High-yield, fixed-income investments
Independent financial planner Fredrickson warns against "reaching for too much yield" in your fixed-income portfolio at a time of historically low interest rates.
"Your bonds are meant to be a diversifier. They're one of the few investments that have a negative correlation to stocks. You need to be willing to accept modest returns," he says.
If you choose to invest in high-yield bonds, you're selecting an asset that behaves more like a stock. That's because the same factors that move stocks -- economic strength and earnings growth -- move high-yield bonds.
Fredrickson also isn't keen on leveraged-loan mutual funds, which consist of loans made to troubled companies. The interest rates on the loans float and will thus provide protection to you when rates rise. "But while you're mitigating your interest rate risk, you're loading up on credit risk," he says.
If you're looking to earn high income, Fredrickson recommends looking outside the fixed-income space at dividend stocks and real estate investment trusts, or REITs.