in income and stay invested, dated as of 20 Mar 2024

Since 1995, the cumulative inflation rate in US dollars has approached 100%. This means that if you started with US$1 back then, you would need at least US$2 today to maintain your purchasing power¹. Inflation can halve your purchasing power over a generation, making it crucial to find effective strategies for managing it.

One effective way to combat inflation is to invest in assets that provide a steady stream of income. Stocks, bonds, and multi-asset investments can offer great opportunities for income generation. These investments have the potential to deliver regular payouts that keep pace with or even exceed inflation rates, helping to preserve your purchasing power. However, it's important to note that the level of income is not guaranteed.

Staying invested is equally important. For instance, if an investor had put US$10,000 into the S&P 500 Index 20 years ago, it would have grown to about US$65,000 today. However, if they had missed just the best 10 trading days during that period, their returns would have plummeted to around US$30,000. By remaining invested in income-generating assets, investors may benefit from both market upswings and the income produced throughout their investment journey.

Mitigating risks: Spread exposure across asset classes

Diversifying income investments across different sectors and asset classes can further reduce risk. A diversified cash flow acts as a buffer during market fluctuations and reduce vulnerability to sector-specific downturns. With fixed-income assets currently attractively priced, they are expected to deliver positive returns when equities decline.

In 2024, high-income equity may be an appealing option², especially following the US Federal Reserve’s rate cut in September³. The fixed-income market has already shown signs of recovery, benefiting from this recent monetary easing. Treasury bills are yielding over 5%, and a portfolio focused on safe, investment-grade issuers now earns yields above inflation. By selectively adding high-yield and emerging market debt, investors can take advantage of the current market environment. The PRULink Global Diversified Income Fund aims to provide this kind of broad exposure and help investors build resilient portfolios.

Enhancing yield: Boost returns with suitable strategies

Currently, income-oriented equity, fixed-income, and multi-asset strategies are identifying yield opportunities ranging from 5% to 10%. Total returns across each asset class can be enhanced using various strategies tailored to each type.

In the equity space, compensation is provided to investors while growth is awaited. Strong trends, such as artificial intelligence and technological advancements, are expected to drive long-term equity appreciation. Additionally, strategies like dividend capture can enhance yield. This involves identifying dividend events in companies with solid fundamentals and trading around these events to boost returns.

For fixed-income investments, total return is influenced by credit spreads and changes to the risk-free rate. In 2024, it is anticipated that monetary easing, including the rate cut in September, will bolster total returns rather than tightening credit spreads⁴. Given the current inverted yield curve, shorter-maturity bonds appear to be a compelling option, especially for risk-aware investors who may hesitate to allocate funds to high-yield bonds in today’s economic climate.

Diversification is crucial for multi-asset portfolios. An optimal strategy involves investing across a wide array of income-generating assets, including both traditional and listed alternative asset classes. Many of these assets provide stable, uncorrelated income, making them less sensitive to market conditions. When carefully blended, these investments can create resilient portfolios that offer consistent income along with opportunities for capital growth.

Final thoughts

In summary, investing in income-generating assets is an attractive option for 2024 and beyond. At Prudential, the PRULink Global Diversified Income Fund provides a solution for income generation. This fund’s diversified portfolio across equities, fixed income, and listed alternatives aims to mitigate risks and enhance returns. By staying invested in this fund, investors have the opportunity to benefit from consistent income and long-term growth, making it a valuable addition to any investment strategy.

To find out more, speak with a Prudential Financial Representative today.

¹ S&P 500 Index Total Returns from 1 Jan 2003 to 30 Dec 2022. J.P. Morgan.
² September 2024 Fed meeting: Fed cuts rates by half point to support economy. J.P. Morgan.
³ We finally got a rate cut. Here’s what history says will happen next. CNN Business.
⁴ Fixed Income Outlook 4Q 2024. Goldman Sachs Asset Management.

Disclaimer:

abrdn Investments

Investment involves risk. The value of an investment and any income from it is not guaranteed and can go down as well as up. The information provided in this article is for general informational purposes only and does not constitute professional financial advice. Always consult with a qualified financial advisor before making any investment decisions.

Prudential Singapore

A Product Summary, Fund Information Booklet and Product Highlights Sheet relating to the Fund are available and may be obtained from Prudential Singapore/Prudential Financial Representative.

A potential investor should read the Product Summary, Fund Information Booklet and Product Highlights Sheet before deciding whether to subscribe for units in the ILP sub-fund and seek professional advice before making any investment decision. In the event that investor chooses not to seek advice, he/she should consider carefully whether the ILP sub-fund in question is suitable for him/her.

Please note that the distribution of dividends is at the discretion of the underlying fund's Board of Directors, Manager and/or Prudential Singapore, and is not guaranteed. The distribution of dividends may be effectively paid out of capital, which will reduce the net asset value of the fund which is used to calculate the fund’s unit price and the surrender value of the policy.

Whilst the Manager or Investment Manager has taken all reasonable care to ensure that the information contained in this document is not untrue or misleading at the time of publication, the Manager or Investment Manager cannot guarantee its accuracy or completeness. Any opinion or estimate contained in this document is subject to change without notice.

The information presented is for your information only and does not consider specific investment objectives, financial situation or needs of any person. It should not be relied upon as financial advice to buy, sell or hold any investment product or class of investment products.

Investments are subject to investments risks including the possible loss of the principal amount invested. The prediction, projection or forecast on the economy, securities markets or the economic trends of the markets targeted by the ILP sub-fund are not necessarily indicative of the future or likely performance of the Fund. The performance of the ILP sub-fund is not guaranteed and the value of the units and the income accruing to the units, if any may fall or rise.

Information is correct as at 14 November 2024.

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