Each month we ask an advisor about the mutual funds he or she would consider for a simplified client scenario. Here's this month's scenario:
Clients (married couple) are in their mid- 70 s, in good health with $250,000 available to invest. The need maximum income – at least $1,000 per month – to cover their living expenses and are not concerned with leaving a legacy to heirs. Both spouses are conservative investors and uncomfortable with "stock market" volatility. However, they understand the impact of inflation and are willing to accept gradual depletion of principal to meet their income needs.
What research tools do you use to identify prospective funds for clients?
We start with a relationship with our custodians — Raymond James, Charles Schwab, Fidelity — using their research and available tools as a beginning point. From there we go to Thompson Reuters to do some additional research. Some people within the office use Morningstar, but my personal preference is Thompson Reuters. For a third view of the situation, we go to Fiduciary Analytics fi360's w ebsite, where we are registered as advisors.
What specific fund categories would you recommend for this scenario, and why?
We looked primarily at income-producing assets, but not necessarily fixed-income bond portfolios by themselves. We felt that in the current interest rate environment, with interest rates apparently going to rise in the near future, being 100% in fixed income would probably be a detriment rather than a positive . S o we looked at utilities as one sector that would give them a fairly steady income with less volatility.
We've looked at equity-income as well, to give an increase in growth. And then we looked at preferred and convertibles as two other areas that we felt would give some downside protection, as well as some upside.
