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Jacob Sonenshine: 00:00 The Fed just had its meeting and we'll hold insurance steady probably for 2019. We have Brian Levitt , Senior Investment Strategist at OppenheimerFunds, he is going to tell retirement investors how to proceed. Brian, if we have at some point in the near future, stimulus, how will retirement investors reinvest their interest income into good yields going forward?

Brian Levitt: 00:23 We'll even if we don't get stimulus, remember the Fed is now going to be on hold for the next couple of years and I view that as a positive sign for risk assets. Investors for the rest of their lives are unlikely to be reinvesting money into higher yielding, short term rates or long rides. You're going to have to source income from other places. That's going to be places like the high yield bond market, the senior loan market, international, non US dollar investments. Investors are going to have to be creative and find other ways to generate income within the risk parameters that they've set for themselves.

Jacob Sonenshine: 00:56 So does that to you a lead a little bit into investors looking at total return funds? What are the best options there? Do you think about dividend stocks that have good yields?

Brian Levitt: 01:05 Think about dividends stocks as you will be changing the risk profile of your portfolio pretty considerably. So you want to be mindful that the income generating portion of your portfolio does not take on too much credit risk. But you know, this idea of total return, I mean, look, the US treasury market, we're unlikely to see significant total returns like we saw for the last 30, 40 years and a declining rate environment, high yield spreads are pretty tight. Senior loan spreads are pretty tight. You can go out into an emerging market space where there's good opportunities to generate income and total return. But we're sort of in this environment now, we're investors are likely to generate income off of these asset classes, but a lot of the total return opportunities, perhaps short of emerging markets are probably behind us.

Jacob Sonenshine: 01:50 So as you pivot out of a risk free or quote unquote risk free assets, how do you make sure that you preserve your capital while you take in those nice yields.

Brian Levitt: 02:01 Well look, I mean obviously all of us would love to generate 2- 3% real yields on our portfolios and ride off into the sunset. That's not going to happen now. So you're going to have to pull from different levers, different risks. I mean the reality is if you have a government bond fund and you add high yield bonds or senior loans to that, it actually reduces the overall risk of that portfolio because now you have interest rate risk and credit risk in that portfolio. If you add non-dollar, you're now taking on currency rates. So you can create a mix that can get you 4- 5% yield with different levels of risk in that portfolio. I mean you're obviously gonna, in the aggregate, you may be increasing the overall risk of the portfolio depending on how much high yield or how much equity is you put in that portfolio. You can get there, but it's going to be more difficult than it was as we did in the 1980s simply by high yielding government bonds and let them decline for the next 30 years.

Jacob Sonenshine: 03:01 All right. Brian Levitt. Thanks a lot.

The Federal Reserve is not only keeping interest rates steady for the time being, but the Fed's projected interest rate movement schedule now shows lower rates than previously expected. 

The Fed is keeping its benchmark lending rate at a range between 2.25% and 2.5%, and the average Fed board member now sees rates remaining further from 3.5%. 

What does this mean for retirement investors?

Finding new income assets in which to reinvest interest income with a low risk of losing capital will now be harder. "Investors, for the rest of their lives, are unlikely to be reinvesting money into higher yielding short term rates or long rates," said Brian Levitt, senior investment strategist at Oppenheimer Funds. "You're going to have to source income from other places." 

Levitt suggests looking at high yield bonds, which can often be correlated wit the stock market, the senior loan market, which is less risky, international non-U.S. dollar investments, among others. "Investors are going to have to be creative to find other ways to generate income within the risk parameters that they've set for themselves," Levitt said. 

Related. There's a Historic Shift Going on at the Fed

Clearly, the Fed is not projecting high inflation, but risk-free treasuries still have pretty low yields, so finding higher yield elsewhere may be worth a look.

The really good news? "The Fed is now going to be on hold for the next couple of years, and I view that as a positive sign for risk assets, Levitt said. When spreads between yields of risk free assets and riskier assets increase, investors become more willing to take the risk of holding the higher yielding asset. Plus, lower rates put less pressure on borrowers' ability to repay debt. 

Related. 2019 Is the Year of the Debt Diet 

How Much Money Will I Need to Retire?

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