4 Safe Fixed-Income Funds for Retirees in 2011

Includes: HYG, JNK, PFN, PHK
by: Investment Underground

By Roger Choudhury, Lead Editor of Investment Underground

Does it seem like you are one of the quiet bears out there? You are not alone. Too many signals indicate that your peers ought to humble their investment approach over the next several years.

Consumer expenditures account for more than two-thirds of the American economy. Data points out that consumers are far from ready and willing to spend at pre-recession levels. According to the Thomson Reuters/University of Michigan index of consumer sentiment, current levels are far below the pre-recession figures in the five years leading up to the beginning of the latest recession in December 2007. In addition, the personal savings rate is above 5 percent for the past nine quarters, which is a far cry from the spendthrift ways of the early and mid-2000s. More than half of the mortgages in the country are underwater. Forget about selling your home soon at a reasonable price: there are already 8.1 months of supply of existing homes on the market. This is significantly above the 5 to 6 months supply in a healthy housing market. Not to mention, consumer goods is one of the worst performing sectors this year.

To play it on the safe, but lucrative side, fixed-income is the way to go. Such portfolios have consistently outperformed the market. Consistent interest and dividend payments level out the volatilities of the markets. If you are retired or close to retirement, a steady stream of income supplements your retirement funds.

To avoid the risk of individual bonds, turn to PIMCO, which manages over $1.2 trillion in assets. PIMCO offers several bond funds products. A favorite is the PIMCO Income Strategy Fund II (NYSE:PFN). The Fund invests at least 80 percent of its net assets in a diversified portfolio of floating rate debt instruments, securities with durations of less than or equal to one year, and fixed rate securities. This combats the impending rise of interest rates. Interest is paid out monthly, and the current yield is 7.4 percent. The 52 week range is $8.24 to $10.80, but it has been trading sideways since July, and offers stability.

A more aggressive stance would be to buy shares of the PIMCO High Income Fund (NYSE:PHK). It pays out a current yield of 10.9 percent, has traded between $12 and $13 since July, and up almost 17.5 percent over the past 12 months with an average volume in excess of 400K. This is a hint that investors are cautiously optimistic, but expect a slow and drawn out economic recovery.

Two other higher risk junk bond funds we like are the SPDR Barclays High Yield Bond (NYSEARCA:JNK) and iShares iBoxx High Yield Corporate Bond (NYSEARCA:HYG). Both of these funds offer an attractive ways to diversify into these types of fixed income securities.

And if you are seeking other passive streams outside the world of fixed income, we think these 13 emerging market dividend payers could be a good bet, as are these 10 high-yielding dividend "kings".

As always, we think the funds above are a good place to start your research. Please do you own due diligence before opening a position in any of the funds above.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.