A “Preferred’’ Yield for Trusts? Balancing the Beneficiaries’ Needs

Stuck choosing between riskier stocks or safer bonds which provide little income in today’s market environment? Have you considered an allocation to Preferred securities for your trust portfolio?

Trustees are like financial physicians in a way. They follow the rule of first do no harm. No harm to the principal, that is. The issue:How does one maintain and grow assets for the remainder beneficiary while at the same time provide a sufficient income stream to the income beneficiary?

Traditionally, a 3% to 5% distribution of income to the current beneficiary while preserving the trust for the remainder beneficiary was not particularly hard to do with a 70/30 stock-bond mix. In today’s low interest rate market, neither investment grade bonds nor common stocks are offering an average 3% to 5% yield which many income beneficiaries were used to receiving.As of the third quarter of 2016, the average yield for single A rated 10 year corporate bonds is 2.75% and the S&P 500 is about 2.15% (Source: Bloomberg). This leaves trustees searching for a way to find more income.

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