Investors require higher incomes and higher returns to close the gaps between their assets and liabilities, as well as meet their financial goals, says Ryan Kuruliak of Proteus Performance Management.
And due to low interest rates, they’re focusing on alternative investments to fill this need. These are often riskier, requiring more research and more caution.
Inflows into so-called safe income investments attracted 91% of the Canadian retail investors’ long-term inflows into mutual funds during the first half of 2012, for example. He says a similar trend toward seeking higher yield is also apparent in institutional markets.
In light of these trends, you need to help your clients focus on how to safely choose and research potential high-yield and income products. They need to first fit with their goals and risk profile.
Kuruliak says, “Income generation can be a good thing, but it should be a focus, and not necessarily the focus of investors. Just because they require a certain level of returns to fund their objectives doesn’t imply they should invest in riskier investments to achieve those objectives.”
Read more on the risks of reaching for yield, and on how to help investors remain cautious.