Annual Yieldfest 2026:

Every Spring, I sit down to update you on the best income oriented investment options for your portfolio.

For the 5th year in a row, Andrew Tanzer at Kiplinger's Personal Finance reached out to include my thoughts in their annual Yieldfest article.

It's always nice to be included alongside some of the top investment minds in the industry and specifically on the topic that is so relevant to our firm.

Income or dividend oriented investing is a specific interest of mine as it ties directly into our Fortress Financial Plan approach.

For those of you who are less familiar, the goal of the Fortress Financial Plan is to cover your cash needs mostly or in some cases entirely from the dividends and interest your portfolio generates.

In practice, I find this approach to be particularly valuable in the early stages of retirement.

Unexpectedly poor market performance in the first 3-5 years of your golden years can significantly impact the rest of your retirement.

This is what we call "sequence of returns" risk and it's one of the most underappreciated threats to a retirement plan.

In this newsletter, I wanted to discuss the yields and different investment options so that you know what's available.

As always, I will do my best to describe it in plain English without any unnecessary jargon.

If you are interested in the full article, I will leave a link to the article at the bottom of the newsletter.

Please note that nothing in this newsletter should be considered investment advice. This content is for information and education purposes only. Always conduct your own due diligence or consult with a financial advisor before implementing any strategies discussed here.

3% to 4% SHORT TERM ACCOUNTS

Some examples of such accounts include high yield savings accounts, money market funds and certificates of deposit (CDs) that mature in less than one year.

Yields on short term accounts typically follow movements in short term interest rates.

After the Federal Reserve Bank (Fed) reduced rates by 0.75% in 2025, yields on these accounts dropped by a similar amount compared to a year ago.

For those of you who locked in higher CD rates over the past couple of years, that transition is something worth looking into as those CDs mature.

So it really became less desirable to maintain any significant sums in such accounts.

I usually recommend that our clients maintain 3-6 months of their cash needs in high yield savings accounts.

Please keep in mind that you also pay federal and state income taxes on the interest from short-term accounts.

So your net after tax yield is likely between 2% and 3% or even lower once you account for taxes.

And if you factor in inflation, the real return on excess cash can be very low or even negative. This is why we think carefully about how much cash our clients keep in short-term reserves and where we put the rest to work.

At Capital Squared, we frequently prefer individual treasury bonds for short and intermediate term cash flow management as they help us build bond ladders for our clients.

One of the advantages of treasury bonds is the fact that you don't pay state income taxes.

This is a very valuable feature in places like Maryland, DC or California.

4% to 8% MUNICIPAL BONDS (Est. tax-equivalent yield)

Municipal bonds offer interest that is free from federal taxes and, in many cases, state and local taxes as well.

Because these often move out of sync with stocks, they provide excellent portfolio diversification.

Right now, longer term muni bonds are paying noticeably more than shorter term ones. That makes intermediate and long term munis look attractive compared to similar treasury bonds at the moment.

Keep in mind that bonds from some states have more volatility during market disruptions, so they are best suited for investors planning to hold them to maturity.

On our end, we usually use them for clients in higher tax brackets. The benefits don't always outweigh the cons for middle and specifically clients in lower tax brackets.

4% to 5% INVESTMENT GRADE BONDS

For most of our retirement-ready portfolios, the core fixed income allocation consists of investment grade bonds rated BBB or better.

These bonds tend to generate steady income without big price swings.

That said, the uncertainty around the Iran conflict caused interest rates to jump in March. When rates go up, bond prices go down, so this is something to be aware of.

Keep in mind that yields and investment returns can vary widely in this category depending on what you choose.

Corporate bonds are also taxable, so you have to be careful of where you include them in your investment mix.

5% to 7% HIGH YIELD TAXABLE BONDS

The quality of the high yield market has improved dramatically over the years.

BB-rated bonds, just slightly below investment grade, now account for 59% of the High Yield universe.

Defaults have remained relatively low in recent years and many companies have used the low rate environment to refinance their debt.

That said, conditions can change quickly in this category.

The yields of high yield bonds are very enticing, but it is very important to proceed with caution.

In my experience, most retirees are better off working with a financial planner before adding high yield bonds to their portfolio.

The amount of research needed, potential tax implications and how these bonds perform during market downturns make this a category where getting it right really matters.

3% to 7% DIVIDEND STOCKS

This is our bread and butter at Capital Squared and really what our Fortress Financial Plan approach is built around.

The idea behind dividend stock investment is simple and powerful.

Healthy companies can boost dividend distributions each year, which is a great way to maintain purchasing power during inflationary periods.

We look for companies with a long track record of not just paying dividends, but consistently growing them year after year.

However, you still need to be selective and cautious when you work with these types of investments.

Specifically, when you look at investments with above average yields, remember to question the reasoning behind higher yields.

Why is this stock paying 3x as much as the average in this category?

I can tell you this will help you stay away and limit your investments in so called "yield traps."

Just so you know, a “yield trap” is a stock that pays an unusually high dividend not because the company is healthy, but because it is in trouble. The dividend often gets cut and the stock price drops along with it.

3% to 5% REAL ESTATE INVESTMENT TRUSTS (REITs)

REITs are required to distribute at least 90 percent of their taxable income.

This feature results in relatively high yields and some protection against inflation as rents tend to increase over time.

For retirees specifically, the income component is what makes REITs worth a closer look.

Unlike a stock that may or may not pay a dividend, REITs are structurally designed to pay out income regularly.

That can be a meaningful addition to a portfolio that is focused on covering living expenses without selling investments.

That said, not all REITs are created equal.

Some focus on apartments and senior housing, which tend to have stable and growing demand. Others focus on office buildings or retail space, which carry more uncertainty in today's environment.

In my experience, being selective about the type of REIT matters a lot.

5% to 11% CLOSED END FUNDS (CEFs)

Closed end funds often pay monthly dividends and have relatively high yields.

Many of them borrow money to invest more which can boost returns when things go well but also amplify losses when they don't.

However, this is clearly not a space for casual investing and should only be held in moderation in a portfolio, if at all.

So I'm just mentioning this category so you can get the full picture of what is available without going into much detail.

10% to 13% BUSINESS DEVELOPMENT COMPANIES (BDCs)

Business Development Companies (BDCs) lend to small and midsize private businesses and are required to distribute at least 90 percent of their taxable income.

These are volatile types of securities but we tend to see value as part of a diversified income-oriented portfolio.

You just really need to use them in moderation.

Yes, BDCs have very impressive yields, but remember that you are being rewarded for the level of risk you are taking.

They are not for everyone and should really be considered higher-risk investments.

If you would like to read the full article, you can do so here: Kiplinger 2026 Annual Yieldfest Article.

If anything in this newsletter got you thinking about your own situation, I would love to hear from you.

If you are already a client or just getting familiar with our work, the Fortress Financial Plan approach is something I'm happy to discuss with you.