Warren Buffett may be known for his stock picking but, when speaking for others, he seems to favor holding a portion of a portfolio in short-term government bonds. In Berkshire Hathaway’s 2013 annual letter, Buffett said that he instructed the trustee of his wife’s inheritance to put 90% of her money into a stock index fund and 10% into short-term government bonds.
Aside from Buffett’s preference for equities, investors may also want to consider blue-chip, high dividend paying stocks as an alternative way to generate income from a portfolio. These companies typically include utilities, pipeline operators, financial institutions, REITs or others that have a strong balance sheet and robust free cash flow generation.
International bonds may be another area to consider. In particular, investors may want to look at countries that don’t have the same inflationary concerns as the United States and Europe, where low interest rates persist. A diversified basket of emerging market bonds, for example, may be a way to increase yield and diversify risk.