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Market volatility trap? Why this income-first strategy may 'leave a lot on the table'
| USA | general | ✓ Verified - cnbc.com

Market volatility trap? Why this income-first strategy may 'leave a lot on the table'

#income-first strategy #yield-chasing #total return #market volatility #portfolio risk #ETF investing #dividend stocks #bond allocation

📌 Key Takeaways

  • Investment professionals warn against income-first strategies during market volatility
  • Yield-chasing can lead to unintended portfolio risks and missed opportunities
  • Total-return approach recommended over income-focused investing
  • Economic resilience suggests defensive positioning may be unnecessary

📖 Full Retelling

Kathmere Capital Management's Chief Investment Officer Nick Ryder and Amplify ETFs CEO Christian Magoon warned retail investors on CNBC's 'ETF Edge' this week against adopting income-first investment strategies during periods of market volatility, cautioning that such approaches often leave significant potential returns unachieved. Ryder, whose firm manages $3.5 billion in assets, specifically advised against what he termed 'yield-chasing' behaviors that can push portfolios into unintended risk positions, including moving from investment grade to high-yield bonds or extending interest rate risk durations. According to Ryder, an income-focused investment approach is fundamentally flawed as a long-term strategy, as it can cause investors to miss out on total returns that include both income and capital appreciation. 'Oftentimes, we just see too often people taking an income-focused approach, and it leaves a lot on the table,' Ryder explained, advocating instead for a total-return-oriented approach across all asset classes within a portfolio. He emphasized that investors should begin by establishing their goals and risk tolerance, then incorporate income considerations, rather than making income the foundation of their investment strategy.

🏷️ Themes

Investment Strategy, Market Volatility, Portfolio Management

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Deep Analysis

Why It Matters

Retail investors are often lured into income-first strategies that can miss out on total return opportunities, potentially reducing long term gains. Experts argue that focusing on yield can expose portfolios to higher risk and unintended bets.

Context & Background

  • Market volatility is prompting investors to chase dividend and bond yields
  • Kathmere Capital warns against yield chasing and advocates a total return approach
  • Amplify ETFs stresses balancing yield with long term capital appreciation

What Happens Next

Financial advisors are likely to emphasize goal based planning and risk tolerance before adding income components. Investors may shift toward diversified portfolios that prioritize total return over short term yield.

Frequently Asked Questions

What is yield chasing?

It is the practice of moving into higher yield assets such as high yield bonds or dividend stocks without fully considering the accompanying risk.

Why might an income first strategy leave money on the table?

Because it can cause investors to miss out on growth opportunities that contribute to overall portfolio return.

How can investors avoid a yield trap?

By starting with clear goals and risk tolerance, then adding income as a secondary component while maintaining a focus on total return.

Original Source
The market volatility may be leading retail investors astray. According to Kathmere Capital Management's Nick Ryder, they shouldn't use the current backdrop as an excuse to dive into defensive trades — including dividend-paying stocks and bonds. "Oftentimes, we just see too often people taking an income-focused approach, and it leaves a lot on the table," the firm's chief investment officer told CNBC's "ETF Edge" this week. "We generally just advise for all of our clients to take a total return-oriented approach … that's going to apply across stocks, bonds and everything in between within a portfolio." Ryder, whose firm has $3.5 billion in assets under management, warns against so-called "yield-chasing." "Within fixed income, it could be yield-chasing in terms of moving further out interest rate risk, taking greater amounts of duration and portfolio, moving from investment grade to high-yield bonds —which have dramatically different risk and return expectations," he added. Ryder contends income shouldn't be the foundation of long-term portfolios. He indicates investors are better served starting with goals and risk tolerance, then adding income, because pullbacks are part of long-term investing. An income-first approach, he cautions, can quietly push portfolios into unintended bets. He's also optimistic about the macro backdrop . "Overall, the economy has been pretty darn resilient," added Ryder. "You've seen corporate profitability be very resilient." That total-return approach is also why Amplify ETFs' Christian Magoon is urging investors not to let the distribution number drive the decisions. "We think being smart about yield means balancing attractive yield with upside or long-term capital appreciation … not just going for a maximum possible yield," the firm's CEO said in the same interview. "We think that's a yield trap." Disclaimer More In ETF Edge watch now watch now VIDEO 03:52 Yield chasing ETFs may have jumped the shark, warns Amplify ETFs CEO Dominic Chu ...
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Source

cnbc.com

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