"We have looked more at the income-producing side of equities and recognize equities as good income-producing properties," says Albright. "Unlike bonds, they can increase dividends. They grow up with time. There is a lot of benefit right now to think about the income coming about of equity and not just from fixed-income securities. It's a transition people have had to make the last couple of years."
Equities and bonds both have "principal risk," he adds. "Laddering" with a series of short-term bonds is one way to avoid the problem, since low-duration debt reaches maturity in a short time, Albright says. Those one- to five-year securities pay little in yield but at least investors recover some or all of their invested capital when the security matures, unless they overpaid for the bonds in the secondary market.
As a result, dividend-paying stocks are taking up a larger share of the notional "income" in some allocations models. That's understandable, at a time when the average stock dividend on the Standard & Poor's 500 index is higher than the 10-year Treasury bond. But it's not an even trade; stocks are still almost always a riskier proposition than bonds.
Some risk-averse investors who are worried about stocks and bonds are leaving the securities world entirely to buy insurance-based products such as income annuities and stable value funds, which are insurance "wrappers" that hold their value but offer very low yield and almost no upside for insuring principle.
"People are getting more comfortable with income annuities as part of their overall retirement plan," says Phil Michalowski, vice president of annuity product marketing for MassMutual. "People like the security and certainty."
When the crash came in 2008, those products did, indeed, hold value. But without a government bailout of some of the major insurance companies, those insurance products, too, might have failed to pay. It's important to consider the financial ratings of the insurers in buying these stable-value or income products. The downside of annuities is that they are not tradeable securities that can be easily sold in the market. The sector is also hampered by concerns over high fees and regulatory actions related to aggressive sales tactics. But increasingly, advisers are recommending them as an investment strategy that might take up more of the income portion in a balanced portfolio, says Michalowski.
Rebalancing focuses on the long term. Despite the shifting views on how to rebalance in a low-rate environment, most financial advisers see merit in the practice. Wealth managers who advise high-income investors take pains to make sure they rebalance to suit clients' needs. A growing number of Web-based allocation experts are offering the service to middle-income investors. Rebalance IRA offers its service with a free initial individual consultation with an adviser who helps determine goals, and then follows this up with allocations based on the views of high-level financial strategists like Ellis, who guided Yale's massive endowment with a rebalancing strategy based on diversified investments that provided far above-average returns there. But Ellis says personal advice and individual goal-setting are key components of successful rebalancing strategy.
"There is no such thing as an average investor, but regardless of who you are and what place you are on in the investing spectrum, rebalancing will help," says Wilmington's Albright. "A disciplined approach, and sticking to asset allocations that you review on a periodic basis, will stand you in good stead no matter how conservative or aggressive you are."