Outlook for Income Investors, 2013

Expect most bonds and bond funds to keep their value while you collect the income they generate.

Sorry, but the passing of Election Day doesn’t make it easier to decode the bond market. The list of risks to your fixed-income investments does not include the outcome of political campaigns, at least not in the short run. It does include inflation, changes in tax law, banking crises, moves by the Federal Reserve, default trends, ratings downgrades -- well, you get the idea.

So let's put the voting behind us and ponder how bonds are likely to behave over the next year. Assuming a resolution of the looming "fiscal cliff" (massive federal spending cuts and tax increases that are slated to take effect in January), the outlook for corporate and municipal credit quality is stable. However, with little room for interest rates to fall further, don't expect a repeat of the 7% to 12% returns that many bond categories produced in 2012 (bond prices move in the opposite direction of interest rates).

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

To continue reading this article
please register for free

This is different from signing in to your print subscription

Why am I seeing this? Find out more here

Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.